Euromoney Audit Training

Senior supervisory regulators have challenged the role of treasury in financial institutions in the aftermath of the financial crisis. This workshop incorporates these required and recommended best practices from regulators.

• Effectively measure and manage the performance of treasury activities
• Expand scope of treasury positioning and trading activities
• Safely hedge against foreign currency and interest rate risks
• Develop understanding of derivatives pricing and risk management
• Become comfortable with essential financial math, statistical, analytical concepts
• Improve earnings performance through effective assets and liability management
• Understand complex risk management models and limits packages
• Analyse counterparty credit risks and pre-settlement exposures on treasury trades
• Budget revenues and risks
• Apply practical solutions to improve treasury operations and accounting
• Implement successful treasury activities that will increase shareholder value

Who Should Attend

• Treasury professionals at financial institutions
• Treasury sales professionals
• FX and money market professionals
• Marketing and relationship managers
• Corporate treasurers interested in modern financial techniques
• Treasury mid- and back-office operations and settlements personnel
• Accountants and auditors covering treasury activities
• Finance directors and financial controllers
• ALCO and asset-liability management professionals
• Planning, strategy and financial services professionals

Teaching Methodology

Intensive and interactive workshop-style sessions will comprise discussions, examples, short case studies, and exercises. To make the course as practical as possible real information via internet websites and proprietary data providers will be used. In addition, a number of Excel exercises and simulations will be incorporated into the course.

All delegates are asked to bring a laptop with a COMPLETE install of Excel, including the Add-ins named Data Analysis Tools and Solver. Please check your computer before leaving home to see that these have been loaded onto your hard disk, as the standard installation of Excel may sometimes leave these off.

Day 1

The role of the treasury

• Alternative organizations of the treasury function
• Objectives and challenges of treasury
• The changing nature of treasury operations
• Management of liquidity
• What can go wrong in treasury
• Transfer pricing concepts and practice
• Information sources
• Treasury’s relationship with lending, deposit taking and other groups
• Organisational control
• Treasury strategy and responsibilities
• Treasury’s relationship to Asset-Liability Management (ALM) and Risk Management
• Centralisation vs. de-centralisation
• Treasury profit and/or cost centres
• Reporting and management control
• Future roles for treasury

The money-market asset and liability book

• Money market rates and instruments
• Recent trends and drivers of rates
• Creating asset and liability positions
• A trading role for treasury
• Cash trading and positioning instruments
• Foreign exchange positioning
• Quotations in the foreign exchange market
• Cross and forward rates
• FX trading skills
• Efficient use of bid and offer trade quotes
• Positions created by customer trades
• Risk management and control
• Simulation trading of FX
• Relationship between risk and return
• Analytical and parametric risk models
• Risk management and the treasury activities
• IT and treasury operations
• Accounting for treasury money market activities

Frameworks for Managing Net Interest Income, FX, and Liquidity Gaps

• Identifying interest-rate sensitive assets and liabilities that impact net interest income (NII)
• Traditional gap analysis of standard financial asset and liability products
• Basis and yield curve twist risks
• Measuring NII risks with static and sensitivity analyses
• Analyses of impacts on cash flow, accounting performance, and economic value
• Multi-currency NII management
• Complications from financial, contractual, and real options in assets and liabilities
• Estimating impacts of volatility and correlations in assets and Liabilities
• Stress testing techniques
• NII impacts on liquidity and capital management
• Measuring and managing value-at-close metrics
• Position risk sensitivity limits
• Developing revenue and risk budgets
• Action triggers and stop loss limits

 

Day 2

Continuation of Frameworks for Managing Net Interest Income, FX, and Liquidity Gaps

Foreign Exchange Derivatives in Treasury

• Various uses for FX derivatives products in Treasury
• Review of foreign exchange derivatives products and markets
• Hedging versus trading activities for derivatives
• Pricing FX forwards, swaps, and options
• Mark-to-market and mark-to-model techniques
• Applications of FX derivatives in gap risk management
• Hedging strategies and effectiveness accounting requirements
• Trading FX derivatives
• Risks in trading FX derivatives
• Basic review of FX option pricing
• Managing option risk sensitivities (the “Greeks”)
• Position limits and risk budgets
• Accounting, liquidity, and counterparty concerns arising from FX derivatives

Interest Rate Derivatives in Treasury

• Various uses for interest rate derivatives products in Treasury
• Review of interest rate derivatives products and markets
• Hedging versus trading activities for derivatives
• Pricing interest rate forwards, futures, swaps, and options
• Mark-to-market and mark-to-model techniques
• Market risk management of forwards and swaps
• Applications of interest rate derivatives in gap risk management
• Hedging strategies and effectiveness accounting requirements
• Trading interest rate derivatives
• Risks in trading FX derivatives
• Basic review of FX option pricing
• Managing option risk sensitivities (the “Greeks”)
• Position limits and risk budgets
• Accounting, liquidity, and counterparty concerns arising from interest rate derivatives

