CFA Practice Question

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CFA Practice Question

An off-market forward contract is defined as a forward contract ______.

A. that does not trade on the market
B. that has a value other than zero at inception
C. that is closed by both parties before the contract expiry date
Correct Answer: B

An off-market forward contract starts with a non-zero value.

An interest rate swap is like a series of off-market FRAs, meaning that the rate on each FRA is set at the swap rate, not at the rate it would be set as if priced as an FRA with zero market value at the start.

A series of FRAs would have different fixed rates unless the term structure is flat.

User Contributed Comments 1

User Comment
Sagarsan88 I thought swaps and fwds have value of zero at inception?
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