The purpose of this course is to give the participants a thorough introduction to the international FX and money markets and a good understanding of how they work. We shall start with an overview of the money markets and then give a more detailed description of the instruments used in these markets, including deposits, T-Bills and Commercial Papers. We shall explain the repo-instrument and its important role in the international financial markets. Further, we present a number of money market derivatives such as FRAs and IRGs and we explain how they are priced and used. We then turn to look at the FX markets. We explain how the FX markets work and we give a brief update on the history of exchange rates, illustrated by a couple of "war-stories". We present and discuss a number of Forex transactions, including spot, forward and forward-forward transactions. We explain how forward rates are derived from the interest rate parity relationship. We also discuss the factors that will affect relative exchange rates in the short and long run. Finally, we present a number of FX derivative instruments and show how they are priced and used for risk management purposes.
