Available as a 4 day in-house course 


 Course Outline

A practical and highly interactive 4-day training course giving delegates a thorough and up-to-date understanding of the foreign exchange and short-term interest rate products and markets typically traded in a bank's treasury division.

This course provides a firm grounding in the instruments and activities of the international money market, sweeping away the confusion that can be created by the scale, speed and apparent diversity of the market.

The course focuses on the current, not historic profile of the market, and offers up-to-date insights. It also emphasises the integrated nature of the market, in particular, how different instruments perform the same or similar functions, and the opportunities this provides for arbitrage and hedging.

 Who Should Attend

Treasury Executives
Corporate Finance Executives
Relationship Officers
Money Market Managers
Foreign Exchange Executives
Accountants and Auditors

 Course Content

 Day 1

Initial Considerations
Current position of AIM
Advantages and disadvantages of a quotation
Suitability for a quotation
Tax advantages for investors

Brief Review of Money Market Arithmetic
Introducing nominal and effective rates; the concepts of nominal
  payment and effective value

Exercise: Valuing a certificate of deposit (CD); expressing the yield in alternative conventions; restructuring the CD as a discount-paying instrument.

Traditional Cash Instruments
Comparison of functions; origins, structures, pricing and other
  calculations; method of quotation and other conventions; spreads,
  negotiability and marketability, security, underwriting, liquidity, terms
  and type of return
Deposits and deposit indices: LIBOR, EURIBOR, Fed funds, overnight
  indices (eg EONIA)
Traditional money market securities: treasury bills and bank bills
Modern money market securities: CD, CP
Relative yield spreads in the money market
Special determinants and dynamics

Case study: Selecting cash money market instruments for liquidity management by analysing the credit and liquidity components of spreads.

Repo
The mechanics of a repo, terminology, valuation of collateral
Margining
Legal versus economic character
Credit exposures on repo
Types of collateral; rights of substitution
Custody of collateral: delivery, HIC or tri-party
GC repo and specials
GC repo rate and spreads to other money markets
Types of repo: classic repo; sell / buy-backs
Using repo: borrowing cash; lending securities; lending cash; borrowing
  securities; trading repo;
information
Specialised use of repo in the derivatives market
Documentation

Case Study: Mobilising a portfolio of collateral in the repo market to achieve a balance between maximum and cheapest funding.

 Day 2

Interest Rate Risk Management in the Money Market
What is interest rate risk?
Asset/liability characterisation
Quantifying interest rate risk by calculating breakeven rates
Forward rate arithmetic
Forward rates and forward curves
Market expectations

Trading Interest Rate Risk
Forward-forward loans and deposits
The disadvantages of on-balance sheet risk management
Inventing off-balance sheet instruments and derivative instruments
Using forward-forward instruments to synthesise longer-term interest
   rate exposures
More forward rate arithmetic
Why synthetic instruments can provide cheaper funds and higher
  returns

Case Study: Maximising returns using synthetic investments as alternatives to cash investments.

Money Market Derivatives: FRA
The mechanics of FRAs
Using FRAs to take risk against the forward curve
Using FRAs to hedge the risk of either a borrower or a lender
Trading FRAs

Case Study: Hedging cash exposures with FRAs and calculating hedged costs of borrowing or lending.

Money Market Futures
Definition
Contrast with OTC markets
The structure and operation of exchanges
The role of the clearing house. Initial margins and variation margins
Method of price quotation
Specifications of the main contracts
Calculating profit / loss using ticks

 Day 3

Money Market Futures (continued)
Using money market futures to take risk on interest rate changes;
  spread trading
Using money market futures to hedge risk on interest rate changes for
  borrowers and investors
Hedge ratios
Simple hedging strategies: stack and strip hedges; interpolative and
  extrapolative hedging
The problem of basis risk
The basis: types of basis, convergence, backwardation and contango
Hedging basis risk with spread trades
Cash-bucketing / mapping cashflows

Case Study: constructing a rolling interpolative hedge with basis hedge for a future liability.

Money Market Swaps
Mechanics; settlement; hedging; pricing
Standard money market swaps
IMM swaps
Structured swaps (eg LIBOR-in-arrears)
OIS
Definition and mechanics
Swap strategies
The problem of convexity bias against futures

Case Study: hedging funding with OIS.

Interest Rate Options
Overview of options: mechanics, terminology, pricing and valuation
Relationship to cash instruments
When to use options: comparisons with non-optional instruments
Caps and floors
Basic option strategies to reduce premium or tailor directional and
  volatility exposures

Case Study: Constructing an option hedging strategy from generic option contracts to express a view on the direction of prices.

Analysing the Money Markets and the Role of the Central Banks
Market structure
Yield curves: construction, theory and practice
Why central banks intervene in money markets
The role of central banks in interest rate determination
How central banks intervene: targets and instruments
Comparison of Fed, ECB and Bank of England
Recent history
Central bank watching: forecasting and reading intervention

Case Study: Forecasting euro interest rates in a ‘factional’ scenario selectively reconstructed from past episodes in the history of the ECB.

 Day 4

Foreign Exchange
Basic exchange rate conventions
The structure of the FX market

Forward FX and Currency Risk
Hedging and pricing a forward FX transaction
Forward FX arithmetic
Interest parity theorem and covered interest arbitrage
Methods of forward FX quotation
Covered interest arbitrage calculations for borrowers and lenders
The arbitrage square. Implying interest rates from forward foreign
  exchange rates

Exercise: Identifying and quantifying a covered interest arbitrage opportunity from market prices.

The Foreign Exchange Swap
The origins of and rationale for the FX swap
The mechanics of the swap
Swaps versus outrights
FX swap terminology
Using swaps in hedging and liquidity management
Overnight and tom / next swaps
Rolling over spot positions
Hedging early currency deliveries
Extending swap positions
Historic rate swaps
Trading swaps

Case Study: Managing the cashflows on forward currency transactions with customers using FX swaps.

Forward-Forward Swaps
Pricing forward-forward swaps
Taking interest rate risk with FX swaps
Calculating the P&L
CFDs; NDFs
Hedging and pricing synthetic FRAs

Case Study: Synthesising (hedging and pricing) an emerging market FRA from FX swaps.

Currency Options
Additional considerations
Structured and exotic currency options
Currency option trading strategies

Case Study: Trading currency volatility by constructing a strategy from generic options.

PDF of course outline - Please note that tailoring is possible


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