A Forward Rate Agreement (FRA) is a financial contract between two parties to exchange interest payments on a specified notional amount for a future period. The agreement locks in an interest rate today for a loan or deposit that will occur at a future date, helping both parties manage interest rate risk. FRAs are commonly used by businesses and financial institutions to hedge against fluctuations in interest rates. By agreeing on a fixed rate, they can stabilize their future cash flows and make more informed financial decisions. This tool is particularly useful in volatile economic environments.