Foreign Exchange (FX) and Money Markets

The money market has witnessed significant change over recent years, the most notable one being in the inter-bank borrowing and lending sphere with the replacement of ‘ibor based reference rates with new, IOSCO compliant, near risk-free reference rates, such as SOFR in the US and €ster in the eurozone.

The introduction of these new rates has significant implications for money market derivative instruments, notably forward rate agreements (FRAs) and short-term interest rate (STIR) futures, ang longer-dated swap instruments, as well as for cash market instruments, such as floating rate notes and loans, that are referenced to inter-bank rates.

The FX market has also been affected, as FX forward rates by and large derive their value from interbank rates. The foreign exchange and money markets are worth trillions of dollars and are the pivot of the financial markets, providing funding, investment opportunities and the conduit between all other financial markets.

In recent years, the importance of the money markets has become even greater as financial institutions focus more closely on the management and diversification of their sources of liquidity, apply greater discipline to their funding and examine the attractions of short term investment and trading strategies.

This course focuses on the current profile of the markets and offers up-to-date developments and their implications.

The course emphasises the integrated nature of the markets - in particular, how different instruments perform the same or similar functions and the opportunities this provides for arbitrage and hedging. It also analyses the liquidity characteristics and risks of different instruments and funding strategies.

Summary Of Course Content:

• The FX and money markets and its participants
• The role of Central Banks
• Money market instruments
• The development of inter-back rates: From ‘ibor rates to near risk-free benchmark rates
• Securitised borrowing and lending: The repo market explained
• How FRAs and STIR futures are structured to enable market participants to lock-in forward borrow and lend rates
• Next generation STIR futures referencing the new risk-free benchmark rates
• Impact of the new risk-free benchmark rates on the interest rate and currency swap markets
• How changes to inter-bank rates and IRS market are impacting the FX forward markets