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A speculator anticipates the decrease of interest rate in 3 month over 6 month and would like to profit from that by using FRA contract.

A speculator anticipates the decrease of interest rate in 3 month over 6 month and would like to profit from that by using FRA contract.

At initial time the spot 3 month, 6 month, and 9 month Discreetly Compounded interest rate (DCIR) are 0.75%, 1.00%, and 1.25%, respectively.

At which position and which FRA rate the speculator entered?

a. long FRA contract and FRA rate 1.251% (DCIR) ((1.245% simple IR)

b. long FRA contract and FRA rate 1.88% (DCIR) ((1.871% simple IR)

c. short FRA contract and FRA rate 1.251% (DCIR) ((1.245% simple IR)

d.None of them

e.short FRA contract and FRA rate 1.88% (DCIR) ((1.871% simple IR)

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