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FINANCIAL MARKET PROGRAMMES

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Building Blocks

This programme contains the key building blocks for capital and derivatives markets. Essential concepts for comparing investment alternatives, such as PV, FV, NPV, and IRR, are reviewed in depth. Mathematical and statistical concepts, imperative for comprehending the pricing of many instruments, are also explained in detail.

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Courses In This Programme

Objectives

In this programme, you will explore:

• Interest calculations and the effect of compounding

• The present value and future value of cash flows, and how these are related by the discount factor

• Net present value and internal rate of return as yardsticks for comparing investment or borrowing alternatives

• Statistical concepts, such as probability and volatility, that are vital in understanding options

• Mathematical calculations required for more advanced derivatives topics

Prerequisite Knowledge

A reasonable level of mathematical understanding is assumed.

Learner Profile

This programme is designed for:

• New recruits to banking and financial organizations

• Trainee dealers and traders

• IT staff

• Financial and accounting staff

• Compliance and regulatory staff

INTEREST CALCULATIONS

Overview

On the face of things, calculating interest sounds quite easy. In practice, however, there are a number of factors that affect interest calculation. The impact of these factors can make a significant difference to the growth of an asset or liability under different interest rate environments. The difference in interest payable on different calculation bases is not negligible – in financial markets, a basis point differential, or even a fraction of a basis point, can be crucial in getting a deal done.

Course Duration

75 mins

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Prerequisite Knowledge

Previous knowledge of this area is not required.

TIME VALUE OF MONEY

Overview

In financial markets, there are many examples of cash flows that occur at some point in the future but which need to be evaluated today. A cash flow in the future has a value today called the present value. Similarly, a cash flow today has a value in the future known as the future value. Present value and future value are determined by the interest rate and the time period elapsed. They are crucial concepts in finance. For example, the price of a bond is the sum of the present value of all the cash flows expected to be generated by the bond in the future, the mark-to-market value of an interest swap is the sum of the present values of all the cash inflows and outflows from the swap in the future, and the value of an option is the present value of the expected payoff of the option at the exercise date.

This course describes the concepts of present value and future value, and the relationship between them. It is essential for understanding the way in which securities and derivatives are priced, and how decisions are made in financial markets.

Course Duration

60 mins

Prerequisite Knowledge

Interest Calculations

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NPV & IRR

Overview

When investing, borrowing, or making other economic decisions, it is important to be able to compare alternative opportunities using an objective yardstick, regardless of the pattern of the cash flows that result from each opportunity.

The purpose of this course is to provide a framework for analyzing alternative investments. Using the fundamental concepts of present value and discounting, it is possible to evaluate most kinds of financial assets and liabilities in the common framework of net present value, or NPV.

While NPV is not the only relevant evaluation measure, it is usually the starting point in measuring different alternative investments, and the one to which most other measures of investment value relate.

Course Duration

60 mins

Prerequisite Knowledge

Time Value of Money

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PROBABILITY

Overview

Every day we make judgments based on probability. The weather forecaster announces that there is a 90% chance of a thunderstorm this evening. The gambler feels there is a 50% chance that his horse will win the race. These chances, termed probabilities, measure the likelihood of certain events occurring. In the financial world, probability is applied in measuring the risks involved in trading and investing and their effect on the rate of return.

This course outlines the fundamentals of probability, and covers the key terminology associated with probability theory. It describes the different types of probability and their calculation, and explains how probability theory facilitates investor decisions.

Course Duration

60 mins

Prerequisite Knowledge

No prior knowledge is assumed for this course.

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DISTRIBUTIONS & HYPOTHESIS TESTING

Overview

During our everyday life we frequently conduct random experiments, without necessarily being aware of it. For example, if we are buying a new car, we might test drive say five cars, and judge each car as ‘suitable’ or ‘unsuitable’. When an experiment has a quantitative feature, we can associate a number with each outcome of the experiment. The outcome of the experiment defines a random variable x.

This course is about random variables, probability distributions, the testing of hypotheses, and confidence levels. Understanding these concepts is essential in the financial world, particularly in option pricing and risk measurement. The course covers the types of random variable and the probability distributions that each follows. It also provides information about the parameters of the distributions. It introduces the concept of hypothesis testing and confidence levels, and also looks at situations where the use of one-tailed or two-tailed confidence levels must be determined.

Course Duration

75 mins

Prerequisite Knowledge

Probability

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ESTIMATING VOLATILITY

Overview

In simple terms, the concept of volatility refers to an asset's degree of unpredictable price change over a specified period of time. The more volatile an asset, the more difficult it is to predict where its price might be on a future date, and hence the greater the risk associated with the asset.

Volatility reached unprecedented levels in many markets in 2008 and huge losses were incurred by many market participants. This course looks at the concept of volatility and how it is assessed and estimated, with particular emphasis on the market volatility of 2008.

Course Duration

60 mins

Prerequisite Knowledge

Options - An Introduction

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CORRELATION & REGRESSION ANALYSIS

Overview

In everyday life we can find plenty of examples of relationships between variables, whether physical, social, economic, political, or otherwise. For example, there exists a clear and direct relationship between the height of a person’s body and his weight. Also, there is a relationship between income and consumption, both for an individual and for a country.

Two simple and meaningful ways to measure the relationships among variables are the statistical concepts of correlation and regression analysis. This course describes these techniques, and provides some examples of how they are applied in the financial world

Course Duration

75 mins

Prerequisite Knowledge

A reasonable level of mathematical and statistical knowledge is assumed.

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CALCULUS

Overview

An important topic in finance and economics is the study of the speed of change of different economic quantities over time, such as GDP, unemployment, investment, and so on. Further, risk management instruments rely heavily on the speed of change of the underlying assets’ values and prices. The mathematical concept that deals with these issues is the rate of change, otherwise known as the derivative.

This course introduces the concept of differentiation and its counterpart, integration. Simple economic applications of the two concepts are also described.

Course Duration

90 mins

Prerequisite Knowledge

No prior knowledge is assumed for this course.

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INDICES, EXPONENTS, LOGS, & GEOMETRIC

SERIES

Overview

An understanding of some basic mathematical tools is crucial in order to have a solid grasp of financial concepts. Indices, exponents, logarithms, and geometric series, which are explained in this course, are some of the most basic and important tools employed in finance.

These mathematical concepts are particularly important in the context of calculating the price of capital market and derivative products. Among other things, this course will also help you to understand the logic behind calculating compound interest and present value, as well as showing how to compute the price of bonds and annuities.

Course Duration

75 mins

Prerequisite Knowledge

No prior knowledge is assumed for this course.

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