A forward rate agreement allows one of the parties to borrow an amount at a rate for a length of time, all of which are agreed in advance. Consider a "3 x 6" FRA. This allows a fixed rate borrowing starting at 3 months till the end of 6 months. This is economically equivalent to holding a zero coupon bond till the end of 6 months, and being short another zero coupon bond till the end of 3 months (or the other way round, depending upon which end of the FRA you are on). Therefore Choice 'c' is the correct answer.
Contribute your Thoughts:
Chosen Answer:
This is a voting comment (?). You can switch to a simple comment. It is better to Upvote an existing comment if you don't have anything to add.
Submit