Mastering Foreign Exchange, Money Markets and Derivatives Strategies Course

The global foreign exchange (FX) and money markets are the world’s largest markets and pivotal parts of the financial system.  In foreign exchange alone, more than $5 trillion of transactions occur daily. These markets provide funding, trading and investment opportunities and are the conduit between all other components of the world’s capital markets. In recent years, the importance of the money markets has become even greater as financial institutions focus more closely on the management and diversification of their sources of liquidity, apply greater discipline to their funding and examine the attractions of short term investment and trading strategies.

This course provides a strong foundation on the instruments and activities of the international money and FX markets; and it focuses on the current profile of the markets and offers insights based on the lessons learned from the 2007-09 financial crisis as well as the latest market developments.

Moreover, the course emphasizes the integrated nature of FX, money markets and derivatives. Mastering the mechanics and usages of such instruments provides excellent opportunities for arbitrage, hedging and risk management for those engaged in corporate treasury functions, commercial banks and asset management companies. The course also analyses the liquidity characteristics and risks of different instruments and funding strategies.

Course Objectives

By the end of the course, participants will be able to:

• Develop a deep understanding of the FX market, its mechanics and major participants
• Analyze the role and impact of central banks on FX and money markets
• Examine the nature of money supply, open market operations and quantitative easing
• Demonstrate a thorough understanding of liquidity, capital adequacy and solvency
• Apply analytical skills to key financial products within global money markets
• Explain the logic and uses of financial derivatives – forwards, swaps and options
• Develop an understanding of key strands of financial risk management

Course Outline

• Interface of money markets and foreign exchange (FX)
• Size of the markets
• Issuance of Treasury instruments,  bankers acceptances, commercial paper
• Treasury bill issuance in different jurisdictions
• Forward rates for interest rate and FX
• Effective yields when risk adjusted for FX exposures
• Arbitrage and interest rate parity
• Current market conditions
• Role of central banks in the financial system
• Overview of central banks
• Structure of a central bank balance sheet
• Characteristics of central bank’s assets and liabilities
• Lender of last resort
• Summary of Open Market Operations
• Independence of central banks
• Financial stability and macro-prudential policy
• Forward guidance and transparency of decision making
• Management of FX reserves and exchange rate policy
• Monetary policy and money supply
• Overview of the policy committees
• Overview of money supply
• Monetary tools and how they impact money supply
• How is money created in a modern economy
• Inflation targeting
• Central bank reserves
• Term structure of interest rates
• Foreign exchange market characteristics
• Size of market, volumes, participants, major currency pairs
• Role of the International Monetary Fund (IMF) and Special Drawing Rights (SDR’s)
• Global FX reserves
• Price of gold and relationship to the US Dollar index
• Interest rate (IR) swaps
• Basic structures and terminology of swaps
• Pricing the fixed leg and interpreting the swap markets
• Counter party risk
• Over-The-Counter (OTC) market versus Swap Execution Facilities (SEF’s)
• Collateralized OTC trades versus margin based Central Clearing Party (CCP)
• Sovereign and corporate markets
• Using derivatives for general hedging purposes
• Key concepts of hedging equity and fixed income risk with derivatives
• Using index futures and options to hedge equity portfolio
• Hedge ratio calculation for equity futures
• Options strategies
• Using forwards to hedge forex risk
• Using swaps to hedge credit risk
• Using variance swaps to hedge volatility risk
• Asset/liability management and the treasury function
• Interest rate risks
• Market risk i.e. re-valuation of bank holdings from changes in interest rates
• Accounting issues related to fair value accounting
• Duration gap analysis
• Interest rate forecasting
• The global regulatory framework
• Overview of the Basel III framework
• Key provisions of Basel III related to market risk, credit risk, liquidity risk and operational risk
• Pillars 2 and 3 of Basel accords and role of central banks as supervisors
• Contrast macro-prudential policy initiatives with traditional micro-prudential
• Sarbanes-Oxley – risk disclosure, stringent accounting requirements, impact on IT policies

Who Should Attend

This course is suitable for all those working within the banking industry, including wealth managers, auditors, accountants, finance specialists, risk managers, and treasury and product control professionals.  It is also suitable for those working with financial services and in corporate finance positions.

Methodology

This course uses a wide range of learning methods, including explanatory slides, case studies, detailed examination of FX models in an interactive workshop style environment and others.