Section 1: The Funding Markets and Interest Rate Hedging
Module 1: Introduction to program
Module 2: Interest Bearing Funding Products
This module will examine the different products in the market that could be used to fund the bank or the corporate. In the corporate market this could include bank loans and bonds. In the banking market, this could include inter-bank deposits, Commercial Paper, Repo and various bond structures. We will discuss these products - their structure, quoting convention, pricing and use. By the end of the program, participants should have a good understanding of the products to help fund their organisation
Session 1: Yields and Yield Curves
This session will discuss the fundamental aspects of any interest bearing product which are yield conventions and yield curve analysis
Yield Conventions
What are yield conventions: Discount Rate, MMY, BEY
Understanding annual day count conventions
Using Yield Conventions in marketing Treasury products
Yield Curves
Yield Curve and pricing of debt
Risk free yield curve
Credit risk pricing and credit spread
The par yield curve and pricing loans/bonds
The forward yield curve and pricing
The zero-coupon yield curve and discounting cash flow to Mark to market
Session 2: Money Markets and Loans
Discussion of key Interbank Money Market Products for funding Financial Institutions and Large Corporates in the conventional and Islamic markets.
What is the Money Market?
Money Market Instruments
Money Market Yield, Bond equivalent Yield, and Discount rate in money markets
Inter-bank borrowing and placement
What is Libor/Euribor and how are they set and used in Money Market?
Libor and the pricing of loans
Fraud Issues with Libor
Replacement for Libor and the alternative reference rates
SOFR, SONIA, ESTR etc…
Secured versus unsecured rates
Overnight rates and interest calculation
Compounding of rates for term period
Basis swap with Libor
Timeline for alternative reference rates
Implementing the new rates in treasury and the bank
Challenges in Libor Replacement
Domestic local Money Market
The Loan market and Libor/Alternative Reference Rate
Repurchase Agreement (REPO)
What is a Repo agreement?
Repo versus Libor borrowing
Structuring a Repo and Reverse Repo (for Placement)
Pricing of Repo transactions
Repo crisis in USD market in 2019?
Session 3: Bond Markets
In this section, we will discuss the different bond markets and bond products. In these discussions we will look at the market size, rating, issuers, investors, structures, accounting, and pricing of different bond markets
The US Bond Market
The 144A Market
The Eurobond (Regulation S) Market
Traditional Private Placement (Regulation D) Market
Commercial Paper Market
Global Bond Issues
The Bond Issuance Process
The Sukuk Structure
Sukuk Transactions
Pricing of Sukuk
Secondary market limitations on Sukuk
Module 3: Interest Rate Risk Hedging
In this module, we will examine the different products that will help the treasury department hedge interest rate risk. This will include discussions on Interest Rate Swaps, caps, collars, floors, and swaptions.
Session 4: Interest Rate Swaps
In this section, we will discuss IRS and how the product is used to manage interest rate risk in the conventional and Islamic markets
Introduction to IRS
IRS structure, terminology, cash flow, convention and pricing (outright or T+)
Yield Curve and IRS pricing
Pricing of IRS and Bloomberg IRSB screen
Using IRS to hedge Interest rate risk
Uses of IRS in funding, bond structuring, bond hedging, fixing loans
Understanding ISDA documentation in Treasury for IRS
Master Agreement
CSA Schedule and credit support
Terms and conditions
Netting and Clearing through CCP and reporting of transactions under Basel 3
Mark to market and pricing of IRS using Bloomberg screens
Session 5: Caps and Floors
In this section we will examine interest rate options such as caps and floors in the conventional and Islamic markets. We will discuss how they are used to manage interest rate risk in the treasury department. Also, the structuring of zero cost collars and participating caps will also be analysed.
