fra

CFA Level II
#21

so is the underlying FRA actually 1x4? and the reason we are using 60 and 150 day quotes is becaaaaaaaaause of the passage of time…

#22

underlying FRA is 3 x 6. I get B. http://www.wolframalpha.com/input/?i=-10000000+*+(1%2F(1%2B0.05*60%2F360)+-+(1+%2B+0.05*90%2F360)%2F(1%2B0.054*150%2F360))

#23

how is it 3 x 6???..am losing my mind… :frowning: 30 days passed since he entered…90 day FRA…rate is a 90 day rate…dont get it…how y whereeeeeeeeeeeee frommmmm

#24

THANK YOU charu_mulye! My brain is so fried I totally missed that this was a 90 day FRA based on 90 day loan. It dawned on me once I looked at your diagram. p.s. that is quite a diagram!

#25

its a 90 day loan starting in 90 days. so starting in 90 days = 3. loan matures in 90+90 days (as it was a 90 day loan starting in 90 days). so its 6. so its 3x6.

#26

ooook…so if i say its a 60 day FRA on 60 day libor…that means its 2x4 FRA?

#27

if anyone wants an alternative way to solve these, i’d suggest p37 CFAI text Vol 6 (Exhibit 8). That’s how I intend to do it on the exam (worth learning for those extra couple of marks on the exam I think). CFAI just give you a formula to use, and its always worked when i’ve tried it on examples. if you’re planning to use it, make sure you try on lots of examples first to understand how it works and to make sure you’re using it correctly.

#28

terabyte … an A day FRA on a B day libor means its A/30 x (A+B)/30 FRA so 60 day FRA on 60 day libor means its 60/30 x (60+60)/30 FRA, i.e. 2 x 4.

#29

yo bobs am rite abt the notation?

#30

yesssssssssss!!! thanks buddy! :slight_smile:

#31

yep :wink:

#32

bobsters Wrote: ------------------------------------------------------- > if anyone wants an alternative way to solve these, > i’d suggest p37 CFAI text Vol 6 (Exhibit 8). > That’s how I intend to do it on the exam (worth > learning for those extra couple of marks on the > exam I think). > hi bobsters where is the exhibit 8 ? checked the cfai text vol 6 p37 but could not find anything like that. thanks,

#33

its at the top of the page … its the derivatives book, in the section called Pricing and Valuation of Forward Contracts. Reading 60.