Course Structure

The course will build your knowledge over three days beginning with an understanding of what money markets are, who the main players are, what their motivation for participation in the market is, and how the framework of the money market operates, including the crucial role of central banks and the rate of inflation – an ongoing concern for central banks and the stability of the global economy.
Through practical examples and team exercises on subjects like interbank loans and the secondary market in certificates of deposit on day one, you will rapidly gain a clear understanding of the vital role of the money markets and, how in a practical sense the market operates.

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• Chief Financial Officers
• Treasury Managers
• Asset & Liability Managers
• Consumer Product Managers
• Market and Credit Risk Managers
• Investment Professionals
• Controllers and Finance
• Portfolio Managers
• Securities Analysts
• Insurance Executives
• Pension Fund Managers and Trustees
• Auditors/Accountants
• MIS and Operations Executives
• Budgeting & Planning Executives
• Central Bankers (Supervision Department and Reserve Management)

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Day 1

The market in short term money

• Definition of money markets

• The players and their motivations

  • Banks

  • Fund managers

  • Hedge funds

  • Central banks

  • Corporations

Why this rate?

• The role of the central bank

• The effect of inflation

• The action of speculators

• Credit and liquidity considerations

The traditional products

• Interbank loans and deposits

  • What is LIBOR?

  • LIBOR, EURIBOR etc. as benchmarks

  • Terminology

  • How a trade is executed and settled

  • Mathematics: Day count, day-base, and
    interest calculation

  • Risks

Exercise on interbank loan: Understanding the jargon and checking the details

• Certificates of deposit

  • Primary issue

  • Secondary market

  • Uses: compare and contrast to basic loans and deposits

  • Mathematics

Exercise on secondary market trading of CDs

• Commercial paper

  • U.S. domestic

  • Eurocurrency

  • Motivation for issue

  • Use as an investment

  • Mathematics

• Treasury bills

• Trade bills / bankers’ acceptances

Money market indices

• Eonia, Sonia and other short term references

  • Construction and uses

Repurchase agreements (Repos)

• Structure, (including a brief introduction to bonds and related mathematics)

• Raison d’etre

• Classic repo

  • Basic mathematics

  • The “haircut”

  • The “General Collateral (GC)” rate and its relationship to LIBOR

Exercise on pricing a classic repo

• Sale and buyback

• Sale and total return swap (TRS)

• Reverse repo and bonds “on special”

• The significance of repo for the authorities in money supply management

Exercise on comparison of sale-plus-TRS trade to regular classic repo
 

Day 2
Interest rate exposures

• ■ Gap management

• ■ Disaggregating the yield curve and forward-forward interest rates

Exercise on calculating forward / forward rates

Forward rate agreements (FRAs)

• Construction

• Pricing

• Uses

• Trading

• Processing

• Risk profile

• Documentation: ISDA and FRABBA

Exercise on the use of FRAs

Exercise on revaluing a trading book of FRAs and quantifying the risks

Short term interest rate futures (STIR contracts)

• The role of the exchange

• The role of the clearing house

• Trading methodology

• Margining

• Comparison to FRAs

Exercise on the use of STIR contracts

Exercise on hedging FRAs with STIR contracts

Short term interest rate swaps

• One year fixed vs. monthly or quarterly refix

• Overnight Index Swap (OIS)

• Raison d’etre

• Risks

• Marking to market

• Termination issues

Money market options

• Interest rate guarantees (IRGs)

  • Put on FRA

  • Call on FRA

  • Uses

Exercise on the use of IRGs and the payoff scenarios

• Relationship to Caps, Floors & Collars

• Caplets and Floorlets vs. IRGs

• Options on short-term interest rate swaps

Day 3
The foreign exchange market

• Market statistics

• What makes the market move?

  • Purchasing power parity

  • Interest arbitrage theory

  • Random walk

• The traders

  • The fundamentalist or economist dealer and what he focuses on

  • The technical analyst and the charts

  • The intuitive dealer and market “feel” and sentiment

Where foreign exchange risk might arise

• Transaction exposure

• Translation exposure

• Pre-transaction, or budget exposure

• Economic exposure

• Competitor exposure

Spot foreign exchange

• The fundamentals of price quotation

• Settlement procedures

• Risks

Exercise on pricing spot foreign exchange trades

Forward foreign exchange

• Pricing relationship to money market interest rates

• Managing transaction exposure

• Risks

• Non-deliverable forwards and contracts for
  difference

Exercise on foreign exchange risk and using forwards for hedging

Foreign exchange swaps

• Construction

• Use in gap management

• Managing translation exposure

• Creating artificial investments or borrowings

• Rolling over positions

• Synthetic agreements for forward exchange (SAFEs)

Exercise on using swaps for gap management

Exercise on using swaps to create and price an artificial investment in exotic currencies

Foreign exchange options

• Pricing inputs

• Using options to manage transaction, pretransaction, economic and competitor exposures

• Use of options when tendering

Exercise on the use of foreign exchange options and contrasting with the use of forwards

• Trading options

  • Pay-off profiles and risks

  • The “Greeks”: delta, theta etc.

• Popular “exotic” options

  • Barrier options

  • Digital options

  • Compound options

• Exercise on the use of a down-and-out digital option and the risks involved

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