A forward rate agreement can be viewed as a forward contract to borrow or lend money at a certain rate at some future date. Because no actual loan is made at the settlement date, the forward interest rate does not need to reflect the creditworthiness of the parties to the contract (however, the parties may still face default risk).

If the floating rate at contract expiration is above the rate specified in the forward agreement, the long position in the contract can be viewed as the right to borrow at below market rates and the long will receive a payment. If the reference rate at the expiration date is below the contract rate, the short can be viewed as the right to lend at rates higher than market rates.