Panic! 2f3 is the notation for?

CFA Level II
#1

What does 2f3 stand for? It’s some type of derivative… An FRA? Wiley was notating something differently than the CFAI text and now I can’t remember what!

#2

f2,3 you mean?

starts/expires in 2 months and it’s a 3mth fra

#3

Oh. cool. thanks.

#4

Nope, 2f3 is 2-year forward rate starting 3 years from today.

http://financialexamhelp123.com/calculating-forward-rates-from-spot-rates/

#5

Thanks, tickersu!

#6

Actually, and I’m not sure why, Magician’s method is different from the book. Highland has it consistent with the text (this is concerning me and confusing me)…f(2,1) would be a 1 year rate starting 2 years from today (according to the book).

Where is the Magician when you need him?! (cough, cough)

#7

Ack! So f(2,1) is the same as 1f2? I hope I don’t mess this up on the exam. Also foreign currencies…Either I am losing money in real life or getting the problems wrong on CFAI because the quotes are interpreted differently than on investment sites. Groan.

#8

Why not try and acquaint yourself with the notation in the CFAI text, which is F(2,3), meaning the forward contract starts 2 years from today and expires after 3 years from its START DATE or 5 years from TODAY.

As a mnemonic, take the first digit in the bracket (in this case 2), then interpret the “F” as from today. That has really helped me a whole lot.

Cheers

#9

Ack! So f(2,1) is the same as 1f2? I hope I don’t mess this up on the exam. Also foreign currencies…Either I am losing money in real life or getting the problems wrong on CFAI because the quotes are interpreted differently than on investment sites. Groan.

#10

No Lammy. That simply means the Forward rate 2 years from TODAY, which expires 1 year after the start date. The first term in the bracket here is 2, so that automatically means 2 years from today. The next term in the bracket is 1, which means when it WILL END after IT STARTS.

Got it lammy?

#11

I do. Thank you, thank you.

#12

No, lammy was correct. 1f2 and f(2,1) are the same. 1f2 means a 1 year rate starting 2 years from today and f(2,1) means a rate starting 2 years from today for 1 year.

I also figured it out-- the number directly to the right of the f is how long from today before it starts, and the other number is the length for the rate. This has been right, regardless of the notation.

#13

It took me some time to memorize this,

f(S,T)

S=start

T= time/duration/length whatever you wana call it.

so, f3,5 = starts in 3mths and it goes on for 5mths

another way to say this is “it expires in 3mths and you get to lock in the rate for 5mths”

#14

Hello mate, what I addressed was the CFAI text notation F(X, Y), and not the Wiley/Elan notation of xFy.

#15

I believe at Level I, CFAI used the xFy notation. In either case, they’re telling you the same information (which I figured out after looking a little further). I thought it was important to clarify that lammy was correct in saying 1f2 is the same as f(2,1).

#16

Okay Tickers. I got you… smiles. Added that to my tool kits now. Just didn’t want to bother my head with the Wiley notation, since I was pretty cool with that of the CFAI. But no knowledge is lost anyways, you know.

Hey Lammy… Kindly note that you were right…Cheers All.

#17

When I saw the notation, I was worried they might give us either one. I will have CFAI notation in my head, as you said, but it cant hurt knowing both (just in case)! yes