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Answer: 270 days beginning at the contract expiration.
## 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.
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A trader enters into a 3 × 12 forward rate agreement (FRA). The price of the FRA at initiation (FRA₀) is the forward rate for a period of:
A
270 days beginning at the contract initiation.
B
270 days beginning at the contract expiration.
C
360 days beginning at the contract expiration.