A forward rate agreement (FRA) is a type of financial contract where two parties agree to exchange a fixed interest rate at a future date. The delta of a FRA is an important concept that helps traders and investors understand the risk associated with the agreement.

In finance, the term delta refers to the sensitivity of an option price to changes in the underlying asset`s price. In the case of a FRA, the underlying asset is the interest rate. The delta of a FRA measures the change in the FRA`s value for a given change in the underlying interest rate.

The delta of a FRA is expressed as a percentage. For example, a delta of 0.5% means that for every 1% change in the underlying interest rate, the FRA`s value will change by 0.5%. This means that the FRA is sensitive to changes in the interest rate and can be used to hedge against interest rate risk.

The delta of a FRA can be positive or negative. A positive delta means that the FRA`s value will increase with an increase in the underlying interest rate. This is because the party receiving the fixed interest rate will have a higher rate than the prevailing market rate. On the other hand, a negative delta means that the FRA`s value will decrease with an increase in the underlying interest rate. This is because the party receiving the fixed interest rate will have a lower rate than the prevailing market rate.

Traders and investors use the delta of a FRA to manage interest rate risk. For example, if a party expects interest rates to increase, they can enter into a FRA with a positive delta to hedge against the risk of rising interest rates. This will protect them from losses due to a decrease in the value of the underlying asset.

In conclusion, the delta of a FRA is an important concept that helps traders and investors understand the risk associated with the agreement. It measures the sensitivity of the FRA`s value to changes in the underlying interest rate and can be used to manage interest rate risk. A positive delta means that the FRA`s value will increase with an increase in the underlying interest rate, while a negative delta means that the FRA`s value will decrease with an increase in the underlying interest rate.