Introduction to FX and FX Spot

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IM Learning

Last Update 21 Dec 2021

In this programme we will look at the role of the treasury department in a bank and the main functions played by treasury. We will also discuss cash management, liquidity risk and options transactions.

Code: PG33579

SECTION 1

Programme Introduction 01m 43s

Programme Introduction

SECTION 2

The Role of Treasury 35m 44s

Introduction Preview Role of Treasury and Functions on Banks and Financial Institutions Cash Management and its Role on Treasury Cash Flow Applications and Principles on Banks How Currency Affects Banking Institutions? The Role of Central Banks to Liquidity Summary

SECTION 3

Money Markets 23m 58s

Introduction Key Features of Money Markets Transactions Market Application of Money Market Transactions Why is Cash Considered Inefficient? How Banks and other Financial Institutions Deal on the Interbank Markets Measuring Interbank Transactions in the form of Quoting Prices Problems faced by Money Market Transactions in Islamic Banking The Elements of the Structuring Cycle Restructuring is a Suitable Alternative for the Islamic Markets Summary

SECTION 4

In this module, we will go through the structuring cycle. This is the process we go through, when we need to create any new product.

Structuring Cycle 25m 24s

Introduction Process in Creating a Product in Islamic Finance Process for all Asset Classes Process to be Clear and Logical Structuring Cycle in Islamic Finance Types of Product - Shariah Compliant Restructuring Products - Not Shariah Compliant Shariah Board Role on the Structuring Cycle New Occurrences in the Structuring Cylcle Understanding Islamic Finance Transaction Changing a Product - Balance to Shariah Compliant Cash Flows of Shariah Compliant Transaction The Delivery of Cash as Fee for Service Starting Point: Trading or Fee

SECTION 5

Murabaha in Money Markets 14m 10s

Introduction Murabaha as a Conventional Product in Islamic Finance Key Aspects of Absolutes on a Financial Transaction What is a Murabaha Transaction? Benefits and Transparency Overview Market Sample - Car Purchase Murabaha Contract as a Tool in Money Markets Summary

SECTION 6

In this module, we will continue to look at using the Murabaha financing structure to see if we can apply this to an interbank deposit. We will also look at the choice of assets, and look at the risks associated with these assets, and decide if we can use the current assets in our structure or not.

Murabaha Financing Structure 26m 01s

Introduction Previous Module Recap Murabaha Car Financing Model as a Building Block How to Consider a Simple Murabaha Structure Similarities and Differences of an Inter-Bank Deposit to Our Conventional Example Trying to Fix and Manage the Differences of a Simple Murabaha Structure The Remaining Risks in an Interbank Transaction using a Murabaha Structure What Happens During the Period When Neither of the Banks has the Cash? Can the Supplier Pull Out of Step 3 in the Interbank Transaction? Is Our Sample Structure Shariah Compliant? Where are we Currently in the Structuring Cycle in terms of Applying the Murabaha Contract? What are the Different Asset Risks? Computation and Valuation using Car Financing in an Interbank Deposit Transaction Module Summary

SECTION 7

In this module, we will look at how we can refine the working structure that we have discussed in previous examples, and then we will look at how we can refine it further and improve on it. We will also look at some of the remaining risks that includes cash settlement risk on the broker, and we will see how this is resolved.

Single Broker Commodity Murabaha 28m 54s

Introduction Previous Module Recap Criteria for Choosing the Correct Assets in a Commodity Murabaha Transaction Importance of Large Asset Volume and Transparent Pricing Market Sample of a Single Broker Commodity Murabaha Transaction Metals as Commodities in the Market There Must be Enough Volume of Metals Available on the Exchange How to Mitigate Risk in Owning an Asset Market Application: Using Commodity as Asset Being Sold Definition and Application: Escrow Accounts Terminologies Used in Single Broker Structure

SECTION 8

Treasury - Part 1 Summary 01m 26s

Treasury - Part 1 Summary

SECTION 9

In this module, we will present how a single broker structure evolves into a structure involving four counter parties. With four transactions now involved, we will examine how this increases transaction risk, how these new risks can be mitigated by the use of a contingent transaction, and we will also discuss the importance of conducting the transactions in the required order to prevent any short selling.

