When 360 and when 365 days?

CFA Level II
#1

I guess this would not necessarily make a huge difference, but would be nice to have an overview. Does anybody know when to use 360 and when to use 365 in the various formulas? To me it seems:

365: Any formulas related to forwards

360: FRAs, Swaps

#2

“Whether you think you can use 360 days, or you think you can use 365 days - you are right.” - Henry Ford

#3

I think they put it in the question for L2, unlike L1.

#4

When?

When is exactly thus mentioned in certain question and I’ve found that almost always is.

Otherwise, add-on basis (360) is usually taken in account when you have LIBOR, EURIBOR, EONIA etc…and some other short time fixed income instruments. Sometimes is also used in FX IR calculation and sometimes not.

#5

What I have heard:

30/360 Simple: Rates and Bills

Actual/365 Compound: Currencies, Equities, Bonds, Commodities

Continuous: Equity Indicies

However I have run into questions where I use the above and it ends up being something else (eg used Actual/365 for equity forward on a single stock and they used continuous) - in either case you can usually get pretty close to the answer. Just hoping its that way on the exam…

#6

I agree with bfry. It has worked for me so far.