A short position in a 3 x 6 FRA is equivalent to which of the...

The buyer of an FRA is considered 'long', and a 3 x 6 FRA allows him or her to borrow funds at the agreed rate starting at the end of month 3 till the end of month 6. (ie, 3 x 6 indicates that the borrowing period commences at 3 months, and ends at 6 months, for a period of 6 - 3 = 3 months). The seller has exactly the opposite position, ie he or she is committed to lend funds at the agreed rate for 3 months starting at the end of 3 months from today (for a 3 x 6 FRA). [Note that the obligation to borrow or lend in and FRA does not mean that either parties will actually do that, instead they will just exchange cash flows to get to get to an identical economic situation.]

Since the seller, or the short, is committed to lending in the future starting 3 months from now, it is akin to borrowing now for 3 months, and investing the borrowed amount for 6 months. During the first 3 months, the amounts borrowed and lent 'cancel' out (conceptually) and after the 3 months the short returns the amount borrowed, and is left with just the net amount lent, ie the FRA.

Thus the correct answer is Choice 'd'. Choice 'b' describes the position of the FRA buyer. Choice 'a' and Choice 'c' are nonsensical.