CFA Practice Question

CFA Practice Question

A bank enters into a long 2x6 FRA on the LIBOR. Which of the following is correct?
A. Payment will be decided at the 60th day, based on the 120 day LIBOR, with the bank benefitting from a rise in interest rates.
B. Payment will be decided at the 120th day, based on the 60 day LIBOR, with the bank benefitting from a fall in interest rates.
C. Payment will be decided at the 60th day, based on the 180 day LIBOR, with the bank benefitting from a rise in interest rates.
Explanation: A 2x6 FRA means that the payment is decided at the 2 x 30 = 60th day, based on the (6 - 2) * 30 = 120 day LIBOR.

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