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Answer: Both long forward rate agreements and short interest rate futures contracts
**Explanation:** - **Option C is correct** because both long forward rate agreements (FRAs) and short interest rate futures contracts can realize gains when the market reference rate (MRR) rises above the initial fixed rate. - A long FRA (where the investor is the floating-rate receiver and fixed-rate payer) benefits as the MRR increases, leading to a gain. - A short position in an interest rate futures contract is priced based on (100 - yield), meaning the contract gains value as the yield (MRR) rises. - **Options A and B are incorrect** because they exclude one of the valid strategies that would result in a gain under the given scenario.
Author: LeetQuiz Editorial Team
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Which of the following derivatives would result in a gain when the market reference rate exceeds the initially agreed fixed rate?
A
Exclusively long forward rate agreements
B
Exclusively short interest rate futures contracts
C
Both long forward rate agreements and short interest rate futures contracts