Course Information
Introduction and Background

Forwards, futures (= formalised forward contracts), swaps, options, hybrids (such as swaptions and options on futures) and a category "other" (including credit derivatives and weather derivatives) make up the derivative markets (also called forward markets). The word is drawn from "derive" and means that the derivative instrument cannot exist on its own; it is closely related to "something" and this something is usually a cash (spot) market instrument and it is called the underlying instrument.

A cash or spot deal is a deal for settlement now. "Now" means the earliest date dictated by market conventions / characteristics. For example, in the money market a treasury bill sale transacted today can be settled today (T+0) or tomorrow (T+1). In the equity market deals are usually settled on T+3 or T+5. In the bond market deals are usually settled on T+3 and so on.

In the forward markets (as seen, this is also a generic term for all derivatives) settlement takes place on dates in the future other than on the spot settlement dates. For example, futures normally expire on dates 3 months, 6 months, 9 months and 12 months into the future (from when they are created).

To elucidate an example is required: a long futures contract on100 shares of ABC Company (called a single stock future) expiring in 85 days' time. The underlying instrument is Company ABC shares.

You have the choice of buying the100 shares of Company ABC today (T+0) at the market price of LCC 10.00 (= spot or cash price) and pay on T+3, or to buy a future (futures contract actually) now (T+0) at a price of LCC10.30 that expires in 85 days' time on T+85. It should be clear that you undertake to buy and pay LCC10.30 per share for 100 shares of Company ABC on T+85.To summarise: you deal on T+0 at a price agreed now (LCC10.30) and settle the deal on T+85.

What is the difference between the spot price and the forward (or futures) price? The difference is determined by market forces, but it should be equal to the time value of money: the spot price is the present value (PV) and the forward price the future value (FV). If not, in theory, arbitrage should take place.

As noted, a future is a formalised forward. A swap is the exchange of obligations (floating interest / price for fixed interest / price). An option is well termed: it is an option (no obligation) to buy or sell an underlying asset. The other derivatives are based on events taking place.

Derivatives were originally developed as hedging tools (against price risk), but they are used extensively as tools to speculate in the various underlying markets. The term "speculate" is usually met with disdain. If you react this way, consider who enables the hedger to hedge - it is usually the speculator. The hedger sheds risk and the speculator takes it on.

The course covers all of the above and provides many examples to enable the student to develop an integrated understanding of these significant markets
* LCC (local country currency) is a fictitious currency.


Registration Status: OPEN
Deadline for Enrollment: when slots are full
Course Dates: November 8 to December 17, 2010
Estimated learning time: Minimum of 35 hours
Format: Online/Internet-based (asynchronous)
Language of Instruction: English
Fees: US $ 400/-
Helpline: UNITAR Geneva (Course Administration and Technical Questions)
  Course Objectives  

The overall objectives of the course are to:

  • Expose the student to the context of the derivative markets: the financial system and its markets.
  • Equip the student with the theoretical backdrop to the derivative markets: the time value of money and the arbitrage principle.
  • Provide the student with the means to analyse the essential characteristics of each derivative market.
  • Provide the student with the ability to calculate the fair value prices of the derivative instruments.
  • Expose the student to the participants in the derivative markets and their motivation/s.
  Target Audience  

The intended audience is:

  • Members and employees of securities exchanges.
  • Dealers in other parts of the financial sector.
  • Financial market analysts.
  • Economists.
  • Company treasury managers and dealers.
  • Employees of treasury management (outsourcing) companies.
  • Private sector bankers.
  • Central bankers.
  • Government treasury officials.
  • Large investors, such as retirement funds.
  • Trustees of retirement funds.
  • Corporate borrowers.
  • Commodity manufacturers.
  Expected Course Outcomes

After completing the course the student should / should be able to:

  • Elucidate the context of the derivatives markets: the financial system
  • Comprehend the instruments (contract types) of the derivative markets.
  • Discuss the derivative markets in terms of their theoretical underpinnings.
  • Analyse the derivative markets in terms of their use by the various participants.
  Course Structure / Outline  

Course Structure

This online course will involve a mix of self-study and online interaction culminating in a practical understanding of money market through online group work. Throughout the duration of the course, participants will go through theoretical and conceptual material prepared by UNITAR and will have an opportunity to relate it to real-life situations through online discussions and peer-to-peer interaction. There will be a quiz/assignment at the end of the course which is a requirement for obtaining a course certificate.

