How do hedging instruments work?

Prerequisites

No prior knowledge required

Objectives

◗ Identify the conditions under which foreign exchange, interest rate, and commodity risks arise.

◗ Distinguish between partial and full hedging strategies, and their costs.

◗ Make effective use of the main categories of derivative financial instruments.

◗ Analyze the accounting issues related to their use for hedging purposes.

Training program

◗ Understanding the fundamentals of interest rate instruments

– How fixed-rate and variable-rate loans work
– “Vanilla” bonds, sustainable bonds, and “linked bonds”
– Impact of interest rate fluctuations on the valuation of a liability
– Credit risk and the cost of debt, credit ratings
✔ UNDERSTAND | Illustration: Comparison of the advantages and disadvantages of market financing (bonds) versus bank loans
✔ APPLY | Case Study: Valuing a fixed-rate bond using a yield curve (simplified calculation)
✔ EVALUATE | Quiz: In your opinion… Why does a rise in interest rates cause the value of a bond to fall?

◗ Using interest rate hedging instruments

– Interest Rate Swaps: Hedging Logic, Fixed vs. Variable Cash Flows
– Optional Hedging: Cap, Floor, Collar
– Choices based on visibility, budget, flexibility, and P&L impact
✔ APPLY | Practical exercise: determining the fixed rate of a swap when negotiating with the banking counterparty
✔ EVALUATE | Quiz: how swaps and interest rate options work, and their valuation

◗ Mastering currency hedging instruments

– Firm hedging: forward contract, currency swap
– Optional hedging: vanilla option, tunnel
– Choose based on visibility, budget, flexibility, and P&L impact
✔ APPLY | Case Study: Choose the right hedging tool for a USD settlement in 3 months
✔ EXPERIMENT | Workshop: Compare the results of a tunnel and a forward contract for the same exporter scenario
✔ EVALUATE | Quiz: The more volatile the currency, the higher the option premium—TRUE or FALSE?

◗ Applying IFRS hedge accounting

– Overview of the 3 types of hedges:
• Cash Flow Hedge (CFH)
• Fair Value Hedge (FVH)
• Net Investment Hedge (NIH)
– IFRS 9 Criteria: documentation, effectiveness, economic relationship
– Accounting Treatments: OCI, income, revaluation, and mismatch
✔ UNDERSTAND | Guided Study: Comparison of CFH and FVH Accounting Treatments
✔ APPLY | Practical Cases: Apply foreign exchange hedge accounting to an import transaction and determine the IFRS treatment of a 5-year cross-currency swap
✔ EVALUATE | Quiz: In your opinion… Does accounting ineffectiveness call into question the CFH treatment?

Why choose this course?

There are many risk management products available, some of which are quite sophisticated, designed to meet a wide range of specific needs.

This training course focuses on the operation and features of the main products and helps participants master the principles governing their use.

Teaching and assessment methods

Before the training: Submit your expectations via your online portal 15 days before the training begins and complete a self-assessment of your skills.

Teaching Methods: A variety of teaching methods to cater to different learning styles, encourage active participation, and reinforce learning through experimentation and practice.

Educational materials: presentation materials, reference materials (summary sheets, tables, etc.), and other resources available in your account.

During the training: theoretical concepts are alternated with examples drawn from real-life cases. Participants are given the opportunity to engage in role-playing exercises. Numerous practical exercises allow participants to demonstrate their mastery of the skills as the training progresses.

Training monitoring and evaluation: attendance sheet and certificate of completion. Immediate and post-training evaluations conducted using the LearnEval platform.