You are long an $3 \times 6$ FRA and long a eurodollar futures contract expiring in 3 months. Assume the fixed rate in the FRA is the same as the rate locked-in via the eurodollar futures contract. If interest rates jump down by 100 basis points,

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Quizplus · Accepted Answer

When interest rates decrease, the value of the FRA position decreases because you are locked into a higher rate than the market rate. Conversely, the eurodollar futures position will gain value as it benefits from the rate decrease. However, the loss on the FRA will be greater than the gain on the eurodollar futures because the FRA is a longer-term contract, and the impact of the rate change is more significant over a longer period.

You Are Long An 3×63 \times 63×6 FRA and Long a Eurodollar Futures Contract Expiring in 3

You Are Long An $3 \times 6$ FRA and Long a Eurodollar Futures Contract Expiring in 3