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I - The world of FX and main principles of FX

  • Identify and quantify FX risks

       On future cashflows in foreign currency

       On Assets and Liabilities in foreign currency

       The particularity of FX hedging on risky assets

  • Firm and optional instruments. Contingent operations (acquisitions, hedging in the specific case of project financing).

  • Spot exchange and market conventions, understanding a parity (and do not misunderstand it), understanding bid offer and slippage.

  • Convertible and non-convertible currencies, currencies with peg or controlled path

  • Forward currency prices: spot price and rates differences between the two currencies prorata temporis

II - Forward foreign exchange risk management instruments

  • Special features in the valuation of OTC cross currency: the basis or basis swap

       What is a basis swap?

       Why are they involved in the pricing of currency forwards, foreign exchange forwards and currency swaps?

       Why does this basis vary over time??

  • Forward exchange or FX forward (convertible currencies). Price construction, flows, utility

  • Non-Deliverable Forwards (non-convertible currencies): Similarities and differences with FX Forward

  • Currency swaps: flows, price construction, usefulness

  • The link and differences between all these instruments (revisions)

  • The higher credit intensity of foreign exchange derivatives vs. interest rate derivatives: transaction costs

  • Currency options

  • Historical volatility versus implied volatility, the smile of volatility

       Likelihood of exercising the option


III - Triggers

  • Fair value

  • Accounting provision

  • Documentation of value adjustments

  • Retrocession

IV - Questions and discussion

Note that each training session will include a MCQ to validate the knowledge acquired.

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