Introduction to Interest Rate FRAs, Futures and Swaps

This course aims to provide the participants with a thorough grounding in interest rate derivatives and covers hedging, construction, valuation and cash flows.

Products examined include futures and FRAs, swaps, basis swaps and interest rate options.

Suitability

This course is for individuals new to financial markets, e.g., interns or graduate trainees. No prior knowledge of derivatives is assumed or required.

Learning Outcomes

At the end of this course participants will be able to:

  • Understand the practical use of derivatives for hedging interest rate risk and exposure
  • Define the relationship between a yield curve, a swap curve and forward rates
  • Understand the role of interest rate futures on exchange
  • Describe the mechanics of FRAs and swaps
  • Calculate cash flows for FRAs and swaps
  • Value an existing interest rate swap
  • Develop knowledge of structured interest rate swaps
  • Understand interest rate options – hedging uses, construction, cash flows
  • Caps, floors and collars/ future options
  • Swaptions
  • Recognise recent developments in the derivatives market
  • Libor replacement
  • Bilateral margin
  • Negative rates

Course Content

  • Hedging
  • Uses of hedging – Opening questions and presentation
  • Hedging interest rate risk user types and scenarios
  • Types of hedge required for user cases – Group Exercise
  • FRAs and futures
  • Exchange vs OTC
  • Notional amounts
  • Forward Rate Agreements (FRAs)
  • Calculate cash flows – Day Counts and Present Value – Excel Exercise
  • Interest rate futures

Interest Rate Swaps Part 1

  • Fixed/ float swaps construction – Whiteboard Interaction
  • Hedging risk with interest rate swaps – User Cases
  • Cash flow illustration and calculation – Group Activity and Excel Exercise
  • Rate curves
  • Yield curve construction (Gov Securities)
  • Swap curve and comparison to yield curve
  • Forward rates – Excel Exercises

Interest Rate Swaps Part 2

  • Valuation and termination – NPV basics – Excel
  • Basis swaps
  • Cross currency swaps
  • Structured interest rate swaps – Group Discussion and Analysis
  • Interest rate options
  • Option definition and overview
  • Caps and floors – Reasons for use
  • Cash flows – Whiteboard Interaction
  • Swaptions – Basic principles
  • Construction and settlement
  • Recent developments
  • Libor replacements
  • Bilateral margin
  • Negative rates
  • Evaluation
  • Group Exercise – Case Studies and proposed hedging solutions

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We are thought leaders in instructional and learning journey design and holistic solution architects. We have extensive finance and investments experience combined with skills application to deliver performance improving results. We develop immersive learning environments that maximize time to productivity, support talent retention and added value to improving quality of hires.

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We are focused on mining the embedded organisational intellectual capital for the benefit of the next generation. We create and curate best in class practice gathered from our experience with the leading financial institutions. We design our programmes with the end in mind – what results are you trying to achieve with this intervention? What metrics will we set ourselves to achieve that?

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