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  UNITAR / PFT Online Course on 'FUNDAMENTALS OF THE FOREIGN EXCHANGE MARKET'

  Course Information
 
Introduction and Background

If your definition of a financial market is that it brings borrowers and lenders together or facilitates this function, the foreign exchange (forex) market is not a financial market. Consider when a company buys foreign exchange (USD for LCC ) from an authorised forex dealing bank to pay for imports: it gets a credit to a bank account in the USA or a USD deposit in a bank somewhere convenient. To pay for this the company's local bank account is debited. Has lending and borrowing taken place? No.

What then has occurred? The company exchanged a local bank deposit (currency = LCC*) for a foreign bank deposit (currency = USD). Where does a bank deposit fit in the financial system? Answer: the money market. So what is the conclusion? It is that the forex market is not a financial market; rather, it is a conduit into a foreign money market.

The forex market being a conduit into a foreign money market in many cases can be considered to be the first round. Consider: when an investment into USD bonds is made by a local investor, s/he first buys the USD (ie a credit to his/her USD account = a money market transaction). S/he now has the required USD funds to buy USD bonds. This is the second round, and s/he has does a bond market transaction in the USA (or the Eurobond market).

It is an understatement to say that the forex markets of the world are immense. The high level of turnover indicates that the forex market is an efficient market, ie price discovery is sound - as reflected in the small spreads in the larger markets of the developed world. In turn this means that one can effect a large forex transaction with a quick phone call. It is a quote-driven market (as opposed to an order-driven market such as the equity market) and it is firmly the banks' province. They quote bid and offer rates simultaneously once the volume of the transaction is disclosed, and the quote recipient can deal either side of the quote.

As in the spot forex market, the derivative forex market is efficient, allowing, for example, a company to do a large forward deal as quickly as a spot deal. The company can also do currency swaps, forward-forwards, option date forwards, and more, at the drop of a hat.

In this module all aspects of the forex market are covered, including its organisational structure, cross rates, spreads, quotation conventions, the role and importance of exchange rates, its participants, its relationship with the balance of payments and the money stock, and other relevant issues.
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* LCC (local country currency) is a fictitious currency.

 

Registration Status: OPEN
Deadline for Enrollment: when slots are full
Course Dates: October 4 to November 5, 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 environment of the forex market.
  • Make clear the link between the forex market and the money market.
  • Demystify the jargon of the forex market.
  • Equip the student with the theoretical backdrop to the forex forward markets: the time value ofmoney and the arbitrage principle.
  • Expose the student to the quantitative elements of the forex market
  Target Audience  
 


The intended audience is:

  • Members and employees of securities exchanges.
  • Dealers in forex and 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.
  Expected Course Outcomes
 


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

  • Elucidate the environment of the forex market: the financial system
  • Discuss the characteristics of the forex market.
  • Understand and elucidate the forward market instruments, including their theoretical fair value prices.
  • Expound on the other risk management tools of the forex market.
  • Elucidate the link between the forex market, the balance of payments, the liquidity of banks and the money stock.
 
  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

There are 6 sections to the course:

Module 1 Foreign Exchange Market: Essence
This module is a discussion on the basics of the forex market and is elucidatory in nature. It includes topics such as organisational structure, two-way prices, the spread, cross rates, appreciation and depreciation, spot and forward exchange rates and so on. An understanding of the basics is essential to an integration of the issues of the other modules.

Module 2 Foreign Exchange Market: Derivatives: Forwards
This module presents a detailed description of the characteristics of the forward market, which is a large and active market. There are four types of forward contracts: outright forwards, forex swaps, forward-forwards and option date forwards. Each is covered but the closest attention is afforded the first-mentioned because it represents the bulk of this market.

Module 3 Foreign Exchange Market: Derivatives: Futures, Options and Swaps
In this module the derivative instruments, other than forward contracts, pertaining to the forex market are discussed, and they are currency futures, currency options and currency swaps. These markets are large, but the forward markets dominate.

Module 4 Foreign Exchange Market: Risks other than Currency Risk & other Risk Management Tools
Currency risk is the superior risk in the forex market. There are many others, which pertain especially to developing g countries, such as settlement risk, availability of information, trading methods, transactions costs, and so on. Similarly, there are other risk management tools (to the derivative markets), such as utilisation of local loans, dual-currency bonds, barter, and so on.

Module 5 Foreign Exchange Market: Participants
This module covers the role of each of the participants in the forex market, which includes the dealer banks, the forex brokers, the central bank, the government, retail clients, non-authorised dealers, the corporate sector, arbitrageurs, and speculators.

Module 6 Foreign Exchange Market: Effect on Money Stock & Money Market Liquidity
The forex market is closely related to the money market. Therefore, forex transactions have an impact on bank liquidity and the money stock, depending on which institution does the transaction. This module discusses forex transactions within the framework of the money identity (balance sheets of banks and central bank) and the money market identity (central bank balance sheet only).

 

  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.
 

  Pedagogy  
 


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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