Dual Broker Commodity Murabaha 31m 24s

Introduction Preview Recap: Single Broker Commodity Murabaha Overview of a Dual Broker Commodity Murabaha Main Improvements over the Singe Broker Commodity Murabaha The Fourth Leg on Risks Involved in a Dual Broker Commodity Murabaha Transaction What Exactly is the Risk for a Dual Broker Commodity Murabaha? How to Mitigate the Risk for a Dual Broker Commodity Murabaha Other Remaining Issues in a Dual Broker Commodity Murabaha Structure The Before and After Comparison of a Dual Broker Interbank Transaction Aspects of the Ownership of Commodities Do We Need Phyisical Delivery of the Commodities? The Matter of Need Offer and Acceptance Summary

SECTION 10

In this module, we will look in some more detail at what is involved in executing a Commodity Murabaha transaction. We will discuss confirmations, required legal agreements, and how VAT and brokerage fees are handled in these transactions.

Operational and Legal Aspects of Dual Broker Commodity Murabaha 39m 24s

Introduction Operational & Legal Aspects: Dual Broker Commodity Murabaha Steps of Confirmation in a Dual Broker Commodity Murabaha Structure What Should be Included in a Standard Sale Commodity Murabaha Transaction? Role of Banks in a Dual Broker Commodity Murabaha Transaction Why Time is Important in Dual Commodity Murabaha Transaction? Market Application using a Master Murabaha Agreement What is Covered in a Master Murabaha Agreement? Legal Agreements on a Dual Commodity Murabaha Transactions Market Application on how Transaction Flows affects an Interbank Transaction Step 4: The Silent Fourth Leg Explained Other Issues in a Dual Commodity Murabaha Transaction Market Application of Brokerage Costs in a Dual Broker Murabaha Structure Market Application of a Dual Commodity Murabaha Transaction Costs Market Application on How Banks Should Pay Fees in an Interbank Transaction "Brokers Must Be Competitive" Summary

SECTION 11

In this module we will look at some wider uses for the Commodity Murabaha structure, and conduct a sample market transaction for an interbank deposit.

Commodity Murabaha Structure Wider Uses 33m 19s

Introduction Brief Terminology of Murabaha Brief Terminology of Commodity Murabaha, (Palm Oil as a Commodity) Brief Terminology of Reverse Murabaha Other Types of Murabaha Structure and its Application to Financing Sample Transaction of a Commodity Murabaha Transaction Offer and Acceptance in a Commodity Murabaha Transaction Counter parties involved in a Commodity Murabaha Transaction Structuring Cycle in a Commodity Murabaha Transaction Finding the Balance and Risk on a Commodity Murabaha Contract Summary

SECTION 12

In this module, we will define what a Wakala concept is and provide examples of its application on the market.

Introduction to Wakala 33m 38s

Introduction Wakala: An Alternative to Commodity Murabaha Pooling of Funds Market Application - Profit by Wakala Deposit Asset Pool Breakdown of Profits Between Interbank Transactions Profits in a Wakala Contract Why is a Wakala Contract not Suitable for Everyone? Comparison: Wakala Deposit vs Conventional Bank Deposit Summary

SECTION 13

In this module, we will perform a case study of a market instrument - Certificate of Deposit. This will be a very useful exercise, as we can begin to see some of the applications in real products in the market.

