Currency Markets – Trading, Investing and Hedging

Day One

09.00 - 09.15 Welcome and Introduction

09.15 - 12.00 Currency Markets and Instruments

• General Introduction to Currency and Currency Markets
• A History of Currency Markets and Exchange Rates
• Exchange Rate Regimes
• Currency Instruments
  • Spot
  • Forwards and futures
  • Swaps
  • Options
  • Exotics
• The Functioning of Currency Markets
  • The links between money markets and FX markets
  • Order routing and execution
  • Clearing and settlement

12.00 - 13.00 Lunch

13.00 - 16.30 Analysis of Exchange Rates

• Determinants of FX Rates
  • Commercial demand/supply
  • Foreign Direct Investments
  • Portfolio investments and speculative transactions (Carry Trades)
• Fundamental Analysis of Exchange Rates
  • Purchasing Power Parity
  • Interest Rate Parity/Fisher Open
  • Net investment position
  • Fundamental Equilibrium Exchange Rate (FEER)
• Technical Analysis of Exchange Rates
  • Indicators, charts, sentiment…
• Forecasting FX Volatility
  • Moving averages and GARCH modelling
• Exercises

Day Two

09.00 - 09.15 Recap

09.15 - 12.00 Currency Investing

• Currencies as a Separate Asset Class
• Ways of Investing in Currencies
  • Spot
  • Foreign bonds
  • Structured currency products
  • Currency overlays
• Exercise

Currency Trading Strategies

• The Trading Process
  • Formulating currency views
  • Establishing risk-return objectives
  • Choosing strategy and instrument(s)
  • Choosing stop-loss and profit-take levels
  • Implementation and follow-up

12.00 - 13.00 Lunch

13.00 - 16.30 Currency Trading Strategies (Cont’d)

• Cash Instruments or Derivatives?
• Pricing Models
  • Currency forwards
  • Currency options
• Directional Trading Strategies
• Spread Trading
  • Bull and bear spreads
  • Ratio spreads
  • Calendar spreads
  • Risk reversals
• Volatility Trading
  • Straddles and strangles
  • Butterflies
  • Condors
• Follow-up Strategies
• Exercises and Workshop

Day Three

09.00 - 09.15 Recap

09.15 - 12.00 Hedging Currency Risk in Bank and Corporate Treasury

• Sources of Currency Risk
• Types of FX Exposures
  • Transaction risk
  • Translation exposure
  • Economic exposure
• The Hedging Process
• Measuring FX Exposure
  • “GAP” and NPV approach
• Hedging Transaction Risk
  • Using forwards
  • Using “protective puts”
  • Using “covered calls”
  • Using swaps
• Hedging Economic and Contingent Exposures
• Using Exotic Options for Hedging Currency Risk
• Exercises

12.00 - 13.00 Lunch

13.00 - 16.00 Hedging Currency Risk in Investment Portfolios

• Sources of Return on Foreign Currency Hedged Portfolios
  • Yield differential
  • Expected currency returns
  • Unexpected currency returns
• Hedging NPV (Fair Value) Risk with “Rolling” Hedge
• “Quanto” Hedges
• Hedging Cash Flow Risk
• Creating a Currency Overlay
• Using Cross Hedges and Proxy Hedges
• Workshop: Hedging Portfolio of Foreign Bonds/Stocks

Summary, Evaluation and Termination of the Seminar