Core Training Guide

Introduction This Guide provides an overview of the Vantage Point Core Training, which is mandatory for all AdVantage Consultants. This is available to you to provide a deeper technical knowledge in line with the Vantage Point Domain Wheel It is recommended that you begin with the Asset Classes listed in the top left of the Wheel and then work round the other sectors. The exact order does not matter, as you will find a listing of the prior knowledge required for each module given in the description of the module in the separate Quick Reference Guide Each module has a title and a code number (See QRG), which will help you link it to the relevant sector of the Domain Wheel. The codes are allocated as follows: · Asset Classes · Client Businesses · Bank Wide Services · Asset Class Services

In addition, there are two introductory modules on the Financial Sector which are not a formal part of the Domain Wheel diagram and which have the module codes FS1 and FS2. At the end of each module there will be a test intended to ensure that you have acquired the necessary grasp of the subject matter covered. The Role of the Financial Sector

o Movement of Funds in the Economy o Making Investments o Economics & Commerce o Investments in Banking vs. Financial Services o Liquidity & Credit o Different Firm types o Lending o Deposits o Investing with a Bank (Depositor, Bank, Borrower) o Markets – Primary & Secondary o Market Makers – Bid-Ask Spread

Quiz – Test Your Money Smarts Financial Sector Participants

o Understand Key Participants in Financial Services and their activities § Banks § Asset Managers § Exchanges § Clearing Houses & Custodians § Regulators

o Banks § Different Banking Models § Economic and Cultural Environments § Regulatory Patterns § Shadow Banking

o Classifying Banks § Commercial vs. Investment Banks

o Asset Managers § Buy-side Market

o Classifying Investors § Institutional\Wholesale § Retail § Alternative Investments

o Exchanges o Market Environments

§ Exchange Traded § Over the Counter (OTC)

o Clearing Houses o Custodians o Regulators

§ Bank Regulator § Market Regulator § International Regulation

Tour of the Markets

o Characteristics of each market § Cash & Derivative Markets

o Asset Classes o Market Terminology o Motivations of different market users o Debt Markets

§ Short Term vs. Long Term § OTC Market § Bonds

o Equity § Limited Liability § Returns

o Securities o FX & Commodity Markets o Market Activity

§ Investing § Fund Raising § Hedging § What Drives Demand & Supply

o Trading Mechanics § Long § Short § Square § Arbitrage

o Stock Borrowing o Derivatives

Study and take SEC Quiz Money Markets

o Main Instruments o Benchmark Interest Rates o Participants o Deposits

§ COD § T-Bills § Commercial Paper § Repos

o Interest Conventions o Fixed Term Deposit Structures o Domestic & Offshore Markets

§ Fixed Term Offshore Deposit Structure o Benchmark Rates

§ LIBOR, EURIBOR etc. o Negotiable Instruments o Discount Instruments o Return on Deposit Instruments o Repo Markets

§ Opening Leg § Far Leg

Bond Markets

o Structure of Bond Instruments o Government vs. Credit Bonds o Mechanics & Terminology o Valuation & Risk o Market use by Issuers, Investors & Traders o Bond Valuation o Coupons o Bond Markets

§ Domestic § Foreign § Offshore/”Eurobonds” § Global Bonds § Governments § Credit Bonds

o Identifying a Bond § Issuer § Coupon § Maturity

o Yield Curves o Bond Valuation

§ FV\VP § Ratings

• Investment vs. Speculative o Bond Issuance

§ Liquidity o Position Taking o Relative Value Trades o Credit Spread Trading

Equity Markets

o The Nature of Equities and Equity Returns o Types of Shares

§ Ordinary Shares • Class A, B etc. • Voting

§ Preference Shares § Convertible Bonds § Depository Receipts § Collective Vehicles

o Initial Public Offerings

o Secondary/Rights Issues o Retunes from Equity Investments

§ Dividends § Capital Gains

o Principles of Equity Valuations o Equity Analysis

§ EPS § P/E Ratios § Market Capitalisation

o Exchanges § Traditional Exchanges § ECN’s

• Dark Pools o Types of Indices o Equity Exchanges & Proprietary Networks o Market Indices

