FOREX and Money Market Instruments
Duration: 3 days
- Overview of Money Markets
- Deposits, T-Bills, CP's and CD's
- Repos and Reverses
- Floating Rate Notes
- Money Market Derivatives
- Structured Money Market Products
- Overview and Brief History of FX Markets
- Spot, Forward and Forward-Forward Transactions
- Interest Rate Parity
- Exchange Rate Mechanisms
- Currency Swaps and Options
- Managing FX Risk
The objective of this course is to give the participants a thorough introduction to the
international FX and money markets and a good understanding of how they work. We shall start with
an overview of the money markets and then give a more detailed description of the instruments used
in these markets, including deposits, T-Bills and Commercial Papers. We shall explain the
repo-instrument and its important role in the international financial markets. Further, we present
a number of money market derivatives such as FRAs and IRGs and we explain how they are priced and
used. We then turn to look at the FX markets. We explain how the FX markets work and we give a
brief update on the history of exchange rates, illustrated by a couple of “war-stories”. We present
and discuss a number of Forex transactions, including spot, forward and forward-forward
transactions. We explain how forward rates are derived from the interest rate parity relationship.
We also discuss the factors that will affect relative exchange rates in the short and long run.
Finally, we present a number of FX derivative instruments and show how they are priced and used for
risk management purposes.
Day One
09.00 - 09.15 Welcome and Introduction
09.15 - 10.15 Introduction to Money Markets and Instruments
- What is a "Money Market"?
- the role of MM in financial intermediation
- difference between Money market and Capital Market
- a brief history of the international money markets
- Types of MM-instruments
- primary vs. secondary (derivative) instruments
- deposits, T-Bills, CP's, CD's
- Issuing Techniques
- Quoting Conventions
- Small Exercise
10.15 - 10.30 Coffee Break
10.30 - 12.00 REPOs
- Introduction
- Types of REPOs
- Analysis of REPOs
- Applications
- Risk management of REPOs
- Small Exercise
12.00 - 13.00 Lunch
13.00 - 14.00 Analysis of Floating Rate Notes
- Introduction
- Overview of Pricing Techniques
- Discounted Margin Model
- Forward Rates
- Analysing Changes in Credit spread
- Analysing Changes in the Yield Curve
- Small Exercise
14.00 - 14.15 Coffee Break
14.15 - 16.30 Money Market Derivatives (I)
- Deposit Futures
- trading, settlement
- pricing (Convexity adjustment)
- Forward Rate Agreements
- trading, settlement
- pricing
- VaR/Risk Management
- Money Market Swaps
- Basis Swaps
- Arrears Reset Swap
- EONIA (Overnight Average) Swap
- Hedging Funding Risk
- Small exercises
Day Two
09.00 - 09.15 Recap
09.15 - 10.15 Money market derivatives (II)
- Money Market Options
- Options on Deposit Futures
- Interest Rate Guarantees
- Caps, Floors, Collars
- Risk management (Greeks, VaR)
- Small Exercises
10.15 - 10.30 Coffee Break
10.30 - 12.00 Structured Money Market Products
- Reverse Floater
- Diff Swaps
- Power Floater
- Participating Cap
- Limited Cap
- Range Floater
- Small Exercises
12.00 - 13.00 Lunch
13.00 - 14.15 Introduction to the Foreign Exchange Markets
- Brief History
- Instruments
- Quoting Conventions
- Types of Rates
- Spot, Cross Rate, FWD, FWD-FWD
- Determinants of Exchange Rates
- PPP
- Interest Differentials
- Small exercise
14.15 - 14.30 Coffee Break
14.30 - 16.30 FX Derivatives (I) - Forwards and Swaps
- Forwards
- Interest rate parity
- Determining forward discount/premium
- Mark-to-market of forwards
- Currency Swaps
- Short-term (spot-forward) swaps
- Fwd-Fwd swaps
- Creating Synthetic FRAs
- Long-term cross-currency swaps
- Small exercise
Day Three
09.00 - 09.15 Recap
09.15 - 10.15 FX Derivatives (II) - Standard FX Options
- Brief introduction to currency options
- The markets for currency options
- listed options
- OTC-options
- Pricing
- the Garman-Kohlhagen model
- Cox-Ross-Rubinstein model
- the "Greeks"
- Applications
- hedging
- speculation
- Risk management
- Small exercises
10.15 - 10.30 Coffee Break
10.30 - 12.00 FX Derivatives (III) - Exotic Options
- The difference between "vanilla" and "exotic" options
- Asian Options
- Barrier Options
- Lookback Options
- Digital Options
- Compound Options
- Basket Options
- Pricing, Applications and Risk Management
- Small Exercises
12.00 - 13.00 Lunch
13.00 - 15.30 Managing FX Risk
- Measuring FX Exposure
- accounting exposure
- economic exposure
- portfolio Approach
- Using FX derivatives to Manage FX Risk
15.30 - 16.00 Outlook: The future of the FX Markets
- Will there be a single, global currency?
16.00 - 16.15 Evaluation and Termination of the Seminar
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