How do financial markets relate to the real economy?
- The globalised nature of the worlds economy
- National economies: internal and external factors
- Key economic indicators
- The Business Cycle
- Financial intermediation: purpose and structure
- The banking system: wholesale, retail and universal banks
- The role of securities exchanges and market makers
- Institutional investors: pension funds and insurance firms
- Offshore markets: Euro- securities
- The global financial markets in 2014
- Interest rates as the opportunity cost of capital
- The time value of money: present and future values
- How are interest rates determined?
- Overview of global interest rate markets
- Pivotal role of interest rates in money, bond, equity and FX markets
Practical exercise: the time value of money
In small groups, delegates will work through a number of simple exercises to reinforce their understanding of key concepts
Risk and return in financial markets
- Return generation factors
- Characterising risk in financial markets
- The risk/return trade off
Overview of the main instruments
- Money markets: short dated debt
- Bonds: longer dated Government debt and credit markets
- Equities: ownership stakes in commercial enterprises
- Foreign exchange markets
- Introduction to Derivatives
- Interest rate derivatives: FRAs, Caps and Floors
- How securities markets are inter-related
Introduction to money markets
- What distinguishes money markets from capital markets?
- Discount versus interest bearing securities
- Key instrument types
- Certificates of Deposits (CDs)
- Bills and Notes
- Commercial Paper
- Repurchase Agreements (Repos)
Practical exercise: money market instruments
Delegates will work through a number of short exercises to reinforce their understanding of money markets and their associated financial arithmetic.
Introduction to bond markets
- What is a bond?
- How do bond markets work?
- The principal bond markets
- Government bonds
- The Credit market
- US Dollar denominated debt securities
- Emerging markets
- The role of credit derivatives
- The key players
- Originators and arrangers
- Market makers
- Institutional investors
- Hedge funds
- Credit ratings agencies
- Bond prices and yields
- What does a bonds price represent?
- What information is contained in bond yields?
Bond analysis I Prices and Yields
- Bonds as a series of future cash flows
- Valuation: calculating a bonds fair value price
- Bond yields: the market price of risk
- Calculating yield: the internal rate of return (IRR) of a bond
- The role of benchmark bonds
- Credit spreads
- How the market adjusts for excess supply and demand
Practical exercise: bond analysis
Delegates will reinforce their understanding of bond analysis through a structured exercise involving the calculation of a bonds price from fundamental inputs of cash flows and yield.
Bond analysis II Risk Metrics
- Time-weighted cash flows
- Macaulays Duration: calculation and use
- Modified Duration: calculation and use
Foreign Exchange (FX) Markets
- What drives FX markets?
- Trade balances
- Interest rates
- Key FX market participants
- Spot rates pivotal role of US Dollar
- Cross rates derivation and calculation
- Forward rates derivation from spot rates and interest rates
Practical exercise: foreign exchange
Delegates will reinforce their understanding of foreign exchange market dynamics by working through exercises to calculate cross and forward rates from spot rates and interest rates
- Role of technical analysis in financial markets
- Underlying statistical theory and assumptions
- Key concepts
- Mean reversion
- Support & resistance
- Behavioural finance
- Overview of principal techniques
- Filter rules
- Momentum models
- Moving averages
Introduction to equity markets
- The big picture: equity markets, inflation and global demographics
- Position of equity relative to debt in a firms capital structure
- Private versus public equity markets
- The role of stock exchanges
- How are returns generated for equity owners?
- Equity valuation and company accounts: the key ratios
- Equity valuation modelling
- Assessing risk and return in equity markets
Practical exercise: equity valuation
Delegates will run through a series of equity valuation exercises, based on case studies from different industrial sectors to deepen their understanding of equity markets and valuation and the difficulties involved in fair market valuation.
- What are commodities?
- The key global commodity markets
- Rising markets including freight, carbon credits and semi-conductors
- Principal participants: hedgers, investors and speculators
- How do financial markets facilitate commodity trading?
- Commodity pricing fundamentals
- Commodity derivatives
Practical exercise: commodity future pricing
Delegates will run through a series of commodity future valuation exercises, based on different spot markets, to deepen their understanding of commodity market dynamics.
- Forwards and futures
Financial market risk management
- What is risk?
- Risk specification
- Asset-Liability Management (ALM)
- Portfolio mandates
- Risk tolerance
- Measuring risk
- Managing risk
- Matching cash flows of assets to liabilities
- Portfolio diversification
Practical exercise: risk modelling
Delegates will run through a series of exercises exemplifying approaches to risk measurement and modelling to reinforce their understanding of the theory and practice of risk management.
Case Study: how the Financial Markets dont Work
Securitisation and the Sub-prime mortgage market
- Participating in financial markets
Simulation: portfolio management
Delegates will be given a portfolio comprising equities, bonds and cash to manage through four calendar periods. Their objective will be to optimise their risk versus return whilst remaining within the constraints specified by the trustees. In addition to the diversification opportunities open to them, delegates will be able to manage their risk using futures, forward FX, options and swaps.
Course summary and close