A Masterclass in Treasury Products and Risk Management

IFF Training

How long?

  • 5 days
  • in person

IFF Training

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About the course

The course covers all the products you need to hedge treasury risks so that you can hedge whichever risks your company faces. You’ll return to work fully conversant with forwards, futures, swaps and options and you’ll know when to use them.

You will:

  • Learn which risk management techniques are giving the best results
  • Be able to identify, measure and manage your firm’s currency and interest rate exposures
  • Learn how to save yourself and your clients money by using cost effective hedging techniques
  • Use your new understanding of the mistakes others have made to avoid making losses
  • Use recent market transactions to learn what happens when treasury risks are managed well and what happens when they aren’t

What You Will Learn

Over five days, you'll use simulations, treasury management meetings and discussion sessions to study all aspects of treasury products.

Using case studies based on the risk management practices of major banks and multi-national corporations, you’ll learn how they approach risk management so that you can apply their techniques to your business.

Here is the course programme at a glance.

DAY ONE

  • Intro to treasury risk management
  • Currency risk
  • Treasury solutions
  • Corporate treasury risk
  • Commodity hedging and trading

DAY TWO

  • How hedging works
  • Strategies for using treasury products
  • Measuring treasury performance
  • Interest rate hedging and trading

DAY THREE

  • How markets move
  • Money markets and interest rate risk
  • Swap market yield curves
  • Interest rate risk
  • Hedging tools
  • Multi–currency debt management

DAY FOUR

  • Interest rate risk management
  • Corporate asset & liability management
  • Currency hedging and trading simulation

DAY FIVE

  • Medium- and long-term financing strategies
  • Equity
  • Liquidity risk management
  • Asset and liability management
  • Debt management

Agenda Summary

Currency Risk Management Policies

CASE STUDY: Risk management at HSBC

  • The role of the treasurer
  • The role of the CFO
  • The functions of a treasury
  • Profit centres and cost centres
  • Centralised and decentralised treasuries
  • Netting and in-house banks
  • The importance of policies, procedures and risk management controls

CASE STUDY: Treasury risk management at Lufthansa

EXERCISE: Defining and categorising types of treasury risk

  • Definitions of risk
  • Asymmetrical risks
  • Understanding the symmetry of market risks
  • Pricing principles

CASE STUDY: Treasury risk management at EVRAZ

CASE STUDY: Treasury risk management at Alphabet

  • The Users of Treasury Products
  • Borrowers and issuers
  • Investors: Asset managers, wealth managers, hedge funds and private equity
  • Banks: Central banks, commercial banks, investment banks and private banks

CASE STUDY: Treasury risk management at Apple

Currency Risk Management Solutions

  • Spot foreign exchange
    • base and variable currencies
    • appreciation, depreciation, strengthening and weakening of currency
    • positions
    • calculating cross rates
  • Forward foreign exchange
    • forward pricing
    • forward points
    • discounts and premiums
  • Foreign exchange swaps
    • origin of the product
    • comparison with repos
    • efficiency of the product
    • FX swaps turnover
  • Currency swaps
    • exchanges of principal
    • gross and net settlement of differentials
    • relationship to forward outrights and FX swaps
    • advantages over the forward market
  • Currency options
    • asymmetric risks
    • reconciling options with our pricing principles
    • comparison with the forward market
  • Natural hedging

CASE STUDY: StoraEnso – transaction, translation and economic exposure management

CASE STUDY: McKinsey’s 5 steps to a more effective global treasury

CASE STUDY: OCBC’s approach to market risk management

CASE STUDY: Netflix

  • Investment policy
  • Interest rate sensitivity
  • Using the portfolio’s modified duration
  • Identifying foreign currency risk: long and short positions
  • Currency risk management policy considerations
  • Currency risk management techniques

Hedging

  • Identifying and analysing risk
    • types of risk
    • long and short positions
  • Hedging
    • physical delivery
    • contracts for differences
    • the importance of carry
    • put/call parity
    • the role of leverage in derivatives hedges
  • OTC and exchange traded products
    • initial and variation margins work
    • Herstatt risk
    • DVP, PVP & CLS Bank
    • symmetrical and asymmetrical risk management
    • equal and opposite positions
    • IAS 39 and IFRS 9

