- •Financial market: notion, structure and infrastructure.
- •Notion, functions, types of financial intermediaries. Financial intermediaries in Russia.
- •International foreign exchange market: functions, participants, operations.
- •Foreign exchange risks: definition, types, insurance methods.
- •3 Types of currency risk:
- •Definition and types of exchange rates. Exchange rate forecasting, currency parity. Factors of exchange rates.
- •Foreign exchange regulation: purposes and instruments.
- •International securities market: definition, structure, participants.
- •Financial system of a country: structure, interrelation between the elements.
- •Budgetary system of a country: principles of construction, structure, Russian and foreign experience.
- •12. State budget revenues and expenditures.
- •Income distribution
- •13. Public debt and sources of its formation.
- •14. Federal budget of the Russian Federation: revenues, expenditures, modern peculiarities.
- •Imf's main responsibilities:
- •2.1 Over the counter (otc) and exchange-traded derivatives
- •2.2 Forward contracts
- •2.3 Futures contracts and their difference to forwards
- •2.4 Options
- •2.5 Swaps
- •Interest rate swaps,
- •19. Securities market regulation in Russia and abroad.
- •20. Professional activity on securities market.
- •21. The problem of risk and the notion of insurance. Functions of insurance company.
- •Insurance aids economic development in at least seven ways.
- •22. Features of corporate insurance products. Commercial insurance.
- •23. Notion and purpose of reinsurance. Types of reinsurance contracts.
- •25. Obligatory and voluntary types of insurance in Russia and abroad.
- •Voluntary:
- •Voluntary:
- •27. Bank liquidity: notion, analysis, regulation.
- •29. Bank’s credit risks: methods of evaluation and minimization.
- •Interest Rate Risk
- •30. International banks: transactions and risks.
- •31. Monetary policy: purpose, types, tools.
- •32. International credit: notion, functions, forms, tendencies.
- •33. Credit market: functions, participants, instruments, indicators.
- •34. Analysis of a borrower’s creditworthiness by banks.
- •7 Functions of financial management:
- •37. Structure of a company’s balance sheet. Analysis of assets and liabilities structure
- •39. Capital structure and company’s cost of capital.
- •42. Classification of sources of corporate financing.
- •Instruments
- •Issuing and trading
- •Valuation
- •Ipo via foreign bank
- •44. Corporate credit policy.
- •Various Types of Corporate Credit and Corporate Credit Policy
- •45. Types of financial risks, quantitative analysis.
- •46. Investment portfolio construction: calculation and analysis of risk and return.
- •48. Types of bonds, calculation of present value of discount and coupon bonds. Types of bond yield.
- •50. Capital Assets Pricing Model (capm).
- •52. Price structure and its components. Factors of a price.
- •53. Methods of pricing.
- •55. Profit taxation in Russia.
- •56. Taxation of foreign corporate entities in Russia.
- •57. Income taxation of individuals.
- •59. Tax planning: notion, purposes, stages.
Foreign exchange risks: definition, types, insurance methods.
DEFINITION
The risk that profitability, net cash flow, assets/liabilities and market value is affected by a change in exchange rates
3 Types of currency risk:
Transaction Risk - related to outstanding financial obligations (contracted )
Operating Risk (Economic Risk) - related to future operating cash flows ; not yet contracted
Translation Risk - changes in equity because of “translation” of assets and liabilities in foreign currency into reporting currency
Hedging currency risk methods
External methods – with the help of the bank
Forward market hedge – involves a forward (future) contract and a source of funds to fulfil it. It is entered into at the time the transaction exposure is created. When a foreign currency-denominated sale is made, it is booked at the spot rate of exchange existing on the booking date.
Money market hedge – a contract , which is a loan agreement. The company borrows the currency and exchanges it for another currency, and funds to fulfil the loan may be generated from business operations in which case the money market hedge is covered, or funds for repayment may be also purchased on the spot market (open/uncovered market hedge). Cost of money market hedge is determined by different interest rates.
Option market hedge – purchasing a put option=Offsetting a foreign currency denominate dreceivable/payable with a put option or a call option in that currency. Valuable hedging tool when: Waiting on the outcome of a bid denominated inforeign currency± Using of foreign currency price list± Shifts in competitors currency
Definition and types of exchange rates. Exchange rate forecasting, currency parity. Factors of exchange rates.
The exchange rate expresses the national currency's quotation in respect to foreign ones; a conversion factor, a multiplier or a ratio, depending on the direction of conversion. In a slightly different perspective, the exchange rate is a price. If the exchange rate can freely move, the exchange rate may turn out to be the fastest moving price in the economy, bringing together all the foreign goods with it.
