Financial Markets and Investment Banking

Course Overview

This course has been available as a public training programme in many countries around the world in particular in London, Frankfurt and Singapore.  It has also been available as an in-house programme in emerging markets.

It is an interactive training programme on Financial Markets and Investment Banking.  In three modules it covers the main areas of Money Markets, Foreign Exchange, Capital Markets and their Derivatives.

The first module focuses on Money Markets and Foreign Exchange.

The second module emphasises the Bond Market and Swaps.

The third module explains Futures and Options.

The overall duration of the programme is 6 days.

Money Markets and Foreign Exchange are central to the financial markets as a whole and play a fundamental role. With a large array of ever increasing short-term instruments the dynamic nature of the money markets is extremely interesting and diverse, not to mention profitable, with billions of pounds turnover every day. Therefore, it is clear to see that anyone working in finance needs a thorough grounding in the subject.

Bond Markets and Swaps are playing ever greater role in capital markets.  Questions about how to weather the current turmoil, correctly price a new bond issue and then properly value the positions over time has become an essential requirement. 

Financial Derivates have played an increasingly important role since their introduction. In some markets, they actually have become the driving force behind the movements in cash markets.  Obviously a foundation in this area is mandatory.

Overall course aim:

To provide market participants with the necessary building blocks to understand the different products in financial markets leaving them with an excellent foundation and a comprehensive overview in order to understand and develop new structures.  Participants will understand the spirit of Trading and Investment Banking.  At the end of the programme, participants will have an advanced view on financial markets that can only be achieved by attending this programme.

The speaker shares with great clarity and charisma the concepts that have lead market participants from tears to success.

Day 1:  Regulation, Financial Arithmetic, Market Conventions

Introduction:

• Overview over Financial Markets
• Cash Flows: the Underlying of any Financial Instrument
• Risk and Return Characteristics
• Current developments

Financial Markets:

• Money Markets
• Capital Markets

Banking Regulations:

• Capital Adequacy Requirement
• Basel I
• Basel II

Time Value of Money and Interest Rates (I):

• Factors determining the Value of Money
• Future Value and  Present Value
• Discount Factors and Compound Factors
• Yield versus Return
• Differences between Capital Markets and  Money Markets
• Exercises

Explanation of the commonly used Market Conventions:

• US Bond Basis
• US Money Market Basis
• UK Money Market Basis
• ISMA Convention
• Actual/Actual

Payment Day Convention

• Preceding and Following Payment Day Convention
• Modified Following Payment Day Convention
• FRN Convention

Day 2:  Money Markets and Foreign Exchange

Money Market Instruments:

• Discounted Securities versus Interest-bearing Securities
• Interest Rate Calculations

Forward Markets:

• Developing a Forward Market from Deposits
• Forward Rate Agreements (FRA’s)
• Interest Rate Futures

Foreign Exchange Markets:

• Spot FX
• Forward Outright
• FX Swaps
• Covered Interest Arbitrage

The Repo Markets:

• Sell/Buy Back
• Classic Repo
• Securities Lending

Day 3:  Bonds and Interest Rate Risk Management

Funding through Capital Markets:

• Equity Finance
• Loan Financing
• Securitisation
• Syndication
• Bond Financing
• Hybrid Instruments

Introduction to Bond Markets:

• Main Players
• The Investor Perspective
• The Borrower Perspective
• The Intermediaries Perspective
• Credit Structure, Credit Agencies and Ratings

Bond Market Segments:

• Domestic Bond Market
• Foreign Bond Market
• International Bond Market
• Global Bond Markets

Bond Pricing:

• Pricing and Valuation of Fixed-Rate Bonds
• Accrued Interest
• Fed versus Street Method
• The Relationship between Price, Yield and Coupon

Bond Risk Management:

• Factors affecting the Bond Price
• Bond Price Sensitivity
• Macauley Duration
• Modified Duration
• DV01
• Convexity

Applications of Duration:

• Risk Measure
• Investment Decisions
• Portfolio Management and Switching
• Asset and Liability Management
• Hedging

The Debt Origination Process:

