When constructing a gap report, how would a EUR 25,000,000.00 long position in 6x12 FRA be categorized?
A) as a EUR 25,000,000.00 6-month liability and a EUR 25,000,000.00 12-month asset
B) as a EUR 25,000,000.00 12-month liability and a EUR 25,000,000.00 6-month asset
C) as a EUR 12,500,000.00 6-month liability and a EUR 12,500,000.00 12-month asset
D) as a EUR 12,500,000.00 6-month asset and a EUR 12,500,000.00 12-month liability

Question

Quizplus · Accepted Answer

A long position in a 6x12 FRA means that the investor has agreed to receive a fixed interest rate for a 6-month term starting in 6 months' time. The liability for the investor is the amount of interest they will have to pay to the counterparty based on the FRA rate if the market rate is higher after 6 months. Therefore, the position is a liability for 12 months, with an asset for the first 6 months and a liability for the next 6 months. This means the correct categorization is as a EUR 25,000,000.00 12-month liability and a EUR 25,000,000.00 6-month asset.

When Constructing a Gap Report, How Would a EUR 25,000,000