We value the FRA prior to maturity (Schweser way) by coming up with a new FRA price (based on the current rates). Then we subtract this rate with the contracted FRA rate and multiply it with the notional prinicipal. The next step confuses me as Schweser and CFA part ways over here. Should we discount the amount obtained in the previous step by the current discount rate? IMO we should. But the example in the curriculum doesn’t. Pls help me with this. Kinda urgent. Thanks in advance.
Which “current discount rate” do you mean?
The value you calculate is the paypff at the end of the loan period. You discount it back to today at the spot rate that runs to the end of the loan period. That’s the current discount rate.
I wrote an article on valuing FRAs that may be of some help: http://financialexamhelp123.com/valuing-fras/.