Introduction to caps and floors: market conventions, pricing convention
Series of Puts and Calls options on money market
Options pricing issues: Delta, Gamma, Theta, Vega, Rho
Pricing Caps and Floors using Bloomberg CCF screens
Amortizing the premium
Clients buying options for hedging risk
Clients selling options to reduce cost or enhance yield
Structuring Zero cost collars and participating caps using CCF screens
Uses of caps and floors in Treasury
Section 2: Foreign Exchange Derivatives
Module 4: Managing Foreign Exchange Risk
In this module, we will discuss the different products that will help the company manage foreign exchange risk. We will examine the foreign exchange products, cross-currency swaps and currency options and discuss how they can help the treasury department manage FX risk.
Session 6: Foreign Exchange
In this section we will discuss the hedging of foreign exchange risk with spot and forward FX products. Special attention will be given to Quoting conventions of FX and forward point. We will also discuss how FX swaps are structured and used.
Introduction to the Foreign Exchange Market
Market conventions and quoting conventions
Using the Bloomberg WFX screens and quotation of spot rates
Calculation and quotations of forward FX rates
Understanding the FX forward formula
Using Bloomberg FX forward screens
Non-deliverable forwards (NDF) and their use
Introduction to the FX futures market
OTC versus Exchange traded products in FX forward and futures
Application of spot and forward products in hedging FX risk
Structuring and Using FX swaps
Session 7: Cross- Currency Swaps
By the end of this section, participants will understand the structure and use of Cross-Currency Swaps.
Introduction of CCS
Cash Flow of a Fixed CCS structure
Floating to Floating CCS market conventions
Hedging CCS with money market and FX products
Fixing Floating rate CCS with Cross-currency interest rate swaps
Structuring and Using CCS
Session 8: Foreign Exchange Option
By the end of this session, participants will understand the structure, pricing and use of FX options both in the conventional and in the Islamic market.
Introduction to FX Option
Puts and Calls in FX Options
Option convention: what we buy/sell
Option pricing convention: % spot, % amount, %strike
Option pricing model
Using Bloomberg option pricing model
Client’s buying options as insurance
Client’s selling options to reduce cost or increase return
Structuring FX option products
Range forward and participating caps
Section 3: Advance Derivatives and Islamic Treasury
Module 5: Advanced Treasury Products including Islamic Treasury Structuring
In this section participants will learn about advanced treasury products such as exotic options and structured products to include Islamic Derivative Products. New structures such as credit derivatives, commodity derivatives and Islamic derivatives will also be discussed. By the end of this section, participants will have a good understanding of the structure, use, and pricing of advanced/Islamic derivative and funding products in the trading room.
Session 9: Exotic Options
By the end of this section participants will be able to identify, describe, structure, price and use different types of exotic options to help manage financial risks.
Definition of exotic options
Understanding digital option structures
Digital Option description
Pay-out Structures of Digital Options
Pricing digital options using Bloomberg screen
Using Digital options to structure Contingent Fee Options
Using Digital Options to structure No-Touch and Fairway bonds
Understand time series exotic options
What are time series options?
