Course overview
'Accounting for Financial Instruments' is designed to deal with specific questions about FASB 133 and IAS 39 and equip you with the practical tools to analyse and understand various transactions.
Summary of course content
- The 'credit crunch' and problems with the accounting standards
- Accounting for securitisations and complex structured instruments
- Hedge accounting - the practical challenges
- What went wrong with Fannie Mae and Freddie Mac
- Off balance sheet vehicles and their contribution to the credit crisis
- Practical examples from Barclays, Northern Rock etc
- New standard - IFRS 9 discussed in detail
Methodology
Euromoney Training's courses are very interactive and provide a forum in which delegates can share their experiences. The programme relies on practical examples and case studies to ensure that by the end of the course, you are fully competent to understand and implement hedging strategies.
Who should attend this training course?
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Derivative sales executives
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Risk managers
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Accountants
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Auditors
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Senior operations managers
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Strategists and financial planners
Supporting publications
DAY ONE
Background and structure of company accounts
- Overview of profit and loss accounts
- Overview of balance sheets
- Cash flow statements
- Disclosures
- Notes to the accounts
Overview of financial instrument accounting standards
- Why were the standards devised?
- Off balance sheet abuse and their consequences
- How FASB and IAS intend to cope with these abuses
- How do accounting standards contribute to hedging?
- Market and treasury vs. accounting risk
Why financial instruments are necessary
- Cross currency swaps
- Interest rate swaps
- Swaptions
- Options
- Bond futures
- Index swaps
Accounting for future and forward contracts
- Initial and variation margin
- Differentiate and understand the distinction between futures and forwards contracts
- Identify problems affiliated with using futures for hedging
- Tick points
- Basis risk
IFRS 9
- Changes to 'available for sale' category
- Fair value vs. accruals accounting
- New impairment
- Impact on hedge accounting
DAY TWO
Development of accounting standards
- FASB vs. International Accounting Standards
- Understanding the distinction between hedge and trade accounting
- Learning how to apply marking to market principles
- Analysing the role of the Statement of Total Gains and Realised Losses
Fair value and cash flow hedge accounting
- Identifying ineffectiveness
- Splitting a hedge between effectiveness and ineffectiveness
- Excluding spot forward differential
- Addressing documentation issues
Embedded derivatives and structured products
- Breaking down contracts between vanilla bonds and derivatives
- Interest rate exposure
- Regular ways vs. derivative transactions
- Guidance on when to break down structured instruments
How traders price derivatives
- Using market data to price derivatives
- Learning the basics about spot and forward rates of interest
- Present value and future value
- Pricing derivatives on the basis of hedge costs
Dealing with structured products, exotic and credit derivatives
- Development of market
- Marking to market products
- Hedge vs. trade accounting
- Use of the OCI/STRGL accounts
DAY THREE
Market and credit risk management techniques
- Measuring market risk and credit risk on a portfolio basis
- Volatility - as measured by Value at Risk
- Hedging exposures as opposed to hedging assets and liabilities
- Portfolio risk hedging vs. accounting risk hedging - understanding the issues
Documentation processes that qualify for hedge accounting
- Effective hedging
- Matters to appear in documentation
- Regression analysis
- Testing for effectiveness - 80% / 125% rule
FASB and securitisation
- Benefits of securitisation
- Determining the difficulty from hedging with plain vanilla swaps
- Understanding the use of tailor made amortising swaps
- Constructing amortisation swaps from plain vanilla swaps
- Present value basis point calculations
Dealing with credit risk
- Measuring credit risk
- Basel committee on methods to measure credit risk
- Credit derivatives
- Total return swaps and credit default swaps
- How the accounting standards deal with credit derivatives
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Cormac Butler
Cormac Butler is currently an active equity and options trader and a former consultant with Lombard Risk Systems London and has also worked with Peat Marwick and PricewaterhouseCoopers. He has considerable international experience as a training consultant in derivative accounting, Corporate Finance and Derivative Mathematics, working with major banks including Banque BNP Paribas. He has conducted in-house courses Morgan Stanley, PriceWaterhouseCoopers (Holland), Investec (South Africa) and ABB Switzerland and Asian Development Bank. In addition, he has worked for IIR and Euromoney in Singapore, Hong Kong, Thailand, America and Saudi Arabia. Cormac graduated from the University of Limerick, Ireland with a degree in Finance He has recently published Mastering Value at Risk (Financial Times Pitman) which is currently on the best sellers list (for Risk Management books) with Amazon.com, Gloriamundi.org and Financial World Bookshop (London). He has also published Accounting for Financial Instruments by Wiley.
Courses run by this instructor
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