When you are short a position in a $3 \times 6$ FRA,you are effectively
A)Long the three-month zero-coupon bond,and long the six-month zero-coupon bond.
B)Long the three-month zero-coupon bond,and short the six-month zero-coupon bond.
C)Short the three-month zero-coupon bond,and long the six-month zero-coupon bond.
D)Short the three-month zero-coupon bond,and short the six-month zero-coupon bond.

Question

Quizplus · Accepted Answer

When you are short a $3 \times 6$ FRA, you are agreeing to pay a fixed interest rate and receive a floating rate on a notional amount for a period starting in 3 months and ending in 6 months. This is equivalent to borrowing money for 3 months (short the three-month zero-coupon bond) and lending it out for 6 months (long the six-month zero-coupon bond), as you benefit if rates rise (paying less on the shorter duration and receiving more on the longer duration).

When You Are Short a Position in A 3×63 \times 63×6

When You Are Short a Position in A $3 \times 6$