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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