Course Outline

Module 1 Derivative Markets: Context
A description (including illustrations) of the elements that constitute the financial system is presented. This is the setting of the derivative markets. The underlying instruments of the financial derivative markets, as well as their prices / indices, are found in the various financial markets

Module 2 Derivative Markets: Forwards
This module presents detailed descriptions of the characteristics of the various types of forward contracts. Forward contracts are found in the debt, equity, forex and commodity markets. The organisational structure of the forward markets is elucidated as well as the underlying pricing principles.

Module 3 Derivative Markets: Futures
This module is given much attention because of the significance of futures markets around the world. It dissects the definition of futures, and describes all aspects of the futures market, including types of futures contracts (found in all markets), organisational structure, margining, cash versus physical settlement, the pricing of futures (which differs according to the underlying instrument), the participants, the economic significance of futures markets and so on.

Module 4 Derivative Markets: Swaps
In a swap contract certain cash flows are exchanged for other cash flows (for example fixed for floating) based on a notional amount that is not exchanged. In the case of a hedger the notional amount will mirror a cash market position. This module covers all swaps: interest rate swaps, currency swaps, equity swaps and commodity swaps. It also covers the organisational structure of the generic swap market.

Module 5 Derivative Markets: Options
An option, as the name suggests, is a right, without the obligation, to buy or sell the underlying instrument. This is done (called exercise) if it is profitable for the holder (buyer) to do so. Otherwise the holder lets the option lapse. The price paid for the option is called a premium because it is akin to an insurance policy; this, ie option pricing, is given much attention. The organisational structure of the generic options market is also covered, as are the various options markets: on debt, forex, currencies, commodities and other derivatives (futures, swaps and so on).

Module 6 Derivative Markets: Other Derivatives
There are a number of other derivative instruments, such as securitisation assets, credit derivatives, weather derivatives, insurance derivatives, electricity derivatives and so on. The main ones are the first three. They are covered in some detail.


  Other Course-related Information
This course will be conducted over the internet using UNITAR's e-Learning infrastructure for a five-week period. Participants will require a minimum of 90 minutes of study each day. The course pedagogy will allow for three levels of interaction. At the first level, the participants will interact with the training content. At the second level, the participants will interact with other participants to share experiences and learn in a contextual manner (using an online discussion board facility). At the third level, the participants will interact with a seasoned international negotiator (course mentor) who will moderate the course for its entire duration. At the core of this course is a set of online interactions and discussions, each of which will be coached by an expert.

UNITAR online courses attempt to create a networked learning environment, in which participants have the flexibility to learn at their own convenience and pace but also are able to interact with peers and experts through the discussion board facility.

This online course will be conducted in the English language.


This course is designed as an online course in which participants will be primarily responsible for their own learning. Each lesson will consist of the following components:

1) Basic Reading Materials (Compulsory Reading Materials): these materials are intended to educate the participants about the basic concepts and principles applicable to the subject-matter of the lesson. It will include, where appropriate, sample materials. These materials will constitute the required reading materials for the lesson

2) Advanced Reading Materials (Optional Reading Materials): this will consist of optional reading materials for participants who wish to learn more about the topic than what is covered in the lesson.

3) External Links: This will refer the interested participants to additional books, articles, documents, and websites that deal with the issues raised in the lesson.

4) Glossary: A glossary of terms tailored to the online course will be provided to the participants and act as a learning support during the entire course.

5) Quizzes: At the end of each lesson there will be a set of quizzes for participants to answer. These quizzes are designed to test the participant's understanding of the lesson. Participants are required to pass each quiz and obtain at least 80% or more passing grade in order to be eligible for a certificate. All quizzes will need to be taken online.

6) Community Discussion Board: There will be a community discussion board available on which participants can post questions or comments that can be seen by the instructor and the other participants. This discussion board will be moderated by the course director and UNITAR. Structured discussion strings will be posted on a weekly basis.

All successful participants will be eligible to a certificate after completion of this online course.


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