The Fundamentals of Foreign Exchange Risk and Derivatives

Training Description

The Fundamentals of Quantitative Finance

The training course "The Fundamentals of Foreign Exchange Risk and Derivatives" provides a rigorous overview of the foreign exchange market, equipping you with the necessary tools to understand its mechanisms, instruments, and strategic implications. You will learn how to analyze the impact of currency fluctuations on financial decisions, identify hedging and arbitrage opportunities, and master exchange rate risk management strategies tailored to businesses and investors.

This training will enable you to master the factors influencing exchange rates, including the balance of payments and theories such as covered and uncovered interest rate parity, as well as purchasing power parity. Through case studies, you will develop the ability to analyze the effects of economic policies on a currency and anticipate foreign exchange market movements.

You will learn how to handle exchange rate quotation conventions, use analytical tools such as cross rates and triangular arbitrage, and calculate forward rates. Practical exercises will allow you to apply this knowledge in an operational setting and seize market opportunities.

Training Objectives

• Understand the role, functioning, and key players in the foreign exchange market.
• Learn about the different types of instruments used in the FX market.
• Differentiate between spot rates and forward rates.
• Recognize different exchange rate regimes.
• Analyze the impact of a country's financial health on the foreign exchange market.
• Understand the different exchange rate theories.
• Master the role and functioning of currency hedging.
• Learn about various foreign exchange derivatives.

Target Audience

• Fund Manager
• Wealth Manager
• Asset Management Assistant
• Financial Analyst
• Bank Treasurer
• Corporate Treasurer

Training Duration

• 2 days (14 hours)

Training Program

The Fundamentals of Quantitative Finance

I. Foreign Exchange Market Ecosystem

• Functions of the foreign exchange market
• Various uses of the forex market
• Size of the foreign exchange market
• Main instruments:
• • Spot
  • Futures contracts
  • Forward contracts
  • Options
  • FX swaps
• Main participants:
• • Banks
  • Corporations
  • Governments
  • Funds
  • Individuals

Quiz:

Match the given instrument types and participants with their corresponding definitions.

II. Different Exchange Rate Regimes

• The Gold Standard
• Floating exchange rate regime
• Fixed exchange rate regime

Focus:

The European Union's single monetary policy.

III. Exchange Rates and Balance of Payments

• The Marshall-Lerner condition
• Price elasticity
• Balance of payments and exchange rates
• Current account balance and capital account balance
• Contributions from economic theories:
• • Covered and uncovered interest rate parity
  • Purchasing power parity

Case Study:

Assess the impact of monetary and fiscal policy on the exchange rate of a fictitious country.

IV. Exchange Rate Quotation Conventions

• General principles
• Cross rates and triangular arbitrage
• Forward rates

Case Studies:

• Calculating a forward rate
• Examining a triangular arbitrage scenario

V. Foreign Exchange Hedging

• Using a forward contract
• Using an option
• Using a currency swap

Case Study:

Using a forward contract for hedging against exchange rate risk.