FX & Commodity Markets

o Overview of Wholesale Market for FX § OTC § Instruments Traded § Market Participants § Main Currencies

o Quoting Conventions § Spot Market Settlements § Market Makers & Bid-Offer Pricing

o FX Risk and Investing § Risk in the FX Market

o Currency as an Asset Class § Currency Overlay

o FX and Corporates o Commodity Markets

§ Diversification o Metals

§ Physical vs. Contract o Energy

§ Crude Oil • WTI, Brent, Tapis etc.

§ Refined Products § Gas

o Agricultural Derivatives - Forwards & Futures

o Definition of a Forward Contract § Forward Contracts § Forward Settlement

o Pricing Forwards o Terminology

§ Contango

§ Backwardation o Marking to Market and Counterparty Risk

§ Counterparty Risk Modeling – Statistical Modeling and Confidence Levels § Collateral

o Trading with Futures – Market Logic and Structure § Exchange Trading § Liquidity § Credit § Clearing Houses § Futures Margins

• Initial Margin and Variation Margin § Trading Futures

• Leverage • Impact of Leverage • Mechanics and Structures

Derivatives – Options

o Mechanics and Terminology § Call Options § Put Options § Exercise Period § American vs. European § Strike Price § ITM, ATM, OTM § Option Settlement – Physical vs. Cash § OTC vs. ETD

o Examples of Options § Option Outcomes § Analysing the Premium § Intrinsic Value § Time Value

o Option Premium and Valuation § Inputs from the Buyer § Income from the Underlying § Interest Rates § Volatility

• Option Models • Historic Volatility • Implied Volatility

o Option Pricing § Black-Scholes § Binomial § Monet Carlo

o Sensitivities (The Greeks) § Delta § Gamma § Theta § Vega

o Applications § Hedging § Trading

§ Arbitrage

Go to the following website and read the first 2 chapters of this “An Introduction to Futures and Options” http://www.cmegroup.com/files/intro_fut_opt.p

Derivative Applications

o Use of Derivatives § Hedging

• Terminology § Trading & Trading Opportunities

o Using Forward to Hedge o Using Future to Hedge o Designing the Hedge o Examples o Hedging with Options o Market Risk o Options o Terminology

Exercises Wealth & Asset Management

o Who are Asset\Fund Managers? o Services and Products – Wholesale Institutions and Retail Market o Institutional Investors

§ Pension Funds § Life Assurance § Sovereign Wealth Funds § Family Offices § Companies § Not-for-profit

o Investment Styles § Business Model § AUM\FUM

o Retail Funds o Collective Investments o Wholesale Funds o Risk o Diversification o Performance Measurement o Active vs. Passive

SEC Quiz - Mutual Funds

Investment Banking

o Range of business undertaken by Investment Banks § Corporate Advisory § Origination and Primary Markets § Trading and Market Making – Secondary Market

o Financial Structure § Bulge Bracket vs. Boutique § Balance Sheet § Revenues

o Front Office Functions § Trading § Structuring § Sales/Coverage § DCM/ECM § Syndicate Desk § Advisory/Investment Banking

o Middle Office Functions § Risk Management § Price Control § Credit § Finance § Legal

• ISDA • CSA

o Back Office Functions § Settlements § Payments § Nostros § Confirmations § Collateral Management

o Prime Brokerage o Corporate Functions

§ Compliance § Finance & Tax § IT § Pressures on Investment Banking

• Financial Crisis 2007-8 • Volcker • Derivatives Reporting

Corporate Banking

o Corporates § Multi-national Companies § Major Companies § SME’s § Start-ups

o Loans and Products\Services § Short Term Lending § Long Term Loans

§ Syndicated Loans § Leveraged Finance § Cash Management § Trade Finance § Guarantees

o Income and Risk Characteristics o Infrastructure

§ Net Interest Margin § Income Flows

Banking Risks

o Four main areas of Risks for Banks o Analysis of the Scale of Risk o The consequences of Poor Risk Management o Credit Risk

