360 or 365

CFA Level II Derivatives
#1

Does anyone have any easy way to remember when to use 360 or 365 through the derivatives sections?

Thanks party people!

#2

LIBOR (and Eurobor) use 360-day years. So, you’ll use 360 days for FRAs and swaps. Use 365 days for everything else.

#3

[original post removed]

#4

actually 360 and 365 will give very similar results so why bother? (disclaimer: only for the sake of passing exam, not recommended for actual investment decision!!)

#5

you da man, magician.

#6

Thanks.

#7

I am sorry, but both CFA Institute and especially the good folks at Schweser and most people in this forum are messing the day stuff totally up. In the real world we don’t talk about 365-years or 360-years. You have to express it as Actual/360, Actual/Actual, 360/360, 365/365 or Actual/365.

For the Libor markets in GBP, NZD & AUD Actual/365 is applied. In most other currencies including USD & EUR Actual/360 is applied. This means that if you are placing money on a 12 moths deposit in USD at 10% you will actually earn 10% x 365/360 = 10,14% in a normal year. In a leap year you will earn 10% x 366/360 = 10,17%. Same day-counting is used for the interest rate component in FX-forwards and in most other shorter derivate contracts.

CFA-institute has more than 100.000 people enrolled in in the CFA program worldwide. By keeping on messing up the day counting, CFA institute is creating a whole new generation of day-counting-analphabets who all will have to be retrained by the financial industry.

I will be glad to offer a free of charge summer course in day counting for the CFA content managers and for the Schweser instructors. In the meantime you can get a quick introduction here: http://www.tinyurl.dk/39162

Best regards

Henning Hansen

PS – for the CFA exam you should try to guess which mistake CFA-institute are doing when they write the questions. My advice is that they probably are using 360/360 for FRAs and 365/365 for the rest. But judging from the questions and answers there are no fixed rules. Both CFA and especially Schweser are both wrong and inconsistently wrong in their day counting.

#8

H, a tinyurl would’ve been ideal for that post!

But thanks!!!

#9

Haha, great to see that not all CFA candidates are pimply 22 year olds without any real world experience!

#10

First off, being able to answer questions based on a rule that goes contrary to your experience is a sign of “fluid” intelligence.

That said, do you think it would make ANY sense for schweser or the people that study the curriculum to go against the testable material for the sake of being factual? I mean, I really appreciate the input but…

#11

Well I would agree if this actually needed any intelligence, it’s a matter of learning what to use where, a first grade kid could probably learn it faster than me.

#12

And, judging from this response, it probably would…

#13

Another thing I never liked - currency rates in CFAI are quoted as price/base, so that USD/GBP would be the price of 1 GBP in USD - logical sense, but then you get in the real world and USD/GBP would actually be the price in GBP for 1 USD. Confusing mess it is.

#14

The difference is in the “/”:

USD/GPB means USD per GPB

USDGPB means USD in GBP (reverse of the above)

Both are right. What you see on your Reuters or Bloomberg screen is normally the USDGBP or rather GBPUSD version.

CFAI has been fluctuating a bit on this point. I guess when I took level one in decmber 2011 CFAI used the second version, but now i guess they made upo their mind to use the first version (eg USD/GBP) and I actually think they do it consistenly throughout the material. So I would say CFAI is doig ok on this one.