 

Day 3

Financial Math Essentials for Treasury

• Applications and requirements for treasury activities
• Interest rates and yield curves
• Concepts and recent trends impacting yield curves
• Time value of money and zero discount factors
• Modeling probably expected cash flows
• Present value models
• Price sensitivities to rate changes
• Duration and PV01 measures
• Bootstrapping zero coupon factors and rates
• Counterparty and liquidity risks in zero yield curve bootstrapping

Value-at-Risk Metrics for Treasury

• Advantages and disadvantages of various types of VaR used by Treasury
• Review of statistical parameters used in VaR
• Probability distributions and moments
• Liquidity horizons and risks
• Calculating and interpreting parametric VaR
• Mapping cash flows to reference factors for VaR
• Developing Monte Carlo simulations to determine VaR
• Stress-testing VaR
• Position limits
• Budgeting revenues and risks
• Treasury risk reports
• Economic and regulatory capital based on VaR models
• Recent failures in VaR modeling
• Limitations of VaR models

 

Day 4

Enterprise Risk Management (ERM) from Treasury’s Perspective

• Development of exposure management systems
• Liquidity risk and working capital
• Market risks
• Credit risks and counterparty risks
• Operational risks
• Organisational choices in ERM
• Risk/exposure management tools and techniques
• Insurance versus derivatives
• Policies and procedures
• Measuring and managing counterparty risks
• Establishing and maintaining lists of acceptable trading partners
• Hedging and accounting requirements

Counterparty Credit Risk in Treasury Activities

• Understanding the rationale and nature of spreads over benchmarks
• Short form model linkage of spreads with probabilities of default and recovery rates
• Historical and expected (risk-neutral) probabilities of default
• Pricing credit spreads
• Consideration of credit risk with jump to default
• Linkage of credit spreads to single name credit default swaps
• Introduction to single name credit default swaps and their uses
• Calculating and using credit risky duration or credit PV01
• Credit-linked notes
• Measuring counterparty pre-settlement risks and settlement risks
• Bid-offer spreads relative to counterparty risks
• Relationship of z-spread and other metrics to neutral basis for credit default swaps
• Technical and other bond market conditions that push credit default spreads and asset swap spreads wider and narrower (changes in the basis)
• The important connections and interrelationships amongst bonds, interest rate swaps, and credit default swaps

Roles for Treasury in Funding, Strategic Financing, and Capital

• Roles of financing and capital
• Short-term wholesale and strategic financing
• Liquidity portfolios and buffers
• Transfer pricing
• Creating structured deposits
• Medium- and long-term sources of finance and capital
• Specialised techniques, including cash and synthetic securitization
• Assessing economic capital
• Measuring risks and returns relative to economic capital
• Regulatory capital, Basel II, and Basel II

Cash Management and Investments in Treasury

• Determining levels of investable cash
• Cash management systems
• Investment instruments for cash management portfolios
• Risks and returns in cash management investments
• Commonly used structured investment products
• Market-linked notes and deposits
• Capital-guaranteed products
• Exotic and advanced products with higher expected returns and risks
• Establishing policies for cash management investing
• Investment return benchmarks
• Performance measurement and attribution

Conclusions: Success in Managing Treasury

• Balancing financial performance targets within risk management policies and controls
• Developing acceptable treasury business risk - return metrics
• Benchmarking treasury performance
• Treasury professionals evaluation and compensation
• Efficient employment and allocation of capital
• The strategic imperative for treasury in capital management and planning

• William Allen

  William Allen was previously a senior associate consultant with Seabrook Associates in Boston, Massachusetts. Prior to that he worked with J.P. Morgan in various securities and derivatives trading, arbitrage, hedging, and marketing activities in London and New York.
  
  He pursued MBA and doctoral studies in international banking and capital markets at the Harvard Business School. 
  
  William received the Elijah Watts Sells Award and the John S. Glenn Gold Medal for outstanding performance on the Certified Public Accountants (CPA) examination while he was with Ernst and Whinney, an international accounting firm.
  
  At the same time, he was awarded the Robert Beyer Bronze Medal for outstanding performance on the Certified Management Accounting (CMA) examination. Mr. Allen also earned the professional designation of Chartered Financial Analyst (CFA) while serving as the chief financial and investments officer of Rhodes College.

  Courses run by this instructor

  • Advanced Derivatives: Applications, Pricing and Hedging - Prague
  • Strategic Asset and Liability Management - Paris
  • Advanced Derivatives: Applications, Pricing and Hedging - Moscow
  • Quantitative Tools and Techniques for Treasury - Frankfurt
  • Foreign Exchange Markets and Products - Paris

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.

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