Introduction to Foreign Exchange

Overview

Course duration: 2 days.

The Introduction to Foreign Exchange course provides the delegates with a comprehensive view of this product, covering its historical development, current situation and trends, together with a detailed examination of the different instruments, procedures and risks involved.

Is it right for me?

This course is designed for anyone with an interest in foreign exchange. Particularly junior and middle management currently involved in the back-office of wholesale banks, IT company employees providing solutions to banking organisations in multi-currency environments, HR professionals recruiting into this marketplace and non-banking personnel for whom a basic knowledge of this product and the financial risks associated with it would be of assistance in their day-to-day activities.

What will it cover?

Historic Overview of Foreign Exchange

• Gold standard
• BrettonWoods agreement
• Floating rates
• Euro currencies  Eurodollars
• EMU and the Euro
• Current trading volumes

Foreign Exchange and the Money Market

• An overview of the market
• Relationship between interest rates and currencies
• The yield curve

Introduction to Foreign Exchange Rates and Products

• Spot foreign exchange:

        - date conventions

        - simple rates

        - crossrates

• Forward foreign exchange:

        - relationship between spot foreign exchange rates, interest rates and the forward rate

• Foreign exchange swaps:

        - use as a funding tool

        - calculation of effective rates

• Foreign exchange derivatives:

        - foreign exchange futures

        - foreign exchange options

            - exchange traded

            - OTC

Players in the Foreign Exchange Market

• Banks:

        - traders

        - market makers

            - twoway price

• Fund managers
• Brokers
• Regulators

Trading Foreign Exchange

• The trading cycle:

        - trade initiation and capture

        - terminology

            - long

            - short

            - running positions

            - revaluations or mark to market

            - realised and unrealised profits and losses

• The settlement cycle:

        - trade capture

        - confirmation matching

        - payment instructions

        - settlement

        - failed trades

International Currency Clearing

• The principles of currency clearing:

        - RTGS

        - CHAPS

        - CHIPS

• The payment mechanism in more detail:

        - Nostro accounts

        - payment instructions

        - SWIFT

        - cutoff times

• Current trends:

        - CLS

A More Detailed Examination of the Risks Involved in Foreign Exchange

• Position, market or price risk
• Settlement or delivery risk
• Counterparty or replacement risk
• Liquidity risk
• Role of the regulator:

        - capital adequacy

        - Basel II

        - the role of limits

• Reducing risks:

        - hedging

        - use of derivative products

• Risks in the settlement process:

        - failed trades

        - potential losses from failed trades

        - strategies to reduce failed trades

            - procedures

            - confirmation matching

            - Nostro reconciliation

            - clearing houses

            - automation

Foreign Exchange Derivatives in More Detail

• Foreign exchange futures:

        - exchanges

        - contracts

        - margins

        - special risks associated with derivatives

• Foreign exchange options:

        - exchange traded

        - Over The Counter (OTC)

General Accounting Considerations for Foreign Exchange

• The multicurrency general ledger
• The concept of base currency
• The concept of value date