Explanation

In FRA notation:

• 3 × 12 FRA means:
  • The contract expires in 3 months
  • The underlying loan period is 9 months (12 - 3 = 9 months)
  • The forward rate applies to a period starting at contract expiration

Key points:

• The first number (3) indicates when the contract expires
• The second number (12) indicates when the underlying loan period ends
• The difference (12 - 3 = 9 months) is the length of the underlying loan period
• Using 30/360 day count convention: 9 months = 270 days

Therefore, the FRA price at initiation is the forward rate for a 270-day period beginning at the contract expiration.

Correct answer: B - 270 days beginning at the contract expiration.