Module One

INTRODUCTION TO BANKING

1.1 What is a Bank
1.1.1 In General
1.1.2 Historical Perspective
1.1.3 Intermediation
1.1.4 Assets
1.1.5 Liabilities
1.1.6 Banking Services

• Remittance
• Collections
• Letters of Credit
• Foreign Exchange
• Travellers Checks
• Credit Cards
• Funds Transfer (EFT)
• EDI

1.1.7 Trust Services
1.1.8 Other Services

• Corporate Agency
• Investment Securities
• Custodial
• Payment Services
• Safe Deposit
• Lock Box
• Other

1.1.9 Macro economic Impact of Banks
1.1.10 The Role of Government

• Increasing and Decreasing Money Supply
• Licensing and Regulating
• Lender of Last Resort

1.1.11 The Role of Non-Bank Financial Institutions
1.1.12 Disintermediation

1.2 What is Money
1.2.1 Historic perspective

• Barter
• Mediums of Exchange
• Specie
• Paper Money
• Bank Notes
• The Role of Government

1.2.2 Non-Cash Money

• Credit
• Credit Cards
• Cashless Society

1.2.3 Measurements of Money Supply

• M1
• M2
• M3
• Other Measures

1.2.4 Government Control
1.2.5 The Creation of Money
1.2.6 Non-bank Creators of Money
1.2.7 Trends and Future Developments

1.3 Capital Structures of Banks
1.3.1 Assets

• Money placed with other Banks ("Due From")
• Securities
• Loans
• Leases
• Non-earning Assets

1.3.2 Liabilities

• Money from other Banks ("Due To")
• Deposits
• Other Direct Liabilities
• Contingent Liabilities

1.3.3 Capital Accounts

• Paid in Capital
• Retained Earnings
• Capital Notes
• Debentures

1.4 Bank Earnings
1.4.1 Interest on Loans
1.4.2 Income from Leases
1.4.3 Fees
1.4.4 Other

1.5 Interest Rates
1.5.1 Term Structure of Interest Rates
1.5.2 Liquidity Preferences
1.5.3 Inflation and Expectations
1.5.4 Other Issues

1.6 Present Value and Rates of Return
1.6.1 Time Value of Money
1.6.2 Compounding
1.6.3 Discounting
1.6.4 Present Value Calculations
1.6.5 Future Value Calculations
1.6.6 Internal Rates of Return 1.6.7 The Concept of Duration

1.7 Risk and Reward
1.8 Capital Adequacy

1.8.1 Liquidity
1.8.2 Leverage
1.8.3 The Bank for International Settlements Guidelines

1.9 Organization of a Typical Bank

MODULE TWO

CREDIT

2.1 Introduction to Credit and Lending
(Credit Analysis 1)
2.1.1 Overview of the Credit Process

• Key Elements of the Credit Process
• Credit Procedures
• Credit Analysis and Initiation
• The Credit Approval Process
• Credit Review
• Non-performing Loans
• Collection and Salvage
• Loan Administration
• Organization and Staffing
• Summary

2.1.2 Qualitative Analysis

• External and Internal Analysis
• Sources of Information
• Using the Information
• Calling Programs
• Call Reports
• The Five Cs of Credit

2.1.3 Financial Analysis

• Comparative Analysis Techniques
• Financial Ratios
• Liquidity Ratios
• Leverage (Indebtedness) Ratios
• Operating Ratios
• Profitability Ratios
• Summary of Financial Ratios
• Cash Flow Reconciliation
• Operational and Non-operational Cash Flows
• Comparative Statement of Financial Condition

2.1.4 Credit Initiation

• Credit Structuring
• Borrower's Cash Flow Projections
• Terms. Conditions and Security
• Repayment Terms
• Pricing

2.1.5 Credit Memorandum

• Credit Memorandum
• Basic Information
• Background on Borrower
• Evaluation of Management
• History of Relationship
• Use of Funds
• Terms, Conditions and Security
• Repayment Terms
• Pricing
• Security
• Sources of Repayment
• Secondary Sources of Repayment
• Financial Analysis
• Comparative Statement of Financial Condition
• Sensitivity Analysis
• Summary of Assumptions for Cash Flow Projections
• Recommendations

2.1.6 Credit Approval

• Credit Policies
• Credit Procedures
• Approval Authority

2.1.7 Documentation
2.1.8 Term Loans
2.1.9 Credit Review
2.1.10 Loan Administration
2.1.11 Portfolio Administration
2.1.12 Risk Management
2.1.13 Organization and Staffing

