Complex Financial Instruments

If you are involved in the processing of issuer, fund or bank transactions, you most probably encounter complex financial instruments. Not convinced? Just take a look at the following examples:

• Financial Market Infrastructure provider Euroclear offers its clients access to tri-party repo transactions.
• Morgan Stanley manages a fund dedicated to Asset-Backed Securities.
• The Global Long/Short Credit Fund from Blackrock manages its exposure to credit risk using Credit Default Swaps.

In this course, we explore all of the above instruments and more!

Course duration:

5 hours and 40 minutes

Course access:

You will have access to the course for a period of 90 days.

Complex Financial Instruments content:

Complex Financial Instruments explores three financial instrument groups: repurchase agreements, asset-backed securities and selected derivative contracts.

• Repurchase agreements. We analyse repurchase agreements, focusing on the motives for the transaction from the perspective of both counterparties to the trade. We pay particular attention to the accounting treatment of the transaction, which follows its economic substance rather than legal form. Finally, we stress the importance of haircuts and margin, linking their size to the collateral posted by the borrower.
• Asset-backed securities. We focus on the mechanics of the most common asset-backed securities (ABS), namely mortgage-backed securities (MBS) from the perspective of investors buying simple passthrough securities. We illustrate the unpredictable nature of passthrough cash flows and the resulting exposure to prepayment risk. This in turn leads to the creation of more sophisticated instruments in the form of collateralised mortgage obligations (CMO).
• Selected derivative contracts. We discuss the mechanics and motives for entering the most common types of swap contracts. These include interest-rate swaps (IRS), credit-default swaps (CDS), as well as equity and total return swaps (TRS). We also explore the asymmetrical nature of payoffs on options and warrants and the basics of contracts for difference (CFD).

Course audience:

Complex Financial Instruments is primarily aimed at employees of asset-servicing institutions. The course will also be useful for fund and bank operations staff wishing to understand the logic behind the instruments and transactions which they are exposed to in the course of their duties.

Complex Financial Instruments prerequisites:

In order to get the most out of this course you should be familiar with the mechanics of straight-forward debt securities. Moreover, you should appreciate the sensitivity which they exhibit to various risk factors, most notably changes in the market level of interest rates.

If you are not familiar with these concepts, we recommend that you first complete our course on Basic Financial Instruments.