Explanation

For a 3 × 6 FRA, we need to calculate the forward rate starting in 3 months for a 3-month period.

Formula for FRA rate: $FRA = \left[ \frac{(1 + L_2 \times \frac{t_2}{360})}{(1 + L_1 \times \frac{t_1}{360})} - 1 \right] \times \frac{360}{t_2 - t_1}$

Where:

• $L_1$ = 3-month rate = 1.50% = 0.015
• $L_2$ = 6-month rate = 2.00% = 0.02
• $t_1$ = 90 days (3 months)
• $t_2$ = 180 days (6 months)

Calculation: $FRA = \left[ \frac{(1 + 0.02 \times \frac{180}{360})}{(1 + 0.015 \times \frac{90}{360})} - 1 \right] \times \frac{360}{180 - 90}$ $FRA = \left[ \frac{(1 + 0.02 \times 0.5)}{(1 + 0.015 \times 0.25)} - 1 \right] \times \frac{360}{90}$ $FRA = \left[ \frac{1.01}{1.00375} - 1 \right] \times 4$ $FRA = [1.00623 - 1] \times 4$ $FRA = 0.00623 \times 4$ $FRA = 0.02492 = 2.492\%$

The calculated FRA rate of 2.492% is closest to 2.49% (Option C).