Would you pls explain this sentence Since the value of the FRA promising to pay RF is zero, the above expression must be the value of an FRA that promises instead to pay RK ? This is given below the equation giving the value of an FRA on pg 385 of the course notes.
Hi r_v.s On that page we explain that: 1) An FRA where interest is charged at rate RF has a value of zero 2) The equation you mention gives a formula for the difference in value of two FRAs - one which charges interest at RK and the other which charges interest at RF. So the sentence you mention links 1) and 2) by saying well, if the value of an FRA where interest is charged at rate RF is zero, then the equation must give the value of an FRA charging interest at RK. Does that help? Gresham
