Explanation

To value the FRA, we need to calculate the present value of the difference between the fixed rate and the current forward rate.

Given:

• Notional amount: £3,000,000
• Original fixed rate: 3.1%
• Current forward rate (3 × 9 FRA): 2.7%
• 9-month MRR: 2.5%
• Time period: 180 days (6 months)

Step 1: Calculate the interest rate differential

$$\text{Rate differential} = 3.1\% - 2.7\% = 0.4\% = 0.004$$

Step 2: Calculate the interest amount

$$\text{Interest} = £3,000,000 \times 0.004 \times \frac{180}{360} = £3,000,000 \times 0.004 \times 0.5 = £6,000$$

Step 3: Discount to present value using 9-month MRR

$$\text{PV} = \frac{£6,000}{1 + 0.025 \times \frac{270}{360}} = \frac{£6,000}{1 + 0.025 \times 0.75} = \frac{£6,000}{1.01875} = £5,889.57$$

Since the company is long the FRA and rates have decreased (from 3.1% to 2.7%), the value should be negative. Therefore, the value is approximately -£5,890.

Note: The calculation shows -£5,890, which matches option B, not A. However, based on standard FRA valuation methodology, the correct answer should be B (-£5,890).