Fixed Income and Foreign Exchange


Teaching Hours and Credit Allocation: 30 Hours, 6 Credits
Course Assessment: Coursework & Exam



The aim of this course is to introduce students to all the tools necessary to enable them to understand the problems involved in managing a fixed income portfolio. The focus will be on fixed income security markets, pricing and uses for portfolio management or for hedging interest rate risk. It will also cover term structure analysis and the use of derivative instruments in bond portfolio management (in particular futures, swaps, options and credit derivatives). The course will also provide students with a good understanding of exchange rate risk and ways to transfer it to other economic agents. The course will address questions such as how the Foreign Exchange market works, its riskiness, risk transfer, issues surrounding international investments and the economic implications of currency crises.


Learning Outcomes

Students will be able to:

  • Understand the fixed income investment process
  • Understand how to construct and then risk manage a bond portfolio
  • Recognise how management style might vary according to the fixed income asset class that is being managed
  • Use interest rate-related derivatives to hedge and get exposure to market and credit risk
  • Understand the fixed income securities markets
  • Understand the contribution of fixed income securities in a balance portfolio
  • Appreciate the drivers of valuing fixed income
  • Estimate performance parameters of fixed income securities
  • Construct fixed income portfolios
  • Estimate the risk of fixed income portfolios
  • Understand basic concepts used on the FOREX market
  • Recognise the importance of the exchange rate for portfolio investments and the real economy.
  • Learn about ways to hedge currency risk.
  • Understand economic models of the exchange rate and their interactions with other macroeconomic variables.
  • Learn about currency crises and methods to forecast exchange rates.



  • Bond Valuation and Price Volatility
  • Spot Yield Curve analysis and structuring bond issues
  • Bond Portfolio Immunization and Management
  • Valuing Bonds with Embedded options: Convertible Bonds
  • Futures and Forward Markets
  • Hedging Strategies Using Futures
  • Interest Rate Derivatives & Swaps
  • Credit Risk Management using Credit Derivatives
  • The FOREX Market: Introduction and Price Determination
  • International Parity Conditions and FX Forecasting
  • Spot and Forward quotations in the OTC Markets
  • Transaction and Operating Risk in FOREX Markets. Hedging Transaction Exposure using Derivatives