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ACI – THE FINANCIAL MARKETS ASSOCIATION

EXAMINATION FORMULAE – 2009 VERSION

page number INTEREST RATE……………….………………………………………………….2 MONEY MARKET…..……………...………………………………………………3 FORWARD-FORWARDS & FORWARD RATE AGREEMENTS……………..4 FIXED INCOME…………………...…………………………………………….….5 FOREIGN EXCHANGE……………………………………………………………7 OPTIONS……………………………………………………………………………8

In all the formulae: • • • • interest rates, yields, coupon rates and rates of discount are expressed as a decimal, eg 8.53% will be expressed as 0.0853 ‘annual basis’ is the number of days in a year assumed under the appropriate rate convention ‘term’ is the number of days from settlement to maturity of the instrument in question ‘day count’ is the number of days from settlement to maturity of the instrument in question.

INTEREST RATE CONVERSIONS

Converting between bond basis and money market basis (Act/360)

rate bond basis = rate money market basis 365 360

rate money market basis = rate bond basis

360 365

Converting between annually and semi-annually compounding frequencies

rate semi-annually compounded ⎛ = ⎜1 + ⎜ 2 ⎝ ⎞ ⎟ -1 ⎟ ⎠

−1 2

2

rate annually -compounded

rate semi-annually compounded =

( 1 + rate

annually compounded

)

The formulae for converting between annually and semi-annually compounded rate apply only to rates quoted on a bond basis, not a money market basis.

2

MONEY MARKET

Certificates of deposit

proceeds at maturity = face value ( 1 + coupon x term ) annual basis

secondary market proceeds = proceeds at maturity yield x day count 1+ annual basis

Discount-paying instruments quoted as a true yield

secondary market proceeds = face value yield x day count 1+ annual basis

Discount-paying instruments quoted as a rate of discount

rate of discount x day count annual basis

discount amount = face value

⎛ rate of discount x day count ⎞ secondary market proceeds = face value ⎜1 ⎟ annual basis ⎝ ⎠

true yield =

rate of discount rate of discount x day...