Simple interest or compound interest in Option/FRA

CFA Level III
#1

When we use option to hedge interest rate risk, the option on Libor rate or FRA are ofter used. I found in FRA calculation, we often use compound interest; while in option hedge, we often use simple interest. Is this a rule or we actually can use any one in calculation?

#2

Can anybody help on this?

#3

I was told that LIBOR is not for compounding…