Interest Rate and Currency Derivatives Workshop - 4 Days
In-House. Contact us to arrange this course in your office
Description
With increased volatility and liquidity crisis, derivatives are back on the agenda of investment banks and financial institutions due to their ability of hedging and managing risks. Currency and interest rate risks have once more been seen as a critical tool in today’s markets providing profit opportunities in difficult markets.
This intensive 4 day course will provide a comprehensive analysis of interest rate and currency derivatives with focus on structuring, pricing and hedging skills.
The course will be structured around case studies, practical examples and exercises which will help you consolidate the knowledge and apply new strategies in your daily work.
This is an intermediate level course and some previous knowledge of the derivatives is required.
Course level: Intermediate
Main Topics Covered During This Training
- Money markets and money markets derivatives
- The role of LIBOR
- Explaining swaps market
- Use of swaps including ALM and arbitrage with currency swaps
- Strategies for integrating swaps with fixed income products
- Constructing zero coupon curve
- Pricing and marking-to-market
- Measuring, reporting and managing interest rate exposure
- Non-linear derivatives: options
- Building options strategies
- Interest rate and currency options
- OTC Interest rate options: caps, collars, floors, swaptions
- Analysing the spot FX market
- Calculating the cross rate
- Understanding the forward rate
- The FX swap market and rates calculation
- Hedging currency exposures
- Creating structured currency products
What Will You Learn By The End Of This Training
By the end of this training you will be able to:
- Understand different types of interest rate and FX derivatives and their uses
- Apply interest rate and currency derivatives in risk management and hedging
- Understand the principles of pricing
- Recognise different risk management strategies for interest rate and currency derivatives
Who Should Attend
From Investment Banks, Asset and Fund Management, Corporates and other financial institutions, Managers and Professionals from:
- Derivatives Trading
- Interest Rate Traders, Sales and Marketing
- Currency Traders, Sales and Marketing
- Risk Management
- Treasury
- Audit
- Fund and Portfolio Managers
- Financial Analysts and Engineers
- Middle and Back Office Derivatives Managers
Teaching Method
This is a very interactive course with many exercises, classroom discussions and case studies.
You will benefit from comprehensive take away course documentation.
In order to help us establish your individual and business concerns, you will be asked to fill pre-course questionnaire.
Because of the nature of the course the number of places is limited and will be filled on first come, first accepted basis. We advise to book in advance in order to avoid disappointment.
Delegates are expected to bring a laptop with Microsoft Excel. If necessary, we can provide a laptop for an additional fee.
Course Level: Intermediate
INTEREST RATE AND CURRENCY DERIVATIVES - 4 DAY WORKSHOP
Individual days can be booked.
Day 1: Interest Rate Derivatives: the Products & their Uses
Day 2: Pricing & Risk Management
Day 3: Non-linear Derivatives: Options
Day 4: The FX Market
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DAY 1: INTEREST RATE DERIVTIVES: THE PRODUCTS AND THEIR USES
Money Markets & Money Market Derivatives
- The depo market and the role of LIBOR
- Locking in forward rates with cash market instruments
- Understanding forward rate agreements (FRAs)
- Short-term interest rate futures
- Where and how they trade
- The margining process
Case Study: Hedging FRA with short-term interest rate futures
Introduction to the Swaps Markets
- Market Overview
- Types of swap
- Coupon vs basis swaps
- Currency swaps
- Identifying swap cash flows
- Understanding the market rationale: comparative advantage explained
- Swap quote conventions
- Converting from one price quoting basis to another
Case Study: Understanding the rationale for swaps and comparative advantage. Amber SA: cross currency swap.