Types of exchange rate
1. Nominal exchange rates are established on currency financial markets called "forex markets", which are similar to stock exchange markets. Real exchange rates are nominal rate corrected somehow by inflation measures. In fact, higher prices mean an appreciation of the real exchange rate, other things equal.
2. Bilateral exchange rates clearly relate to two countries' currencies. Multilateral exchange rates are computed in order to judge the general dynamics of a country's currency toward the rest of the world. One takes a basket of different currencies, select a (more or less) meaningful set of relative weights, then computes the "effective" exchange rate of that country's currency.
Some countries impose the existence of more than one exchange rate, depending on the type and the subjects of the transaction. Multiple exchange rates then exist, usually referring to commercial vs. public transactions or consumption and investment imports. This situation requires always some degree of capital controls. In many countries, beside the official exchange rate, the black market offers foreign currency at another, usually much higher, rate.
3. Types of exchange rates by exchange rate system
Free floating - Value of the currency is determined solely by market demand for and supply of the currency in the foreign exchange market.
Managed floating exchange rates - Value of the currency determined by market demand for and supply of the currency with no pre-determined target for the exchange rate is set by the Government
Semi-fixed exchanged rates - Exchange rate is given a specific target
Fully-fixed exchange rates - Commitment to a single fixed exchange rate
The Forecast of Exchange Rates, Currency Parity
We want to start our forecast of exchange rates by assuming that a perfect capital market (PCM) exists, because it makes it easier to predict exchange rates. The standard PCM assumptions are no transaction costs, no taxes, and complete certainty. There are many theories that try to explain how exchange rates can be forecasted and what causes changes in exchange rates.
1. Purchasing power parity (PPP) theory holds that the exchange rate between two currencies will be determined by the relative purchasing power of these currencies. This is the principle that in a PCM setting, homogeneous goods will sell for the same price in two markets, taking into account the exchange rate. The law is enforced by arbitrage across markets if price differences appear, buying where the product is cheap and selling where the product is expensive. So, if the price of goods and services in the UK is rising faster than in the US, according to PPP theory, the value of the UK £ will decline in order to adjust the country’s purchasing power parity. It is based on the Law Of One Price. This model predicts that rice levels (price indexes) of different countries (weighted average of prices of the same set of N goods) will be equal after adjusting for the exchange rate.
The absolute PPP requires identical baskets of goods. The PPP model cannot offer an adequate explanation of causes for exchange rate levels. Empirically, it has been found that PPP describes a long-run phenomenon. The PPP model also comes to different results depending on which method is used (producer prices, retail or wholesale prices, etc.) and which current exchange rate is the basis for the forecasting of the future exchange rate. In spite of all shortcomings of this model,: the more favorable an exchange rate is in comparison to PPP, the more important is a hedging strategy.
3. Historical Exchange Rates
Another way of evaluating the current exchange rate is to look at their historical development. Political and economic changes in the environment also influence the exchange rates. Historic analysis gives some indication of when the current rate is far below or far above the historic average.
Factors of exchange rates
Fixed exchange rates are chosen by central banks and they may turn out to be more or less accepted by financial markets.
Changes in floating rates or pressures on fixed rates will derive, as for other financial assets, from three broad categories of determinants:
1. variables on the "real" side of the economy;
Exports, imports and their difference (the trade balance) influence the demand of currency aimed at real transactions. A rising trade surplus will increase the demand for country's currency by foreigners, so that there should be a pressure for appreciation.
2. monetary and financial variables determined in cross-linked markets;
Interest rates on Treasury bonds should influence the decision of foreigners to purchase currency in order to buy them. In this case, higher interest rates attracts capital from abroad and the currency should appreciate. Decisive would be the difference between domestic and foreign interest rates, thus a reduction in interest rates abroad would have the same effects.
Inflation rate is often considered as a determinant of the exchange rate as well. A high inflation should be accompanied by depreciation. The more so if other countries enjoy lower inflation rates, since it should be the difference between domestic and foreing inflation rates to determine the direction and the scale of exchange rate movements.
3. past and expected values of the same financial market with its autonomous dynamics.
4. The dual forces of demand and supply determine exchange rates. Various factors affect these, which in turn affect the exchange rates:
• The business environment, Economic Data: Positive indications (in terms of govt.policy, competitive advantages, market size etc) increase the demand of the currency, as more and more entities want to invest there.
• Stock market: The major stock indices also have a correlation with the currency rates.
• Political Factors: All exchange rates are susceptible to political instability and anticipations about the new ruling party.
• Government influence: A country's government may reduce the growth in the money supply, raising interest rates, and encouraging demand for its currency.