Course Overview

The effectiveness of the Treasury function in managing risk is crucial to the sound management of an organization. This became very clear during the credit crunch when a number of assumptions about behavioural risk factors were found to have been seriously underestimated, and in some cases resulted in the demise of the organisation. This course will provide a broad understanding of the role of the treasury function in managing risk, from the point of view of both corporate and bank treasuries, and also give the non treasury business manager insight into the role treasury can play in managing risk and supporting business development.  The course is designed to develop delegates’ ability to recognise and assess the range of financial risks which can arise from its business activity, and provide an understanding of the risk management framework required for effective risk management, as well as covering the practical issues encountered in execution.  

Methodology

Key points will be supported with practical examples and/or case studies at each stage of the course, and illustrated with examples and discussion of how things can go wrong

Case Studies and Exercises

The case studies and exercises will include some maths but will avoid complex formulae. A calculator may be useful but examples will be geared towards understanding the risk rather than crunching numbers.

 

Attend this intensive and highly practical 4–day training course and learn about:

• The role of treasury in risk management
• How to assess the market risk arising from business activity and key issues to consider in determining hedging strategies
• The most widely used financial products available to hedge market risk, the risks associated with these tools and other approaches to risk mitigation at a practical level
• Liquidity risk, how to measure it and strategies for managing it
• The link between risk and capital management
• The principles of Funds Transfer Pricing and its role in risk management and the appropriate pricing of customer products
   
   

 

Day 1

Introduction

 

Overview

• Role and objective of treasury

• Key activities
   - Liquidity and funding
   - Capital planning and management
   - Market risk management

• Treasury’s role in risk management

• Treasury organisation design

 

Market Risk – Sources of Risk

• Assessing risks arising from the business
   - Types of market risk – FX, interest rate, commodity price

• Measurement and reporting

• Hedging strategy and policy

 

Case Study: Sources of risk and potential hedging strategies in a mining company

 

• Other considerations in hedging strategy

 

Managing Market Risk

• Hedging tools

• Key features of the main derivatives hedging products
   - Forwards
   - Futures
   - Swaps 
   - Options

• Practical illustrations for hedging
   - FX risk
   - Commodity price risk
   - Interest rate risk

 

Case Study: Hedging interest rate risk with swaps versus futures

 

 

Day 2

 

Managing Market Risk (continued)

• Hedging costs
• Non-hedgeable risk
• Risks from overhedging

 

Exercise: Hedging foreign currency income or expenses

 

• Other hedging tools
• Hedge effectiveness; accounting impact
• Hedging versus trading
• Risks arising from hedging activities – credit risk, basis risk, liquidity risk
• Risk mitigants
• Market risk management framework
   - Risk appetite and policy
   - Discussion of typical limit structures
   - Trader mandates
   - Stress testing

Liquidity Risk

• Definition
• Corporate and bank perspectives
• Liquidity risk arising from business activity
• Liquidity risk arising from treasury activity
   - Funding
   - Investment
   - Hedging

• Customer/counterparty behavioural impacts

• Risk measurement and reporting

 

Discussion: Lessons from the credit crunch

 

 

Day 3

 

Liquidity Risk (continued)

• Liquidity risk management framework
   - Risk appetite and policy
   - Contingent funding plan 
   - Discussion of alternative limit structures
   - Stress testing

Case Study: Profile of a bank run

• Key risk mitigants

 

Deconstructing Risk

Exercises: application of learning to date to deconstruct the risk of a number of scenarios, and devise hedging or other risk mitigation strategies

Overview of Capital Management

• Definition and role of capital
• Overview of capital instruments
• Corporate and bank perspectives
• Bank regulatory capital environment

Case Study: Solvency risk versus liquidity risk

 

• Key drivers of bank capital requirements – implications for bank and corporate treasury functions
• Economic capital

 

Day 4

 

Quantitative Measures/Risk Analysis

• Recap of DCF and basic financial maths
• Use in pricing and valuation
• Sensitivity analysis (Pv01, first and second orders)

 

Exercise: Application to a simple money market portfolio

 

• Use in risk measures such as VaR
• Stress testing
• ALM risk measures
• Models versus common sense

 

Funds Transfer Pricing

• Purpose and objectives
• Basic principles
•  Interest rate risk
•  Liquidity risk
•  Discussion : Examples of practical difficulties
•  Other issues
•  Implementation
•  New product pricing

 

Role Play Exercise: Discussion between treasury and a business manager on pricing for a new product

 

 

Summary and Conclusion

• Penny Stamp

  Penny Stamp is an independent consultant, interim manager and trainer in the field of treasury management, with over twenty years’ experience internationally in treasury, in both bank and corporate environments. She has assisted a number of clients with improving treasury risk management in the wake of the credit crunch; this included redesign of the liquidity risk management framework for Northern Rock, directly contributing to the FSA licensing for the split bank.

  Penny has a deep and practical understanding of treasury issues, gained from ten years’ experience in the treasury functions at Bank of America and Standard Chartered, including balance sheet management, funding and liquidity risk, funds transfer pricing, interest rate risk, regulatory capital management, economic capital, and FX structural risk. She has previous experience in the treasury function of an international travel services company and a mining company, and also extensive experience of providing consultancy advice to clients, as both an independent consultant and as part of a professional services firm, for both banking and corporate clients. Her experience also includes business integration, product development and due diligence.

Treasury Risk Management

Interested in holding this course in-house? Please fill out your details and a member of our team will be in touch with more information.

Treasury Products Workshop

17-20 Sep 2012 (London, UK)

The course will provide delegates with understanding of the products used by banks and corporate treasuries.

London School of Treasury Management

25 Jun 2012 - 6 Jul 2012 (London, UK)
3-14 Dec 2012 (London, UK)

Join us here in London for this specialised course assessing treasury risk management instruments and their applications.

Strategic ALM & Capital Adequacy

18-21 Sep 2012 (London, UK)

Euromoney Training course is an intermediate-level programme designed to provide you with the understanding the strategic, technical and operational aspects of global ALM

Corporate Treasury Management

18-21 Sep 2012 (London, UK)

Applying best practices in global cash, working capital and foreign exchange management.

 

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