Interface of money markets and foreign exchange (FX)

• Size of the markets
• Issuance of Treasury instruments, repos, and commercial paper
• Overview of the Euromarkets
• Legacy issues relating to London Interbank Offered Rate (LIBOR)
• Secured Overnight Financing Rate (SOFR), SONIA, ESTER
• Treasury bill issuance in different jurisdictions
• The mechanics of the Repo market
• Forward rates for interest rate and FX
• Effective yields when risk adjusted for FX exposures
• Arbitrage and interest rate parity
• Current market conditions
• Risk premia, key money markets spreads and currency outlook

Role of central banks in the financial system

• Overview of central banks
  • Federal Reserve
  • European Central Bank
  • People’s Bank of China
  • Bank of Japan
  • Bank of England
• Structure of a central bank balance sheet
• Characteristics of central bank’s assets and liabilities
• Lender of last resort
• Summary of Open Market Operations
• Unorthodox monetary policy including quantitative easing (QE)
• Independence of central banks
• Financial stability and macro-prudential policy
• Forward guidance and transparency of decision making
• Management of FX reserves and exchange rate policy
• Nature of payments systems – real-time gross settlement systems (RTGS), net settlement, Fedwire, Target2

Monetary policy and money supply

• Overview of the policy committees
  • Federal Open Market Committee (FOMC)
  • Monetary Policy Committee of the Bank of England (MPC of BOE)
  • European Central Bank (ECB Governing Council)
  • The People’s Bank of China (PBOC) governance
• Overview of money supply
• Monetary tools and how they impact money supply
• How is money created in a modern economy
• Inflation targeting
• Central bank reserves
• Explanation of the Taylor rule
• Term structure of interest rates

Foreign exchange market characteristics

• Size of market, volumes, participants, major currency pairs
• Regional breakdown of where and when most FX trading takes place
• Key role of London market in FX trading
• Historical background to today’s FX market
• Role of the International Monetary Fund (IMF) and Special Drawing Rights (SDR’s)
• Global FX reserves
• Review of several key historical FX rates
• Price of gold and relationship to the US Dollar index

Interest rate (IR) swaps

• Basic structures and terminology of swaps
• Business case for using IR swaps
• Contrast money market rates and IR swap rates
• Notion of swap as an aggregation of forward rate agreements
• Pricing the fixed leg and interpreting the swap markets
• Counter party risk
• Recognition that credit valuation adjustment (CVA) is integral part of trading practices and pricing of derivatives and not just a regulatory (Basel) issue
• Over-The-Counter (OTC) market versus Swap Execution Facilities (SEF’s)
• Collateralized OTC trades versus margin based Central Clearing Party (CCP) platforms
• Netting arrangements

Credit default swaps (CDS)

• Terminology – protection buyer/seller, reference entity,
• Naked CDS positions
• Contrast between a CDS and a financial insurance contract
• Equating actual and contingent payments
• Inputs to model - default probabilities, loss given default (LGD), forward curve
• Sovereign and corporate markets
• Single name CDS versus basket products, nth to default structures
• Determination of a credit event
• Recent amendments to the International Swaps and Derivatives Association (ISDA) protocols on determination of credit events
• ISDA protocols

Using derivatives for general hedging purposes

• Key concepts of hedging equity and fixed income risk with derivatives
• Using index futures and options to hedge equity portfolio
• Hedge ratio calculation for equity futures
• Calculating portfolio beta
• Options strategies
• Using forwards to hedge forex risk
• Using swaps to hedge credit risk
• Using variance swaps to hedge volatility risk
• Asset/liability management and the treasury function
  • Interest rate risks
  • Market risk i.e. re-valuation of bank holdings from changes in interest rates
  • Accounting issues related to fair value accounting
  • Duration gap analysis
  • Interest rate forecasting
  • Review of inflation protected securities
  • Estimating the Term Liquidity Premium in money markets
  • Funds Transfer Pricing (FTP) mechanics
  • Contingency buffers for liquidity risk management
  • Funding Value Adjustment (FVA)
  • Bank funding curves
  • Applying the correct FTP charges for strategic balance sheet management

The global regulatory framework

• Overview of the Basel III framework
• Key provisions of Basel III related to market risk, credit risk, liquidity risk and operational risk
• Pillars 2 and 3 of Basel accords and role of central banks as supervisors
• Contrast macro-prudential policy initiatives with traditional micro-prudential
• Pro-cyclical and counter-cyclical risk management
• Dodd Frank Act and Financial Stability Oversight Council (FSOC), Volcker rule
• Regulatory investigations into market abuse
• USA - the Federal Reserve, Treasury, Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), Federal Deposit Insurance Corporation (FDIC)
• UK - Bank of England, Prudential Regulation Authority (PRA), Financial Conduct Authority
• European Union – ECB, the European Stability Mechanism (ESM), the European Securities and Markets Authority (ESMA)
• Trans national – Bank for International Settlements (BIS), Global Financial Stability Board etc.
• Sarbanes-Oxley – risk disclosure, stringent accounting requirements, impact on IT policies
• Volcker Rule – restrictions on activities/structure of banks