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Interest Rate and FX Risk Hedging Workshop

Duration: 2 days
  • The Hedging Process
  • Measuring Interest Rate Exposure
  • Hedging Fixing Risk and PV Risk
  • Hedging Yield Curve Risk
  • Hedging FX Transaction Exposure
  • Fair Value and Cash Flow Hedges
  • Practical “Real Life” Workshops
The objective of this workshop is to give you a practical understanding of and “hands-on” experience with tools and techniques for measuring and managing interest rate and FX risk.

We start with a general introduction to interest rate risk and FX risk management. We explain the “anatomy” of interest rate and FX risk and present framework for assessing and managing these risks. We also give an overview of tools and methodologies used for managing interest rate and FX risk and we discuss their advantages and limitations.

We then explain methods for measuring interest rate risk. We present and explain concepts such duration, convexity and key rate duration, and we also show how interest rate risk can be assessed at the portfolio level.

Further, we present, explain and demonstrate a variety of methods for hedging interest rate risk at the micro and macro levels. These methods include the use of derivate instruments such as futures, swaps, caps, floors and swaptions. We give examples of “fair value” and “cash flow” hedges. We also discuss some of the practical problems arising from the use of these methods, including their accounting treatment.

After the theoretical discussion you will have the opportunity of working “hands-on” with cases on measuring and hedging interest risk.

We then turn to look at FX risk. We explain how economic, translation, transaction and contingent exposures can be identified and measured in Treasury and in investment portfolios, and we explain and demonstrate how these exposures can be hedged using forwards, swaps, futures and options. We present different hedging approaches, including cross hedges, proxy hedges and quanto hedges. We also explain how exotic options can be used for the hedging of commercial FX transactions. Further, we discuss the accounting, regulatory and other practical issues related to currency risk management.

You will also have the opportunity to work “hands-on” with practical cases in FX hedging.

Day One

09.00 - 09.15 Welcome and Introduction

09.15 - 12.00 General Introduction to Interest Rate and FX Risk Management

  • The Anatomy of Interest Rate and FX Risk
  • Overview of Tools and Methods for IR and FX Risk Management

Hedging Interest Rate Risk

  • The Hedging Process
  • Measuring Interest Rate Risk
    • Positions, sensitivities and IR volatility
    • Cash flow sensitivity to IR changes
    • NPV sensitivity to IR changes
    • Duration and convexity
    • Yield curve risk (key rate durations)
    • Measuring aggregate interest rate risk (VaR)
  • Practical Exposure Calculation Examples
  • Workshop:
        Measuring Interest Rate Risk

12.00 - 13.00 Lunch

13.00 - 16.30 Hedging Interest Rate Risk (Continued)

  • Overview of Strategies for Interest Rate Risk in Portfolio Management
    • Matching
    • Immunization and factor immunization
  • Using FRAs and Futures to Manage Fixing Risk
  • Using Interest Rate Swaps to Hedge Fixed and Floating Rate Assets and Liabilities Loans
    • “Fair Value” and “Cash Flow” hedges
  • Using Caps, Floors and Collars
  • Using Swaptions Hedge Long-Term Interest Rate Risk
  • Using Swaptions to Hedge Contingent Interest Rate Risk
  • Hedge Accounting: Fair Value and Cash Flow Hedges
  • Practical Hedging Examples
  • Workshop:
        Using Interest Rate Derivatives to Hedge Interest Rate Risk at the “Micro” Level

Day Two

09.00 - 09.15 Recap

09.15 - 12.00 Hedging Interest Rate Risk (Continued)

  • Using “Macro Swaps” to Hedge Loan and Deposit Portfolios
  • Macro Hedging of Bond Portfolios Using Futures, Swaps
  • Workshop:
        Macro Hedging of Loan and bond Portfolios
  • Practical Hedging Examples

FX Risk Management

  • Sources of Currency Risk
  • Identifying and Measuring FX Exposure
    • Economic exposure
    • Translation exposure
    • Transaction exposure
  • Measuring FX Exposure at the “Micro” Level
  • Measuring FX risk at the Portfolio Level (VaR)
  • Practical Hedging Examples
  • Workshop:
        Identifying and Measuring FX Exposure

12.00 - 13.00 Lunch

13.00 - 16.30 Hedging FX Risk

  • Hedging Economic FX Exposure
  • Hedging Transaction Risk Exposure
    • Using forwards
    • Using “protective puts”
    • Using “covered calls”
    • Using swaps
  • Hedging Contingent Exposures
  • Using Exotic Options for Hedging Currency Risk
  • Using Cross Hedges and Proxy Hedges
  • Hedge Accounting: Fair Value and Cash Flow Hedges
  • Practical Hedging Examples
  • Workshop:
        Hedging FX Transaction Exposure
  • Workshop:
        Hedging FX Risk of Investment Portfolio

Evaluation and Termination of the Workshop