• The Role of Banks as Intermediaries between Borrowers and Investors
• The Interplay between Origination, Sales and Trading
• Syndication of New Issues

Case Study: Debt Origination

• Road Show
• Book Building
• Benchmarking the new Bond
• Selecting the Re-offer Spread
• Selecting the Coupon
• The Re-offer Price
• Including the Fees for Investors and Issuers
• Issue Price versus All-in Price
• Amortising the Fees
• Benchmarking after Fees

Day 4:  Term-structure of Interest Rates and Swaps

Coupon Stripping:

• TIGR, LION’s, CATS, DOGS, TR, STRIPS
• Special purpose vehicles (SPV),  CLN’s, CMO’s etc

Term-structure of Interest Rates:

• Par Curve
• Zero-coupon Curve
• Forward Curve
• Bootstrapping

Benchmarking and Credit:

• Money Market and Capital Market Benchmarks
• Government Curve
• Bank Curve
• Corporate Curve

Interest Rate and Currency Swaps:

• The Swaps Mechanism
• Types of Swaps

Applications of Swaps:

• Speculation
• Hedging
• Asset and Liability Management
• Market Making
• Risk Management
• Debt Origination Arbitrage
• Asset Swaps
• Creating Synthetic Instruments

The Principle of Swap Pricing:

• The Need for Forward Rates
• The Need for Zero-coupon Rates

Swap Pricing:

• Finding the Forward Amounts
• Discounting the Floating Leg
• Equalise the Floating Leg with the Fixed Leg
• Discounting the Fixed Leg
• Finding the Swap Rate
• Creating a Swap Curve

Swap Valuation:

• Swap Rates
• Zero-coupon Rates
• Forward Rates
• Discount Factors
• PV of fixed and floating Leg
• Net Present Value

Day 5:  Swap Pricing and Futures

Asset Swap Pricing:

• Par-Par Structures
• Premium-Par Structures
• Discount-Par Structures

Uses of Asset Swap Valuation:

• Investment Decisions
• Benchmarking over Swap Curve
• Benchmarking over Libor

Pricing Structured Products:

• FRN’s
• Zero-coupon Bonds and Swaps
• Step-up Coupon Bonds and Swaps
• Amortising Bonds and Swaps
• Roller-coaster Bonds and Swaps
• Forward Starting Bonds and Swaps

Introduction to Futures and Options:

• The History and Development of the Market
• Definitions
• Over-the Counter (OTC) versus Exchange Traded Products
• The Role of The Clearing House

Margining:

• Trading
• Novation of Contract
• Initial Margin
• Variation Margin
• Intra-day Margin Call
• Gearing

Pricing and Valuing Futures:

• Basic Futures Mechanism
• Pricing Futures through Cash and Carry Arbitrage
• The Value Basis
• The Carry Basis
• The Importance of Credit

Specialities with Futures Contracts:

• Cash Settlement
• Physical Delivery

Bond Futures:

• Exchange Delivery Settlement Price
• Price Conversion Factors
• Cheapest-to-deliver

Day 6:  Options and Structured Products

Introduction to Options:

• Definitions
• Calls and Puts

Using Options to:

• Gear up
• Speculate
• Hedge
• Arbitrage

Option Trading Strategies:

• Straddles
• Strangles
• Bear Spreads
• Bull Spreads
• Butterflies
• Risk Reversal
• Cylinders
• Put – Call Parity

A Simple Approach to Option Pricing:

• Volatility
• The Binomial Model
• The Black & Scholes Model
• The Greeks (Risk measures)

Case Study: Managing the Risks

• Delta-hedging your Option Positions

Exotic Options:

• Barrier Options
• Knock-in and Knock out Options
• Lookback Options
• Best of two (Digital)

Structured Products:

• Participation and Tracking
• Guaranteed Return Products
• Yield enhancement

Interest Rate Risk Management:

• Arbitrage boundaries

Course Summary:

• Putting Financial Instruments Into Context
• Risk Management

Delivering this course in-house for you to a number of participants could be very cost effective. Please call us on 020 7387 4484 to discuss this further.

If you have any questions about this seminar please write to us at post@redcliffetraining.co.uk.