# FRA

Just finished up reading SS 16, and just want to confirm these points: If we are asked to value a FRA at Maturity/settlement, we discount back to FRA EXPIRATION. If we are asked to value a FRA PRIOR TO maturity/settlement, we discount all the way back to TODAY.

You got it. I know a bunch of people have trouble with derivatives (like me!!!), so I wanted to offer something that helps me with the FRAs. I draw a timeline while I’m working through the problem… say, for figuring out the value of a 2x3 FRA at settlement, you can draw a timeline that starts with today and then has a 30, 60, and 90 day mark. I then write “settlement” at the 60 day mark because that’s when the actual transfer of money occurs, but then I do my calculation for the difference in rates times notional price at the 90-day mark. Then I draw an arrow back to today so that I know to discount it back 30 days to get the actual value today. Kind of silly but I feel like it really helps you think through what’s happening. If you’re doing a problem that’s prior to the settlement date, you can do the same except start with time zero and then make a seperate mark for today.

Awesome - thanks for the tip Aimee. I’m lacking in Derivatives, so any help - even something as simple as a diagram - is most appreciated!