of funds becomes effective, that is, is said to begin. This date is used, in conjunction with the notional sum, for calculation purposes only as no actual loan or deposit takes place. ■ Fixing date: This is the date on which the reference rate is determined, that is, the rate to which the FRA rate is compared. ■ Maturity date: The date on which the notional loan or deposit expires. ■ Contract period: The time between the settlement date and maturity date. ■ FRA rate: The interest rate at which the FRA is traded. ■ Reference rate: This is the rate used as part of the calculation of the set- tlement amount, usually the Libor rate on the fixing date for the con- tract period in question. ■ Settlement sum: The amount calculated as the difference between the FRA rate and the reference rate as a percentage of the notional sum, paid by one party to the other on the settlement date.   These key dates are illustrated in Exhibit 11.9. The spot date is usually two business days after the trade date, how- ever it can by agreement be sooner or later than this. The settlement date will be the time period after the spot date referred to by the FRA terms: for example a 1´4 FRA will have a settlement date one calendar month after the spot date. The fixing date is usually two business days before the settlement date. The settlement sum is paid on the settlement date, and as it refers to an amount over a period of time that is paid up front (i.e., at the start of the contract period), the calculated sum is a dis- counted present value. This is because a normal payment of interest on a loan/deposit is paid at the end of the time period to which it relates; because an FRA makes this payment at the start of the relevant period, the settlement amount is a discounted present value sum. With most FRA trades, the reference rate is the LIBOR setting on the fixing date. The settlement sum is calculated after the fixing date, for payment on the settlement date. We can illustrate this with a hypothetical exam- ple. Consider a case where a corporation has bought £1 million notional of a 1´4 FRA, and transacted at 5.75%, and that the market rate is 6.50% on the fixing date. The contract period is 90 days. In the cash market the extra interest charge that the corporate would pay is a sim- ple interest calculation, and is:   extra interest charge = ----.--5---0----------5----.-7----5- ´£1,000,000 ´(91365 ) = £1,869.86 100     Note that in the U.S. money market, a 360 day year is assumed rather than the 365 day year used in the UK money market.