Is this right? "The CIA and Pakistan's spy agency, known by the acronym ISI, have worked uneasily together."
At issue is how you pronounce "ISI." If it's "ee-see," then ISI would be considered an acronym, which is "a word formed from the initial letters or groups of letters or groups of letters of words in a set phrase or series of words" (dictionary.com). If you say each letter individually, and not as a word, as in "I-S-I," then it would be considered an initialism, "a set of initials representing a name, organization, or the like, with each letter pronounced separately, as FBI for Federal Bureau of Investigation" (dictionary.com).
I think the "It's possible" answer is correct, because I'm not sure if ISI is an initialism or an acronym (I don't know how it's pronounced). One problem with my answer is that dictionary.com, in definition 1 of 2, lists "an acronym" as a definition of initialism, so perhaps they are interchangeable.
Here's Grammar Girl's take on the issue.