Overview

Products and Risks in Financial Markets explains respective fundamental and derivative financial markets products, and financial risk management policy formulation and implementation.

By the conclusion of the workshop, attendees will be able to understand the contribution made to international financial markets turmoil since 2007 by:

• the use (and abuse) of financial derivative products
• shortcomings in, and failure to observe, financial risk management policy requirements.

Workshop attendees will also be able to:

• appreciate the crucial importance of establishing an appropriate financial risk management policy
• understand the pricing of all financial products discussed
• select the appropriate circumstances for utilising those various products
• appreciate how financial derivatives can be powerful tools for reducing or eliminating financial risk - but only when understood and used appropriately
• apply techniques for measuring financial risk.

Financial Markets Fundamentals

Financial risk defined

Money Markets

Foreign Exchange Markets

• Local and Eurocurrency markets
• Spot foreign exchange
• Forward foreign exchange
• Foreign exchange swaps
• Forward rates as predictors of future spot rates

Case study: utilising fundamental financial products either singly or in combination in order to synthesise a counter-intuitive, but optimally priced, solution to a common commercial risk management problem.

Building on the Fundamentals: Financial Derivatives

Forward Rate Agreements (FRAs)

• Definition
• Settlement
• Pricing

Financial Futures

• Definition
  
• Features
  
• Role of the clearing house
  
• Deposits and margins

Swaps

• Interest rate swaps
• Currency swaps
  
• Applications
  

Options

• Definition
  
• Terminology
  
• Pricing
  
• Caps, floors and collars

Credit derivatives

• credit spread swaps
• total return swaps
• credit default swaps

Assessing Financial Risk

Mark to market

Value at risk (VaR)

Disaster Avoidance: Active Financial Risk Management

Defining an appropriate financial risk management policy.

Positioning before the event to avoid a financial "ugly incident":

• A risk averse or risk taking entity?
• Knowing how much risk to take
• Questions Board members and senior management must ask and be able to assess the answers
• Instruments authorised for dealing purposes
• Crucial internal controls
• Critical role of ongoing oversight
• Internal reports that must be regularly generated and understood
• How to review an established policy

"Products and Risks in Financial Markets" Video

A professionally produced video of an actual Products and Risks in Financial Markets one day presentation (complete with comprehensive reference notes, workshop handouts, case studies and solutions to case studies) is available for online purchase and delivery. The video has a total running time of six hours and the workshop presenter is John R. Rush. For further details contact Oakbridge.

This interactive workshop draws upon the content (in the upper large panel of this page) of the one day Products and Risks in Financial Markets seminar but emphasises attendees working through numerous commercially realistic case studies in small groups so as to "discover" relevant underlying financial markets pricing principles and the appropriate circumstances for utilising fundamental and derivative financial instruments.

Workshop content

Fundamental financial markets products

•  Used singly or in combination to construct risk-free alternatives

•  Optimal rules for selection of the best risk-free alternative

Short term money markets and fixed income markets

• interest-bearing securities and discount securities
• fixed income securities: bond pricing, duration and convexity
• neutralisation: “balancing” a bond portfolio

Foreign exchange markets

• spot and forward; local markets and Eurocurrency markets
• spot against forward swaps
• forward contract pricing principles
• case study

Managing interest rate risk while eliminating foreign exchange risk

• case study

Financial Derivatives: building on the fundamentals

Derivatives defined

Forward Rate Agreements (FRAs)

• case study

Financial futures

• case study

Swaps

• interest rate swaps
• currency coupon swaps
• case study

Options

• options terminology
• caps, floors and collars
• managing options price risk: delta hedging
• case study

Commodity derivatives

Credit derivatives

• total return swaps
• credit spread swaps
• credit default swaps

Assessing financial risk

Mark to market

Value at Risk (VaR)

The Global Financial Crisis

Lessons learned

Remedies proposed

Role of the Bank for International Settlements (BIS)

Could the Global Financial Crisis be repeated?

Avoiding financial disaster: active financial risk management

Positioning before the event to avoid a financial “ugly incident”

Defining and implementing an appropriate corporate financial risk management policy

Concluding principles supporting ongoing financial solvency