Course on Financial Markets and Instruments

The Directorate of Financial Market Infrastructures of CEMLA, in collaboration with the International Monetary Fund, organized the Course on Financial Market Instruments. The course was held virtually from May 22 to 26, 2023. The course was attended by 28 participants representing 13 institutions and CEMLA’s associates, representing 12 countries. The objective of the course was to present the main characteristics of the different financial derivatives used in the financial markets.

The first day began with the presentation of futures and forward contracts. These contracts are obligations between two counterparties to sell or buy an asset at a future time at a price agreed at the beginning of the contract. In addition to studying the valuation of these derivatives, their use in risk hedging was also described. During the second day, swaps were presented, which are contracts through which the parties exchange cash flows that depend on the underlying asset. The swaps studied during the course were those on interest rates, currencies, and credit default.

Options contracts were the topic of the third and fourth days. Unlike futures and forwards contracts, options are not an obligation for the buyer of the option, while the obligation remain for the issuer. At the time of its expiration, the buyer can choose to exercise it or not, according to his criteria, hence his name. Some applications are the provision of risk insurance and leveraged investing. Additionally, the valuation of options and the Put-Call parity were studied. Finally, the two main schemes for modeling options were analyzed: the binomial model and the Black-Sholes (-Merton) model.

To conclude the course, the topic of Securitization was exposed, which allows converting no-liquid assets or liabilities into liquid instruments by pooling them into portfolios, which are subsequently sold to investors. Through this operation, present resources are obtained, and future flows are sold, in addition to allowing risk diversification. This last session concluded with some use cases where participants analyzed the housing market in Mongolia.