§ Repayment Risk § Settlement Risk § Counterparty Risk § Concentration Risk § Sovereign Risk

o Examples of Credit Losses o Credit Risk Controls

§ Credit Limits § Collateral § Link Related Exposures

o Market Risk § Held Positions § Market Liquidity § Basis Risk

o Examples of Market Risk o Market Risk Controls

§ Limits • Absolute • Value at Risk (VaR)

§ Bank Wide Limits § Real Time Valuations § Collateral Monitoring & Management § Scenario Modeling

o Examples of Operations Risk o Operational Risk Controls

§ Compliance § Segregation of Roles § Disaster Recovery Plans § IT Systems § Risk Management

o Liquidity Risk o Examples of Liquidity Risk

Basel Capital Adequacy

o The Need for Regulation of Capital § Assets vs. Liabilities

o Definition of Capital § Regulatory Capital § Cost of Capital & Profitability

o International Regulation – BIS o Basel 1

§ Credit Risk & Risk Weighted Assets (RWA) § Tier 1 § Tier 2 § Off Balance Sheet Credit Exposures § VaR

o Basel 2 § Pillar 1 – Risk Coverage § Pillar 2 – Supervisory Processes § Pillar 3 – Market Discipline

o Operational Risk Requirements • Basic • Standardized • Advanced

o Failings of Basel 2 o Basel 3 – Overview o Basel 3 – Definition of Capital

§ Basic Capital § Tier 1 Capital

• Common Equity • Hybrids

§ Tier 2 o Capital Conversion Buffer o Countercyclical Capital Buffer o Basel 3 Capital Risk Measures

§ CVA § Wrong-way Credit Risk

o Systemically Important Financial Institutions o Limit on Leverage o Improving Capital Ratios

Clearing & Settlements

o Overview o The Counterparty

§ Confirmations o Middle Office – Risk Management

§ Risk Position Limits § Credit Limits § Price Verification

• Structured Products & Off-Market Pricing o Trade Reporting

§ EMIR § Dodd Frank

§ SEF § SDR

o Collateral Management o Funding o Finance

§ Trade or Hedge? o Payments o Straight Through Processing and Exceptions

Trading, Analytics & Research

o Recap of Trading Strategies § Relative Value Trades – Spread Trades § Yield Curve Trades • Trading Profit & Loss § Price Movement § Carry § Charges, Fees and Adjustments § Price Movement

o Marked to Market • Direct Observation • Indirect Observation

o Carry and Funding o Costs

§ Overheads and Direct Costs § Costs of Capital

o Automated Trading § SDP § MDP § Algo Trading § High Frequency Trading

o Data o Research

Treasury & Finance

o The Role of the Treasury/Funding Desk o Liquidity o Access to Markets o Diversified Sources of Funds

§ By Maturity § By Investor Type § By Currency

o Profit Centers o Balance Sheet and Capital Structures

§ Assets vs. Liabilities o Balance Sheet Exercises o Funding Options for Banks

§ Retail § Wholesale

§ Equity o Currency Issues o Maturity Structure o Asset & Liability Management (ALM)

§ ALM Processes – Asset and Liability Committee (ALCO) § Management Book

o Funding as a Source of Profit o Gapping

§ Yield Curves § Positive Gap § Negative Gap § Overlent § Overborrowed § Compounding

o Mismatches § Liquidity Risk § Cash Flow Risk § Interest Rate Risk

o Liquidity Risk Management § Basel 3

o Net Stable Funding Ratio (NSFR) Regulatory Overview

o EMIR o DFA o AMLDIV o MIFIDII o LEI, UTI, USI o FATCA

Derivatives Documentation

o High-level Overview o ISDA o CSA