2 months to expiration over a total of 8 periods? can someone elaborate thx
2 x 8 means rate agreement expires after 2 months, profit or loss is calculated on the difference of 180 day money market rate prevailing on the day of expiration and the locked in forward rate over the notional principal. A discount is applied since theoritically(not in reality) payment happens after 180 days from the day of expiration. So if you are long on 2 x 8 FRA at 5.25% and LIBOR 180 is 5.85% after 2 months over a 1MM notional [1,000,000 * ( .60 * 180/360)/100] / 1.003 = 2991.02 This is what I remember from my first reading
2 X 8 FRA = 180 day(6 month) LIBOR, 60 days (2 months) from now and the 8 stands for 8 months until the end of the interest rate period (2 + 6 = 8)
thx!