FOREX and Money Market Instruments

Duration:
3 days
Location:
Prague, NH Hotel Prague
  • 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 purpose 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.
  • 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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