Which of the following strategies replicates a long position in an FRA?
A)long a long term Eurodollar time deposit and short a short-term Eurodollar time deposit
B)long a Eurodollar futures and short a Eurodollar option
C)long a Eurodollar option on a futures
D)short a long-term Treasury bond futures and short a short-term Treasury bond futures
E)long a receiver swaption

Question

Quizplus · Accepted Answer

A long position in an FRA replicates a long-term fixed rate borrowing, so by going long on a long-term Eurodollar time deposit and short on a short-term Eurodollar time deposit, the investor can replicate the cash flows of a long position in an FRA. The other choices do not replicate a long position in an FRA.

Which of the Following Strategies Replicates a Long Position in an FRA