CASE STUDY: Treasury risk management at Southcorp

CASE STUDIES: Risk management at Citibank, Goldman Sachs, HSBC & JP Morgan

Measuring Treasury Performance

  • Defining objectives
  • Challenges in performance measurement
  • ROE, modified duration, PV01, DV01 and VaR
  • Banks and corporations: approaches to performance measurement

CASE STUDY: Measuring treasury performance at banks and multi-national companies

CASE STUDY: Apple Capital Inc

CASE STUDY: How global investors turn negative Japanese yields into big returns

  • Record-low negative yields
  • Discount offered to dollar holders to borrow yen
  • Fixed coupon equivalent for owning five-year JGBs
  • Foreign demand for Japan’s two- and five-year bonds
  • Cross-currency basis swaps
  • Demand for dollars

How Markets Move

EXERCISE: Relating market news to treasury risk management

  • Economic fundamentals
    • macro-economic data
    • micro-economic data
    • political data
  • Technical analysis
    • trend lines
    • support and resistance levels
    • moving averages
  • Random walks
    • knowns and unknowns
    • the efficient markets hypothesis
    • passive and active management strategies

CASE STUDY: A random walk down Wall Street

Money Markets and Interest Rate Risk

  • T-Bills, CDs, CP, ABCP
  • IBORs, IBIDs, IMEANs and the interbank money markets
  • Replacing LIBOR
  • SONIA, EONIA, ESTR, SARON, TONAR & SOFR
  • Repos, securities lending and sell/buy backs
  • Day count conventions: act/360, 30/360 and act/act
  • Discounts and yields
  • Present values, future values, IRRs, YTMs and AICs
  • ICMA 803.1 & 803.2

Understanding Money Market and Swap Market Yield Curves

  • Liquidity preferences
  • Preferred habitats
  • Market expectations
  • Market segmentation
  • Efficient markets?

CASE STUDY: HSBC - Interest Rate Risk in the Banking Book

EXERCISE: Measuring fixed and floating rate risk - 5 year fixed rate bond vs 5 year FRN

  • Quantifying interest rate risk
  • Interest rate sensitivity
  • PV01s and DV01s
  • Interest rate gaps
  • Gap analysis
  • Calculating, understanding and using Macaulay’s duration
  • Calculating, understanding and using modified duration and convexity
  • Using duration as a hedging tool
  • Interest rate liability management
    • fixing floating rate debt in the forward market
    • fixing floating rate debt in the futures market
    • fixing floating rate debt in the swap market
  • Hedging with interest rate options

EXERCISE: Using duration as a hedging tool

  • Interest Rate Hedging Tools
  • FRAs and futures
  • Using interest rate swaps
    • generic, ‘plain vanilla’ swaps
    • swap structures
    • par/par structures
    • forward starting swaps
    • amortising, accreting and roller-coaster swaps
  • Caps, floors and collars
    • option pricing
    • importance of delta and gamma in hedging
  • Swaptions

CASE STUDY: FRAs, futures and interest rate swaps

  • Buying and selling FRAs
  • Selling and buying futures
  • Paying and receiving fixed rates in the swap markets
  • Perfect hedges and basis risk
  • Contrasting exchange traded and OTC derivatives

EXERCISE: Using swaps to hedge assets and liabilities

CASE STUDY: FRAs, futures and interest rate swaps

Multi-Currency Debt Management

  • Using forward foreign exchange outrights
    • forward pricing
    • covered interest arbitrage
    • forward points
    • discounts and premia
    • hedging currency debt
    • arbitraging the credit spread
  • Using FX swaps
    • hedging currency debt
    • arbitraging the credit spread
    • the carry trade
  • Using currency swaps
    • paying and receiving the basis
    • exchanges of principal
    • Using currency options

EXERCISE: Forward foreign exchange - covered interest arbitrage and uncovered interest arbitrage

EXERCISE: Hedging in the forward market

CASE STUDY: The carry trade

CASE STUDY: Cross-currency basis swaps

Swap-Driven Bond Issues

  • Sources of floating rate finance
  • Sources of fixed rate finance
  • Contracts for differences and physical delivery

