FRAs and Forward Rates - simple/compounding?
Pricing an FRA is effectively calculating a forward rate from two spot rates. I am confused as to why the forward rate calculation differs from what was done, for example, in fixed income.
Typically, the formula for calculating forward rates includes raising (1+spot rate) to an exponent in the formula i.e. compounding.
In the FRA calculation it looks like simple interest is being used since there is no exponents in the formula.
Why is there no exponents (compounding) in the FRA calculation?
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