Structuring and Pricing average rate options with Bloomberg screen
Using Average rate options in FX and Caps
Structuring and Pricing Knock-in, Knock-out structures
Using Knock-in and knock outs to hedge financial risk
Understanding basket options structures
What are basket options
Structuring and Pricing issues with basket options
Using basket options to hedge FX risk
Understanding Quant Options
Understanding Quant options
Pricing issues in Quant options
Using Quant options in structured products
Session 10: Credit Derivatives
By the end of this section, participants will be able to identify, structure and use different types of credit default swaps to hedge credit risk of the company and/or the bank
Definition of Credit Derivatives
Credit Default Swaps and Total Return Swaps
Understanding Credit Yield Curve
Structuring and pricing CDS
Types of CDS: Put, one fee, single credit, basket
Delayed start CDS structure
Pricing of CDS
Using CDS to manage credit risk of customers for corporates
Using CDS to manage credit portfolio in banks
Understanding Total return swaps
Using TRS for banks and investment firms
Session 11: Commodity Derivatives
What is commodity derivatives
Types of Commodity Derivatives
The commodity prices curve
Seasonality
Location of delivery
Transportation
Warehousing
Insurance
Financing cost
Issues in commodity pricing
Cotango and Backwardisation in Commodity Price curves
Use the commodity price curve to price
Commodity Swaps
Commodity Options
Session 12: Islamic Treasury Products
Money Market in Islamic Finance
Key Islamic Finance issues: Riba, masir, gharar, jahl and riswah
Using Murahaba commodity finance structures for interbank lending and borrowing
Primary and secondary murahaba structures
Restriction on commodities
LME Pallladium nd Aluminum contracts
Master Tarawug Agreement (MTA) and money markets
The bank as the Wakil in a Murabaha
Deposits using Wakala Structures with interest
Documentation
MATP
ISDA/IIFM
Understanding Islamic IRS/PRS:
Profit Rate Swap structures
Back to Back Murabaha structures
Primary and Secondary swaps
Cash flow exchanges in PRS
Difficulty in Pricing and mark to market
Structuring Islamic Caps and Floors
Wa’ad Structures
Wa’ad for a Murabaha funding or deposit
How do Wa’ad help manage risk
Islamic FX spot and forward
Structuring Islamic FX forward
Murabaha, Dual Wa’ad and FX forward structuring
Structuring Islamic FX Swaps with Spot and Murabaha/Dual Wa’ad transactions
Structuring CCS with Long Term Foreign Currency Murabaha
Primary Murabaha
Secondary Murabaha
Back to back Murabaha structures
Islamic FX Options
Understanding Arbun Structures
The bank hedges Currency risk by buying and re-selling to customer
Arbun deposit must be included in overall fee
Arbun deposit versus the premium and the overall amount of transaction
Section 4: Treasury Management for Corporates and Banks
Module 6: Managing Corporate Treasury
In this module, we will discuss the best practice and tools to manage corporate treasury. We will review the key roles and responsibilities of corporate treasury and discuss how to use the products of treasury to help fund and manage financial and credit risk of the company. This section will also discuss best practices in cash management and cash flow forecasting in the treasury function. We will also discuss the best treasury organisation for a corporate treasury department depending on its business model and geographic reach
Session 13: Corporate Treasury
Understanding Corporate Treasury
Review the role of the CFO and the treasury function
Funding
Cash management
Trade Finance
Investment
Risk management
Bank and Investor relations
Managing credit risks of customers
PwC Report on key concerns of CFO and Corporate Treasurers
Review of cash management of the company
Collections and payments systems and products
Account Management
Pooling, notional pooling sweeping, virtual accounts
Cash flow and funding forecasting in the company
Using treasury funding products to finance the operation of the company
Cap Ex and Working capital facilities
Using treasury derivative products to hedge financial risk of the company
Overall organisation of treasury department
Global
Regional
Local
Treasury centres and how they work
Case Study on the organisation and operations of corporate treasury department
Module 7: ALM and Bank Treasury
This module discusses the treasury of the bank and the management of Assets and Liabilities (ALM). In ALM, we will discuss the management of market risk of a financial institution to include the analysis of IRRBB, EaR, EVE etc… We will also discuss the management of liquidity risk in the bank to include the need for a comprehensive liquidity management program. Fund transfer pricing in the Treasury Function to manage funding cost, market risk and liquidity risk will also be discussed. Also, regulations on BIS 3 on IRRBB, LCR, and NSFR to manage market and liquidity risk will also be discussed
Session 14: What is Asset-Liability Management?
