Introduction To Interest Rate FRAs, Futures & 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.


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 exchanges
– 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

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

-Group Exercise – Case Studies and Proposed hedging solutions


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