When you calculate the payout for a FRA on the date of loan start (which is same as FRA expiration), which discount rate do you use - loan rate or LIBOR? I have seen both of them used in different examples in Schweser… - BN
I remember an example in Stalla which used LIBOR
It’s actually partof the FRA agreement so it theoretically could be anything. usually,it is just LIBOR.
If it is a FRA that is to be made in a month for a three month term you would figure out the payoff at the end of the three month term discount it back three months at libor and then discount it a back another month with the risk free rate. At least that is how a schweser example did it.
JoeyDVivre Wrote: ------------------------------------------------------- > It’s actually partof the FRA agreement so it > theoretically could be anything. usually,it is > just LIBOR. ha, finally, i was waiting for this comment!
I thought the FRA readings in the CFAI texts were marked optional. Do we even have to know FRA’s at all or are they included on some non-optional part?
Can one of you folks who is way ahead of the game maybe kindly find out if we even have to know about FRA’s because much of their calcs was marked optional in the CFAI text I thought?
As I asked in another post recently. I seem to recollect that FRA’s were in a CFAI section marked optional reading…actually CFAI text book Volume 5, READING 38: pp. 83-87 FRA’s. MARKED OPTIONAL. Does this mean we don’t have to know them or are FRA’s included in another mandatory section??? Anyone know out there? I was burned on reading a too long optional segment in Behavioural Finance that wasn’t market optional until the CFAI Errata came out and don’t want to be burned the other way now.