CASE STUDY: Export Credit Norway - currency swap

CASE STUDY: Citibank’s liquidity puts

CASE STUDY: Goldman Sachs & JP Morgan - lessons from the crisis

Asset-Liability Managemen

  • Gaps
  • Structural interest rate risk
  • Borrowing short and lending long
  • Leverage and structured products
  • The role of ALCOs
  • Hedging strategies in practice
  • Market cycles
  • Lessons from the crisis
  • Perspectives of banks and companies

CASE STUDY: McKinsey - An introduction to asset and liability management

  • Recent trends in ALM
  • Yield curve analysis
  • Gap analysis
  • Net interest income
  • Duration gaps
  • Economic value of equity
  • Value-at-Risk
  • Setting and monitoring tolerance limits
  • Optimising income and managing risk
  • Typical practices in funds transfer pricing
  • Managing liquidity risk
  • Likely developments in ALM

CASE STUDY: Managing EVE sensitivity

CASE STUDY: Portfolio management

  • Investment policies
  • Sensitivity to a 1% parallel shift in the curve
  • PV01s & DV01s
  • Analysing the portfolio
  • Estimating the modified duration of the portfolio
  • Hedging the portfolio in the swap market
  • Calculating the delta vector
  • Modified duration of the swap
  • Stack hedging the portfolio
  • Strip hedging the portfolio
  • Implied yield curve views
  • Stress testing the hedge
  • Managing interest rate risk

Equity Capital Markets: Medium and Long-Term Financing Strategies

  • ADRs and GDRs
  • Shares and preference shares
  • Pricing
  • Multiples
  • Origination
  • Underwriting
  • Distribution

CASE STUDY: Fidelity/JP Morgan - Equity index swap

Debt Capital Markets

  • Government, corporate and international bond issues
  • Fixed rate issues
    • pricing
    • benchmarks
    • AIC, YTM, IRR
    • origination
    • underwriting
    • distribution
  • Floating rate notes
    • pricing
    • distribution
  • The term structure of interest rates
    • using zero coupon rates
    • calculating the Z-spread

CASE STUDY: ALM portfolio management

Liquidity Risk Management

  • Lessons from the crisis
    • stress testing
    • contingency funding plans and asset market liquidity
    • off-balance sheet activity and contingent commitments
    • capital
    • supervision and market information
    • central bank facilities
  • Measurement and management of liquidity risk
    • identifying, measuring and controlling liquidity risk
    • managing liquidity across business divisions
    • funding strategies
    • managing intraday liquidity
    • stress testing
    • contingency funding plans
  • The Liquidity Coverage Ratio and the Net Stable Funding Ratio

CASE STUDY: Liquidity risk management at HSBC, Goldman Sachs, Citibank and JP Morgan

CASE STUDY: Hedging from the perspectives of asset-liability managers, market makers and regulators

PRACTICAL WORKSHOP: Analysing and hedging the risks in a portfolio of assets and liabilities

Debt Management

  • Efficient uses of capital
  • Equity finance and debt finance: pros and cons
  • The importance of leverage
  • The importance of capital adequacy
  • Value-at-risk

Capital Management

  • Capital structure - what it is and why it matters
  • Basel III capital requirements
  • Tier 1 & Tier 2 capital
  • CET1, AT1 capital - CoCo bonds
  • TLAC - total loss absorbing capital

EXERCISE: Leverage and capital adequacy

Translating the Training into Action

Each participant will create a one-week, one-month and three-month treasury risk management plan for translating the training into action

CASE STUDY: JP Morgan - Capital allocation and risk management for the strategic treasurer

  • The broadening role of the treasurer
  • Emerging risks join established dangers
  • Capital allocation by strategic imperative
  • Accounting changes provide new opportunities
  • Communication is a core skill

CASE STUDY: Avoiding hedging pitfalls

  • Portuguese train companies and snowball swaps
    • managing financial risks
    • laying off risks with banks
    • laying off risks with customers
    • calculating downside risks
    • the view of the courts
    • legal and moral significance of hedging and trading
    • bank/customer relationships

Experts

Alan McDougall

Alan helps banks and their clients to manage risk. He has designed and delivered over 1600 highly interactive training days in more than 40 countries for the International Faculty of Finance, Goldman Sachs, Morgan Stanley, JP Morgan, HSBC, Deutsche Bank, Rabobank, BNP Paribas, Societe Generale, U...

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A Masterclass in Treasury Products and Risk Management at IFF Training

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