Hi David,
For some instruments like - FRA, Eurodollar Futures, IRS - I noticed that simple interest has been used even when the questions say - interest rate is quoted with semi annual compounding (e.g. Hull's example 7.2 for IRS valuations in terms of FRAs). I am quite confused now as to when to use what! Are there certain conditions/instrument types where we need to use simple interest directly? Can you please help?
For some instruments like - FRA, Eurodollar Futures, IRS - I noticed that simple interest has been used even when the questions say - interest rate is quoted with semi annual compounding (e.g. Hull's example 7.2 for IRS valuations in terms of FRAs). I am quite confused now as to when to use what! Are there certain conditions/instrument types where we need to use simple interest directly? Can you please help?