A question that we always ask at the start of our Foreign Exchange Derivatives training course is “what is the dollar cost of a bottle of water?”.

Participants are quite keen to offer a variety of answers to the question but when we ask them the dollar cost of a British pound, silence engulfs the room and no more suggestions are forthcoming.  To some extent this illustrates one of the oldest adages in the training world: “Foreign Exchange is not difficult – it is just confusing”

Spot foreign exchange

In the spot FX module, the content ensures that the participants are comfortable with the way in which FX is quoted and the associated key terminology (e.g. appreciation and deprecation).

Forward foreign exchange and FX swaps

According to the Bank for International Settlements (BIS.org) the most actively traded product in this asset class is an FX swap.  In our experience, it is also the most difficult concepts for people to grasp.  The main learning point that comes from this module is not about adding or subtracting pips or points to a spot rate but rather that an FX swap is nothing more than a collateralised loan.  As the name suggests a trader may decide to exchange / swap USD for EUR i.e. borrow EUR for a predefined period and deliver USD as collateral.

Foreign Exchange options

Our foreign exchange derivative course covers the fundamental concepts of options before moving on to consider how the options are risk managed.  One unique feature of the training is the use of our own software.  To illustrate the principles of option valuation we use an Excel version of our option pricer (a web version can be accessed by clicking here).  Our options simulation is a semi-dynamic excel-based product that lets participants apply their understanding of option risk management within a portfolio context.  When developing this approach, we actively decided against developing a conventional option simulation which in our opinion does allow the participants sufficient time to reflect upon their actions.

Exotic FX options

The course also covers the main exotic FX structures that are popular with corporate and institutional users.  These include both path-dependent structures (e.g. barriers and binary options) as well as a variety of correlation dependent structures (e.g. basket options and ‘worst of’ structures).

If you are interested in foreign exchange derivatives training on an in-house basis, please get in contact!