Market Risk for OTC Products

In this course, students learn to identify, measure, control, and monitor market risks, especially interest and foreign exchange risks. This course combines the perspective of market participants as well as central bank regulators. Exercises and case studies focusing on US and international financial institutions complement lectures and reading assignments.

No sessions currently available. Contact client services to get the next available date.
Front, middle and back office personnel, IT professionals, regulators, auditors, and compliance, management consultants, financial journalists.
No advance preparation required.
Students will be able to:
  • Discuss the risk management process
  • Explain the importance of risk-based supervision (RBS) and distinguish RBS from compliance-based supervision
  • Describe the significance of market risk as a component of risk management and the increasing importance of supervision of market risk
  • Identify and discuss the basic measures of market risk and interpret the results thereof
  • Define interest rate risk and identify/discuss its sources
  • Quantify and analyze interest rate risk in banking books
  • Discuss how interest rate risk is monitored and assess adequacy of bank's risk monitoring system
  • Discuss how interest rate risk is controlled and assess adequacy of bank's risk control measures
  • Describe the supervisory approaches to interest rate risk
  • Identify and apply the appropriate interest rate risk examination procedures
  • identify and discuss factors that influence the foreign exchange market
  • Describe foreign exchange mechanics and conventions
  • Describe the different methodologies used to measure FX risk and assess bank's exposure to FX risk
A solid knowledge of macroeconomics.
Follow-Up Courses
Derivatives I & II, Value-at-risk
Day 1 - Risk Management and Risk Based Supervision
Risk Management
  • Phases of risk management
  • Elements of a sound risk management system
  • Role of the risk manager

Risk based supervision

  • Basel II's requirements on risk based supervision
  • Risk based supervision vs. compliance
  • Implications for bank examiners and auditors
  • Key steps in risk based examinations

Market Risk - A Significant Component of Risk

  • Defining market risk
  • Evaluating the current emphasis on market risk

Introduction to Measuring Market Risk

  • Risk measures and metrics
  • Banking vs. trading books
  • Approaches to measuring market risk
  • Weaknesses in market risk measure models

Day 2 - Identifying, Measuring, Controlling and Monitoring Interest Rate Risk
Identifying interest rate risk
  • Interest rate risk defined: re-pricing, basis risk, yield curve risk, options risk
  • Identifying interest rate risk in major instruments

Measuring Interest Rate Risk

  • Earnings at risk
  • Economic value of equity at risk
  • Characteristics of models: GAP reports, earnings at risk modeling and income simulations

Monitoring Interest Rate Risk

  • Evaluating and implementing strategies
  • Interest rate risk reporting

Controlling Interest Rate Risk

  • Risk limits: EAR limits, capital-at-risk limits, GAP limits

Day 3 - Identifying, Measuring, Controlling and Monitoring Foreign Exchange Rate Risk
Identifying Foreign Exchange Rate Risk
  • Defining foreign exchange risk
  • Identifying foreign exchange in major FX transactions

Measuring Foreign Exchange Rate Risk

  • FX positions
  • Market-to-market positions
  • Value at risk

Controlling Foreign Exchange Rate Risk

  • Hedging alternatives
  • Risk limits
  • Internal control measures

Monitoring Foreign Exchange Rate Risk

  • Monitoring and reporting foreign exchange risk

Clients who register for this course will receive a complimentary 6 month subscription to the Financial Times and FT.com. The Financial Times is the world's most respected financial newspaper providing a broad assessment on finance, business and the industrial sector. Subscriptions will start within 6-8 weeks of the application process, and are limited to one per client. For questions about your subscriptions call 800-628-8088 or email uscirculation@ft.com. US and Canada enrollees only.

Lunch included for all students taking day classes.