2.2 Corporate Capital Structures (Credit Analysis 11)
2.2.1 Principal Components of the Capital Structure

• Equity
• Quasi-Equity (Debt/Equity Hybrids)
• Debt
• Linked Option Features

2.2.2 Cost of Capital

• The Cost of Debt
• The Cost of Equity
• Weighted Average Cost of Capital

2.2.3 Effects of Capital Structure

• Expected Returns
• Ability to Raise Additional Capital
• Cost of Debt
• Asset Use
• Dividend Policy
• Credit Rating Agencies
• Stock Price
• Choice of Financial Instruments
• Leverage Ratios

2.2.4 Implications of Leverage

• Risks, Limits and Effect on Earnings
• Changes in Interest Rates
• Changes in Operating Margins
• Tax Changes

2.2.5 Cash Flow

• Operating Cash Flow
• Free Cash Flow
• Cash Flow Reconciliation
• Coverage Ratios

2.2.6 Liquidity

• Working Capital
• Liquidity Ratios
• Cash Conversion Cycle

2.3 Using of Spreadsheets in Credit Analysis (Credit Analysis 111)
2.3.1 General Introduction
2.3.2 Introduction to Desktop PCs
2.3.3 Introduction to Spreadsheets
2.3.4 Why Analyze Financial Statements
2.3.5 Components of Financial Statements
2.3.6 Spreading Financial Statements
2.3.7 Brief Introduction to Financial Analysis
2.3.8 Projections
2.3.9 Sensitivity Analysis
2.4 Corporate Valuation (Credit Analysis 1V)
2.4.1 Introduction to Valuation

• Definitions
• Uses of Corporate Valuation

2.4.2 Alternative Methods of Valuation

• Book Value
• Market Value
• Discounted Cash Flow Value
• Liquidation Value
• Replacement Value

2.4.3 Discounted Cash Flow Valuation

• Components of Discounted Cash Flow
• Defining Cash Flow
• Forecasting Cash Flow
• Defining the Discount Rate
• Discounting Cash Flows - An Alternative Method
• Residual Value: Extending the Forecast Horizon
• Completing the Valuation

2.4.4. Internal Rate of Return vs Discounted Cash Flow
2.4.5 Capital Asset Pricing Model
2.4.6 Capital Structures

2.5 Non-Performing Loans (Credit Analysis V)

2.6 Specialised Lending (Credit Analysis V1)
2.6.1 Agriculture
2.6.2 Real Estate Lending
2.6.3 Project Finance
2.6.4 Energy
2.6.5 Transportation
2.6.6 Correspondent Banking
2.6.7 Trade Finance (Letters of Credit and Standby L/Cs)
2.6.8 Lending against Securities
2.6.9 Structured Financings

2.7 Other Credit and Risk Issues (Credit Analysis V11)
2.7.1 Sovereign Risk
2.7.2 Cross Border Risk
2.7.3 Daylight and Overnight Risk
2.7.4 Industry and Sector Risk
2.7.5 Interest Rate Risk
2.7.6 Counterparty Risk
2.7.7 Credit Rating Agencies

MODULE THREE

OPERATIONS

3.0 Operations
3.1 Interchange and Settlement
3.1.1 Proofing
3.1.2 Clearing
3.1.3 Receiving/Paying Value
3.1.4 Posting
3.1.5 Exceptions

3.2 Reconciliation
3.2.1 Nostro/Vostro
3.2.2 Suspense Accounts
3.2.3 General Ledger Accounts
3.2.4 Exceptions
3.3 Internal Control
3.3.1 Deal Confirmations
3.3.2 Credit Overrides
3.3.3 Reconciliations
3.3.4 Systems Access
3.3.5 Value Dating Claims
3.3.6 Exceptions

3.4 Management Information Systems and Equipment
3.4.1 Mainframes, Minis, PCs and Terminals
3.4.2 Networks (LANs and WANs)
3.4.3 Access security, application security, system security
3.4.4 Applications software and how it works
3.4.5 Audit Trails, Marker/Checker Controls, Proofing
3.4.6 Operational Controls
3.4.7 Risk Analysis and Contingency Planning
3.4.8 Disaster recovery
3.4.9 Reports

