Foreign Exchange Workshop: 3 Day Content

Day 1

Definition and representation of basic exposures:

  • a generic, colour-coded, symbolic methodology for representing any foreign exchange exposures

Be a confident, pro-active risk manager rather than someone bewildered after a foreign exchange-based "ugly incident"! The principles of articulating and implementing a foreign exchange exposure management policy in a corporate governance context:

  • defining objectives
  • articulating a philosophical attitude towards foreign exchange risk
  • should corporate foreign exchange exposure management be centralised?
  • the role of limits
  • communicating authorities
  • vital internal controls
  • exposure reporting systems
  • extracting value from the banking system
  • knowing the right questions to ask

Other background judgment factors underlying exposure management.

Commercial and financial exposure management alternatives.

Corporate financial alternatives:

  • using combinations of markets to engineer financial solutions
  • foreign exchange and money markets
  • local markets and Eurocurrency markets

Pricing of alternative engineered solutions:

  • general principles underlying optimal selection from alternatives

Case study: selection from basic alternatives:

  • "cover" fully foreign exchange exposures
  • a commercially important, counter-intuitive solution to a common financial management problem that has the potential to save otherwise needlessly wasted money.

Case study: comparison of solutions engineered to guarantee certainty as opposed to being deliberately uncovered:

  • speaking the language of foreign exchange professionals: calculating forward points
  • how to take a calculated risk

Day 2

Case study: delaying foreign exchange transactions:

  • engineering an easy, but often overlooked, financing solution to multicurrency cash flows in different directions and with timing differences
  • foreign exchange forward rate agreements (FRAs)

Case study: non-deliverable foreign exchange contracts:

  • eliminating foreign exchange risk without dealing in foreign exchange
  • doing what regulated foreign exchange regimes often try to prevent without violating central bank restrictions
  • pricing principles

Interpreting quotation sheets in money markets and foreign exchange markets:

  • profiting from utilising the information providers
  • role of foreign exchange brokers
  • simulated dealing: benefiting from understanding professional practice

Case study: pricing foreign-foreign transactions:

  • possible benefits from splitting foreign exchange transactions into two components – one domestic and one "offshore"
  • pricing principles not often shown by banks

Case study: exchange rate risk; interest rate risk; managing a foreign exchange book:

  • eliminating foreign exchange risk while managing interest rate risk
  • how to benefit from understanding principles used by professionals when managing a foreign exchange book

Case study: spot against forward swaps:

  • the price-efficient way to roll forward cover
  • pricing principles bankers rarely reveal
  • money just for asking: how to get a better price merely by asking the correct question!

Case study: domestic or offshore funding?

  • covering principal and interest
  • all-up covered cost of funds
  • effect of interest withholding tax (where applicable)
  • a fundamental pricing principle reflecting the fact that "there are no free lunches"

Day 3

Case study: odd dated forward pricing:

  • market practice
  • pricing principles

Case study: forward-forward swaps:

  • spot against forward swaps extended
  • moving forward cover to a more distant future date price-efficiently
  • pricing principles
  • more that the bankers rarely reveal

Value date option contracts:

  • pricing principles
  • circumstances under which a bank will most often offer these contracts
  • are they a trap for the unwary?

Case study: currency options:

  • options terminology
  • option pricing principles
  • basic options
  • exotic options: the combination of basic options

Short dated foreign exchange market:

  • short-dated swaps
  • pricing principles

Case study: interest rate swaps:

  • swapping from a floating to a fixed interest rate and vice versa
  • pricing principles

Case study: currency coupon swaps:

  • swapping from a floating interest rate in one currency to a fixed interest rate in another currency and vice versa
  • pricing principles
  • swap-driven Eurobond issues

Case study: optimal currency of invoicing:

  • reconciling multiple joint invoicing alternatives and funding alternatives
  • covering multicurrency exposures
  • a counter-intuitive, commercially important, general solution.
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