In the Forward Rate Agreement (FRA), the parties pay the difference between LIBOR and F% two months from now. Since the principal payments have been eliminated, FRAs can be off-balance sheet agreements. Bank A plans to fund the loan by borrowing at LIBOR, and Bank B plans to invest its deposit by lending at LIBOR. But by engaging in a FRA that pays the difference between LIBOR and F%, they both manage to lock in an interest rate of F% for the funds in question, which affects their balance sheets as follows.

(a) 3 mo. deposit, (F%-LIBOR%); (2) 3 mo. deposit, (F%-LIBOR) (b) 3 mo. deposit, LIBOR%; (2) 3 mo. deposit, LIBOR% (c) 3 mo. deposit, LIBOR%; (2) 3 mo. deposit, (F%-Libor) (d) 3 mo. deposit, (F%-LIBOR); (2) 3 mo. deposit, LIBOR%

Bank A Bank B 3 month loan 3 mo, deposit, LIBOR % (2) 3 month deposit 1) 3 mo, deposit, (1%-LIBOR)