I'm completely befuddled by FRAs - forward rate agreements. Take a look at this definition
....But, how EXACTLY does that fix an interest rate for me at all? There's nothing in that definition that indicates that any interest rate has been fixed.
Say I want to borrow 1000 dollars a month from now and pay it back 1 month later, and I'd like to do it at a fixed rate. Say, the forward rate is 5 %. That means I'd like to RECEIVE 1000 dollars a month from now and PAY 1050 dollars 2 months from now.
But if I enter into an FRA, and let's say LIBOR rate also turns out to be 5 % a month from now, then I will RECEIVE 1050 dollars two months from and I will PAY 1050 dollars two months from now. That equals 0.
So how the hell did that fix an interest rate for me? It did nothing for me? I still have to pay back my loan too at some libor rate?