CFA Mock Exam, FRA question discounted, question, interest, solution, present

suxiaoxiao

On the Mock Exam, there is a Derivatives question related to a 1 X 3 FRA, which basically means settlement occurs in 1 month, payoff is dependent on the present value of interest savings discounted at 90 day LIBOR (since X3 refers to 3 months = 90 days). In the solution set, the exam uses 60 day LIBOR, which makes absolutely no sense since its a 1 X 3 FRA, anyone else come across this issue? This is the Afternoon Mock, Question 94, fairly certain this is an error.

eagles_dare13

3 represents the termination date, 1 represents when it is effective.

So it is effective 30 days from now and terminates in 90 days. This means we use 60 day LIBOR.

Wasteoftime

Okay, got it, thanks guys.