MT 340 Explained: Forward Rate Agreement Confirmation

MT 340 confirms a Forward Rate Agreement (FRA) — a deal where two counterparties agree today to fix an interest rate for a future period on a notional amount, and settle only the difference between that fixed rate and a reference rate at the start of the period. No principal ever changes hands; it's purely an interest-rate hedge.

Key fields

• 20 — Sender's Reference: The sending bank's own deal reference.
• 30 — Trade Date: When the FRA was agreed.
• 30P — Settlement Date: When the rate difference is actually settled (the start of the notional period).
• 31E — Maturity Date: The end of the notional period the FRA covers.
• 32B — Notional Amount: The amount the interest-rate difference is calculated on — never exchanged itself.
• 37G — Fixed Rate Agreed: The rate the two parties locked in.
• 38J — Reference Rate: The benchmark rate the fixed rate is compared against at settlement to determine who pays whom.

Because only a net interest-rate difference settles — not the notional itself — an FRA confirmation carries far less settlement risk than a loan/deposit confirmation for the same notional amount.