By the end of this section, participants will understand asset liability risks and the function of ALM in the bank
What are the ALM risks
ALM market risk
ALM liquidity risk
ALM and making money
ALM and business strategy of the bank
Session 15: Roles and Responsibilities in ALM
By the end of this session, participants will be able to identify the ALM roles and responsibilities
BIS 3 and the new roles and responsibilities of BOD
Business Strategy
ALCO Strategy
Capital Allocation
Market Risk and Liquidity Risk Appetite Policies
Risk Management Policies and Procedures
Risk Management Systems, Process and Organisation
Best Practice: Working with EXCO, ALCO, Risk Management Department/Committee, Treasury, and Audit Department/Committee
Session 16: ALM and Assessing Market Risk
By the end of this session, participants will be able to use the key tools in identifying and assessing market risk on the balance sheet
Identify and Quantify Market Risk in ALM
Earnings at Risk
Net interest income
Types of interest rate risk
Gap
Yield curve
Duration and Convexity
Optionality
Basis
EVE analysis in ALM market risk
Mark-to-market and portfolio valuation
New BIS 4 Regulations on IRRBB
IRRBB regulation overview
19 time buckets
Treatment of Non Maturity Deposits, Early Pre-payment of Fixed Rate Loans, Early Termination of Fixed Rate Deposits
Stress Testing and Scenario analysis
Supervisory Policy on EVE
BOD ALM reporting:
Market Risk Gap analysis, EAR report
Long Term EVE analysis
Business Strategy and ALM Market Risk forecast
Impact of economic and interest rate bank balance sheet
Session 17: ALM and Managing Market Risk
By the end of this session, participants will be able to implement the key tools to manage ALM Market Risk.
Managing ALM Market Risk
Limit system
Limit reporting and sanctions
Tools to Manage ALM Market Risk
Match Funding
Interest Rate Swaps
Foreign Exchange
Cross- Currency swaps
Session 18: ALM and Managing Liquidity Risk
By the end of this session, participants will be able to identify the key steps in identifying, quantifying and managing liquidity risk in the bank.
Liquidity Products: Overnight, Libor, repo, etc..
Diversification and concentration
ALM ranking of liquidity
Stability and sustainability of funding sources
Measurement metrics and monitoring
Key metrics: Cash forecast, roll-off forecast, liquidity forecast
Scenario and back testing
Limits
Internal funds transfer pricing
Liquidity Premium
Setting policy for ALM and FTP
Liquidity asset buffer
Choosing appropriate assets and business strategy
Managing the asset portfolio
Session 19: ALM and BIS 3 New Liquidity Regulations
By the end of this section, participants will be able to identify the new regulations on liquidity risk, namely LCR and NSFR, and their impact on the ALM
New BIS ratios: Why?
Liquidity Coverage Ratio
Definition
High Quality Liquid Assets
Levels 1 2A an 2B
Limits
Calculate Net Stressed Outflow
Impact on Banks and ALM
Net Stable Funding Ratio
Definition
Calculate Available Stable Funding
Calculate Required Stable Funding
Impact on ALM
Session 20: ALM and Basel 3 Regulations on Capital Ratios
By the end of this section, the participants will be able to identify the new Basel 3 regulations on bank capital and their impact on the bank’s business and the treasury function
Improve Bank Capital Base:
Quality and Quantity: CET1 4.5% from 2%
Capital Conservation Buffer: 2.5% from 0%
Countercyclical Buffer: 0% to 2.5% from 0%
Leverage Ratio 3%
New Capital regulations and impact on ALM
Session 21: ICAAP and SREP for in ALM
By the end of this section, participants should be able to use best practices in conducting ICAAP and supervisory reviews especially for ALM. FTP analysis will be extensively discussed. Scenario analysis on the reduction of QE and sovereign buy in will be discussed
How to conduct ICAAP in banks
ICAAP and stress testing for market and liquidity risks
Scenario analysis
Best Practice ICAAP reporting for BOD, supervisors and market disclosure
SREP for Treasury Products with Pillar 2 add-on
Supervisory review of capital needs and Pillar 2 add-ons of capital
ICAAP and RISK Appetite Policies
The Impact of Regulations on FTP and Bank Profitability
FTP under the Basel 4 regulations
Loan Pricing under new market and liquidity risk environment
Economic Profit, RAROC and capital allocation decisions
Session 22: Final Thoughts and Future Steps on Treasury Management
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