Avaliable as an in-house course only                                                                                                             

 
Course Overview

The objective of the course is to provide a clear overview of the range of derivative products. It seeks to explain the complex derivative products using building blocks of the basic financial products.

The course explores how the bank’s clients could use derivatives to mitigate equity, interest rate, foreign exchange and credit risks.

Course Content

Day One

Introduction
Building blocks: Forwards, Futures, Swaps and Options
Hedging Tool
Speculative Use - a real issue
Structuring Tool

Exercise: To calculate the forward interest rate and forward exchange rate for currencies

Forward Markets
Principles of forward pricing
FX forward market
Currency Risk mitigation using FX forwards

Exercises:
1. A coal trader who sells in US$ and his costs are in Indonesian Rupiah will be able to hedge using FX forwards.

2. A German auto-manufacturer sells in Euro and pays for Steel in US$ and the participant will be given numerical examples on the appropriate Forwards to purchase/sell.

Financial Futures
Definitions
Terminology
Standardisation of Contracts
Interest-rate, bond, stock index and currency contracts
Physical delivery vs Cash Settlement
Margin Accounts - the mechanism

Exercises used to compare the futures price with that obtained by the forward prices quoted in the market.

Swaps
Concept of swaps
Interest rate Swaps
Currency Swaps
Equity Swaps
Applications of swaps

Exercises: A number of examples of Companies given where they swap their ability to raise funds in a market they have an inherent advantage with the need for funds as required by their business.

Participants will be required to draw schematics and calculate all in cost for all parties involved in a swap transaction. The concept of structuring swap deals which are win-win for all will be introduced through these exercises.

Day Two

Options
Types: European or American
Concepts and Terminology
Importance of Time Value
Components of Time Value
Value and Profit profiles
Option Pricing - limitations of Black Scholes model
Volatility and its effects

Caps, Floor and Collars
Caps - to be used for limiting interest rate risk
Floors - normally used to offset cost of cap
Collars - in particular Zero Cost Collar
Combinations of Swaps and Caps
Combinations of Options and Caps/Floors
Delayed Start Caps/Floors

Exercises: A number of exercises are envisaged in this section:

1. Calculation of current yield, minimum yield etc when a Company purchases a CAP or a FLOOR and the interest rate movements vary subsequently.

2. The effect of prepayment of Loan where a CAP has been purchased

3. The effect of valuing the derivative products following M&A activity

Workshop Section: To arrive at the best strategy say for a property development company which need to borrow funds given its cash flow requirement. The case study will allow groups to take different roles such as bank and customer so as to understand the risk and mitigants for the various stake holders.

Credit Derivatives
Principles and Functions
Types and the market
Credit Default Swaps
Terms and Definitions
Credit events - potential event of default
Settlement types
Market conventions
Applications for Credit Default Swaps
Financial Crisis - how the CDS market reacted.

Exercises: Participants required to draw schematics and compute total cost including credit in various scenarios.

Credit Analysis & Documentation
ISDA agreements
Market and trading conventions
Separating management of relationship and credit risk
Analysis of the credit risk of each derivative
Analysis of financial statements with derivatives stated in the notes to accounts
Setting lines for FX and Derivatives
Cross default and other provisions

Other Credit Derivative Products
Asset Swaps
Total Return swaps
Credit spread products
Credit-linked notes (CLNs)


PDF of course outline - Please note that tailoring is possible


IF YOU HAVE ANY QUESTIONS ABOUT THIS SEMINAR PLEASE WRITE TO US AT post@redcliffetraining.co.uk


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