CFA Practice Question

There are 206 practice questions for this study session.

CFA Practice Question

In what way is the payoff of a forward rate agreement (FRA) most likely different from the payoff of an interest rate option?
A. It is paid immediately when the contract expires.
B. It is based on a fixed exercise rate.
C. It is based on a notional principal amount.
Explanation: The payoff of a FRA is paid immediately when the contract expires. If at expiration the option is in-the-money and exercised, the payoff of an option is not paid immediately at expiration; it is paid at the end of the term of the underlying interest rate.

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