Case Study - Central Bank Certificate of Deposit 24m 58s

Introduction What is a Certificate of Deposit (Islamic)? Central Bank of UAE - Market Example of a Certificate of Deposit (Islamic) Shariah Approval Standards of the Central Bank of UAE Definition of an Immediate Spot Basis Transaction Central Bank of UAE: Issuance Procedures of Certificate of Deposit (IDC) - Market Application Central Bank of UAE: Early Redemption Procedure - Market Application Central Bank of UAE: Repo Facility - Market Application Central Bank of UAE: Secondary Market Trading - Market Application The Restrictions of a Central Bank Certificate of Deposit (Islamic)

SECTION 14

In this module, we will perform a case study of a Retail Bank Certificate of Deposit market instrument.

Case Study - Retail Bank Certificate of Deposit 31m 58s

Introduction Market Example: Qatar Islamic Bank - Certificate of Deposits (Islamic) Brief Definition of Mudarabah How Profit can be Earned in a Mudarabah Transaction? Market Application: Certificate of Deposits using Mudarabah Model Asset Pool of Wakala Deposit- Compare to Mudarabah Deposit Qatar Islamic Bank: Expected Annual Profit Rate Qatar Islamic Bank: Terms and Conditions (Expected Return of an Investor)- Market Application Qatar Islamic Bank: Terms and Conditions Summary

SECTION 15

Treasury - Part 2 Summary 00m 51s

Treasury - Part 2 Summary

SECTION 16

Introduction to FX and FX Spot 44m 38s

Introduction Preview Overview of the Foreign Exchange Markets Major Participants of FX Markets Transactions FX Market Investors Speculators - Short Term Views Underlying Flows on the FX Markets Transaction FX Spot Risk Hedging in Global Trade Transactions Choices made by Exporter on a Global Trade Transaction Exporters Point of View: To Hedge or Not to Hedge Market Sample: FX Spot Trading different Currency Mitigation of Risk in FX Spot Transactions Definition of FX Spot Transaction Market Sample: Conversion of Currencies on a FX Spot Transaction Structuring Cycle application on FX Spot Transaction What is an FX Option? Market Application: FX Spot Option Application Summary of an FX Spot Option Transaction Summary

SECTION 17

In this module, we will introduce the definition of an undertaking or Wa’ad, and examine its use in the context of FX risk can provide protection and hedge the FX exposure of a client.

FX Options 22m 46s

Introduction Definition of Waad or Undertaking Who is Bound by a Waad? Application of Waad in an FX Option Transaction Market Example of a Waad - FX Option Market Example of a Simple Option Theory - Call Option in Sterling Market Example of a Simple Option Theory - Call Option in US Dollars Point of View of Counterparties Involved in an FX Option Transaction

SECTION 18

In this module, we shall structure a solution for an FX Forward hedging transaction using the contractual form of a Waad, or undertaking.

FX Forwards - Dual Waad 47m 17s

Introduction Previous Modules Recap Definition and Benefits of an FX Forward Differences of FX Forward from an FX Option Market Application Example: FX Forward Alternative Option if FX Forwards are not Shariah Compliant Single Waad Module Recap Market Application Example: Dual Wa'ad in Car Sale Shariah Perspective on Dual Undertakings (Waads) Uncertainty of Dual Waads with Conditions Market Application Example: Inserting Conditions Market Application Example: Undertaking Market Application Example: One Waad Valid Where Dual Waads are Used in Islamic Finance and Capital Markets Transactions Is a Dual Waad Acceptable? Summary

SECTION 19

In this module, we will discuss using Commodity Murabaha as a building block to develop an FX Forward.

FX Forwards - Dual Commodity Murabaha 39m 00s

Introduction Commodity Murabaha as an Alternative to FX Option Structuring Cycle of an FX Transaction Commodity Murabaha as a Building Block Market Application of a Commodity Murabaha Transaction Interbank FX Transaction using Commodity Murabaha FX Forward Cash Flow at Maturity (Cost Price Disclosed) Example Comparison between a Dual Wa'ad vs Commodity Murabaha Transaction Summary

SECTION 20

Programme Wrap Up 01m 05s

Programme Wrap Up