Investment Banking: Introduction to Structured Products Training Course

Session 1 – Structured Products for Government

• Definition of a structured product
• Types of structured products
  • Asset-backed securities
  • Collateralized debt obligations
  • Collateralized mortgage obligations
• The role of the special purpose vehicle in structured products for government
• Pricing methodologies for structured products
• Key risks associated with structured products for government operations
• Accounting standards and practices for structured products
• Techniques for pricing a structured product in the public sector

Session 2: Interest Rate Structures for Government

• Embedded options and swaps in interest rate structures
• Reverse floaters and their application in government finance
• Leveraged swap-linked notes and their benefits for government entities
• Bonds linked to rates other than LIBOR for government use
• Extendible and cancellable swaps in public sector financial instruments
• Embedded swaptions and their role in government financial strategies

Session 3 – Options Contracts for Government

• Introduction to options for government use
• Key terminology in options trading for government entities
• Comparison of traded and over-the-counter (OTC) options for government operations
• Understanding option premiums in the context of government financial instruments
• Confirmation and settlement processes for options in government transactions
• The impact of volatility on government financial strategies
• Pricing an option using various models
  • Binomial model
  • Black-Scholes model
  • Other pricing approaches for government use
• The significance of the yield curve in options pricing for government entities

Session 4 – Swaps Contracts for Government

• Introduction to swaps for government use
• Definitions and types of swaps relevant to government operations
• Understanding quality spread differential in the context of government financial instruments
• Interest rate swaps and their application in government finance
• Currency swaps for international government transactions
• Techniques for pricing interest rate swaps for government entities
• Valuation methods for swaps in the public sector
• Model risk and the importance of accurate pricing feeds in government financial practices
• Confirmation and settlement processes for swaps in government transactions
• Managing counterparty credit risk in swaps for government entities
• Collateral management and its role in government swap agreements

Session 5 – Introduction to Derivatives for Government

• Definition of derivatives and their relevance to government operations
• Concerns surrounding the use of derivatives in government finance
• Key concepts in derivatives for government entities
• The role of arbitrage and the mutual coincidence of wants in derivatives for government
• Benefits and uses of derivatives in government financial strategies
• Hedging and trading practices using derivatives in government finance

Session 6 – Foreign Exchange for Government

• Differentiating between the banking book and the trading book in foreign exchange for government
• Market conventions in foreign exchange transactions for government entities
• Terminology used in foreign exchange for government operations
• The process of trading foreign exchange for government purposes
• Electronic and telephone methods of trading foreign exchange for government use
• Dealing room controls for managing foreign exchange transactions in the public sector
• Common currency terms relevant to government foreign exchange operations

Session 7 – Forward Transactions for Government

• Introduction to forward contracts and their application in government finance
• The purpose of forward contracts in government financial strategies
• Pricing a forward contract, with an emphasis on the role of LIBOR for government entities
• Documenting forward contracts in the context of government operations
• Introduction to the International Swaps and Derivatives Association (ISDA) for government use
• Confirming and settling forward contracts in government financial transactions

Session 8 – Futures Contracts for Government

• Introduction to futures contracts and their relevance to government operations
• The role of the futures exchange in government financial strategies
• Characteristics of futures contracts for government use
• The role of futures contracts in trading practices for government entities
• Techniques for pricing a futures contract in government finance
• Hedging strategies using futures contracts for government risk management
• The importance of margin accounting in futures transactions for government
• Confirmation and settlement processes for futures contracts in the public sector

Session 9: Equity Swaps for Government

• Fund management objectives for equity swaps in government operations
• Using equity price index swaps in government financial strategies
• Example of cash flows in an equity swap for government entities
• Total return swaps and other credit derivatives for government use

Session 10 – What Goes Wrong in Practice for Government

• Scenario modeling and its application to derivatives for government risk management
• Case study: Bankers Trust and its implications for government financial practices
• Case study: Barings and lessons learned for government entities
• Case study: Allfirst and the impact on government financial oversight
• Case study: Long-Term Capital Management (LTCM) and its relevance to government risk management
• Case study: Enron and the implications for government regulation and transparency

Session 11 – Introduction to Advanced Topics for Government

• Managing interest rate risk in government financial operations
• An introduction to collateralized instruments for government use
• Counterparty credit risk and its management in derivatives for government entities
• Legal risks associated with derivatives in the public sector
• Value at risk (VaR) and exposure at default (EAD) in government financial practices
• Loss given default (LGD) and probability of default (PD) for government entities
• Stress testing and liquidity risk management in government financial strategies
• Scenario modeling techniques for government financial planning
• The impact of international accounting standards, IAS 39 and IFRS 7, on government financial reporting
• Asset recognition and derecognition practices in government financial statements