FRA agreements

[intuit2k2]

David: FRAs show up in the curriculum several times but haven't seen too many problems on the GARP practice exams. How should be prepared to handle these problems. Should we know how to calculate the value of an FRA at time t, duration, and coupon pricing?

 

[David Harper CFA FRM]

Oh, I know, tell me about ... I am ready to give up on FRAs ... they have made no recent appearance to my knowledge. I hesitate to give you bad advice. As before, this AIM is on the list" "Value and calculate the cash flows from a forward rate agreement (FRA)." That's a quant AIM; I don't know why they persist in teasing

I guess i would not go deep, if history repeats, you will not see FRA. I'd be familiar with valuation (a DCF) but i wouldn't spend more time than that. (this is right here my pet peeve with GARP/FRM; AIMs that never get tested)

good luck Saturday, please report back!

David

append: my other pet peeve is all the sample exam errors

 

[lmakombo]

An FRA trader entered into an FRA agreement in which he will pay 6%(assuming quarterly compounding) between 3 months and 6 months. The principal for the trade is $3 million. The 6 month LIBOR spot rate is 5.8%. If the trader had a gain of $2550 at the end of the period, The 3 month LIBOR rate would be?

A. 5.30%
B. 6.30%
C. 5.25%
D. 2.51%

The correct answer is A. how do we get there??????????????????