CAF-7 · Chapter 10 · Question 3 of 15
A company entered into a '3 v 9' Forward Rate Agreement (FRA) to hedge its future borrowings against rising interest rates. What does the term '3 v 9' indicate?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) The borrowing will start in 3 months and will last for a period of 6 months
Explanation
In FRA terminology, '3 v 9' means the agreement covers an interest period starting in 3 months' time and ending in 9 months' time. Thus, the actual loan/deposit duration being hedged is 6 months.
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