A long position in a $6 \times 9$ FRA can be replicated using
A) A six-month borrowing combined with a 9-month investment.
B) A six-month investment combined with a 9-month borrowing.
C) A six-month investment combined with a 3-month borrowing.
D) A six-month borrowing combined with a 3-month investment.

Question

Quizplus · Accepted Answer

A long position in a $6 \times 9$ FRA (Forward Rate Agreement) means you are agreeing to borrow money in the future (at 6 months) and repay it at a later date (at 9 months). This can be replicated by investing money for six months (to have funds available at the 6-month point) and then borrowing for nine months (to cover the period until repayment). This strategy matches the cash flows of entering into the FRA.

A Long Position in A 6×96 \times 96×9 FRA Can Be Replicated Using A) a Six-Month Borrowing Combined

A Long Position in A $6 \times 9$ FRA Can Be Replicated Using
A) a Six-Month Borrowing Combined