Uses of Swaps: Integrating Swaps & Fixed Income Products
- Decompounding the swap into a bond and a FRN
- Using swaps to aid asset/liability management
- New issue arbitrage using currency swaps
- Structuring a synthetic FRN: understanding asset swaps
Case Study
- Using swaps to change liability structure
- Asset swaps & synthetic new issues
- Swapped new issue
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DAY2: PRICING & RISK MANAGEMENT
Constructing the Zero Coupon Curve
- Why mark-to-market
- Understanding the valuation process
- Understanding the time value of money
- Deriving discount factors
- Finding forward rates from discount factors
- Bootstrapping long term discount factors
- Issues in zero coupon curve and discount function construction:
- What market instruments to use
- How to interpolate between nodal points
- Using discount factors to value an asset swap package
Case Study: Delegates will derive zero coupon interest rates and discount factors using real market data, and construct an asset swap
Pricing & Marking-to-Market
- Marking to market an FRA
- Decomposing the swap into a bond and a FRN
- Equating the value of the fixed and floating legs
- Marking-to-market an interest rate swap
- Marking-to-market a currency swap
Case Study: Participants will value an off-market swap
Measuring, Reporting and Managing Interest Rate Exposures
- Reporting FRA sensitivities
- Identifying swap book risks
- Traditional approaches to swap book market risk management
- Using government bonds and futures on government bond to hedge the exposure
- Calculating the PV01 of the swap
- Understanding the portfolio approach to risk management
- Understanding how risk management systems operate:
- The delta hedge concept
- Cash bucketing and pyramid hedging approaches
- Creating sensible risk reports
Case Study: Managing the risk of a portfolio of swaps
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DAY 3: NON-LINEAR DERIVATIVES:OPTIONS
An Options Primer
- What is an option?
- Understanding the pay-off profiles at expiry
- The different option types
- Time vs intrinsic value explained
- Drivers of option prices
Building Option Strategies
- Creating different risk/reward profiles using options
- Decomposing given profiles into their constituent components
- Put-call parity revisited
Introduction to Interest Rate & Currency Options
- The ED option contract
- Simple hedging strategies
- Protective put v covered write
- Hedging uncertain interest rate exposures
- IntroduCtion to currency options
Case Study: Understanding payoff profiles
OTC Interest Rate Options: Caps, Collars, Floors & Swaptions
- The one-period instrument: Interest rate guarantee (IRG)
- Using IRG’s to control interest rate risk and evaluating their performance
- Caps as a collection of forward start options
- Using caps and floors
- Reducing the cost: collar strategies
- Creating structures solutions: participating forward instruments
- Swaptions and how they are used in interest rate risk management
- Comparing alternative risk management strategies
Case Study: Delegates will determine appropriate strategies to manage the interest rate risk exposure of a corporate
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DAY 4: THE FX MARKET
The Spot FX Market
- Market organization
- Quoting spot FX rates
- Indirect vs direct quotes
- Calculating the cross rate
- Managing and monitoring the FX spot book
Case Study: Determining FX rates and running the spot book
The FX Forward Market
- Calculating the outright forward rate and forward points
- Understanding where the forward rate comes from
- The FX swap market and how swap rates are calculated
- Quoting longer dated FX forward rates
Case Study: Calculating forward FX rates
Hedging Currency Exposures
- Identifying and measuring the exposures
- Transaction, translation and economic exposures explained
- What risks should be hedged?
- Forwards v options: when to use which instrume
- Using FX forwards, swaps and options as hedge instruments
- Creating structured currency products
- Zero cost collar and corridor strategies
- Participating forwards
- FX forwards with break clauses
Case Study: Participants will derive an optimal hedge programme for FX exposures
Paul North (B.A. hons) has over 20 years experience of working and teaching in the financial and derivatives industry. Paul joined the London International Financial Futures and Options Exchange (LIFFE) in 1988, spending several years on the exchange trading floor before transferring to LIFFE’s Business Development Department.
During his time at LIFFE, Paul worked in the fields of broker relations, product research and development, marketing, market automation and education. Paul was Head of Education at LIFFE, before leaving in Dec 1998 to pursue a freelance career in financial education and consultancy.
Paul is also a qualified teacher and has extensive speaking experience both in the UK and abroad, covering all the major aspects of financial markets. Paul has taught delegates from virtually all of the worlds leading investment banks, funds and trading houses.
IN-HOUSE TRAINING
If you have a team of 4 or more this course can be customised and organised in-house at your convenience in any of your offices worldwide.
Contact one of our advisors to find out more.
Call us now on +44 (0) 207 193 5035