3.5 Communications
3.5.1 S.W.I.F.T.
3.5.2 Telex (T.T.)
3.5.3 Test Key
3.5.4 Mail
3.5.5 Telecommunications
3.5.6 Courier
3.5.7 Satellite

3.6 Cash & Custodial
3.6.1 Domestic (Currency & Coin)
3.6.2 Foreign Currency (Notes & Coin)
3.6.3 Negotiable Instruments
3.6.4 Travellers Checks
3.6.5 Drafts
3.6.6 Acceptances
3.6.7 CDs
3.6.8 Securities
3.6.9 Safe Deposit Boxes
3.6.10 Lock Box Services
3.6.11 Agency Services

3.7 Position Keeping
3.7.1 Dealing Room Functions
3.7.2 Assets
3.7.3 Liabilities
3.7.4 Central Bank Limits
3.7.5 Daylight Limits
3.7.6 Overnight Limits
3.7.7 Client Limits

3.8 Personnel and Human Resources

3.9 Premises and FF&E

MODULE FOUR

INTERNATIONAL OPERATIONS

4.0 International Operations
4.1. Inward Clean Collections
4.1.1 Correspondent Bank Collections
4.1.2 Drafts
4.1.3 Mail Transfers
4.1.4 Telegraphic Transfers
4.1.5 SWIFT Payments
4.1.6 Foreign Travellers Checks
4.1.7 Foreign Cash

4.2 Inward Documentary Collections
4.2.1 Letters of Credit

• Sight
• Terms (Usance)

4.2.2 Import Collections

4.3 Outward Clean Collections
4.3.1 Correspondent Bank Collections
4.3.2 Export Collections
4.3.3 Mail Transfers
4.3.4 Telegraphic Transfers
4.3.5 SWIFT Payments
4.3.6 Foreign Cheques
4.3.7 Foreign Travellers Checks
4.3.8 Foreign Cash

4.4 Outward Documentary Collections
4.4.1 Letters of Credit
4.4.2 Acceptances
4.4.3 Export Negotiations
4.4.4 Export Collections
4.4.5 Trade Opinions

4.5 Correspondent Banks
4.5.1 Correspondent Bank Arrangements
4.5.2 Foreign Currency Accounts
4.5.3 Trade Enquiries

MODULE FIVE

TREASURY PRODUCTS

5.0 Treasury Products
5.1 Introduction to Treasury Operations
5.2 Foreign Exchange
5.2.1 Introduction

• The Importance of Foreign Exchange in Banking
• Foreign Exchange Basics
• History of the Market
• What Determines Foreign Exchange Rates

5.2.2 The Spot Market

• How Spot Rates are Quoted
• Relationship between U.S.,European and Asian Quotes
• Bid-Offer Rates
• Cross Rates

5.2.3 The Forward Markets

• Discounts and Premiums
• Quoting Forward Rates
• Arbitrage
• Covered Interest Arbitrage

5.2.4 Corporate Foreign Exchange Management

• Types of Currency Exposure
• Transaction Exposure
• Translation Exposure
• Economic Exposure
• Hedging With Forward Contracts

5.2.5. Quoting Conventions
5.2.6. Currency (Debt) Swaps
5.2.7. Simulation Exercises

5.3 Money Markets
5.3.1 In General
5.3.2 Money Market Instruments
5.3.3 Comparison of Different Markets
5.3.4 Quoting Conventions
5.3.5 Simulation Exercises

5.4 Futures and Forwards
5.4.1. In General
5.4.2. Forward Contracts
5.4.3. Futures Contracts

• Characteristics of Futures Markets
• Advantages of Forwards vs. Futures
• Disadvantages of Forwards vs. Futures
• Comparison of Futures and Forward Contracts:
• Summary

5.4.4 Margin Requirements

• Initial or Opening Margin
• Variation Margin
• Maintenance Margin

5.4.5 Using Futures and Forwards

• The Forward Market Alternative
• The Futures Alternative

5.4.6 Interest Rate Futures Contracts

• Short-term Interest Rate Futures
• Summary of Major Contract Features

5.4.7 The Implied Forward Rate

5.4.8 Futures and Implied Forward Rates

• Determinants of Futures Prices
• Proof of Implied Forward Rate Calculation
• Repurchase Agreement (Repo)
• Calculation of Profit
• Reverse Cash and Carry Arbitrage
• Implied Repo Rate

5.4.9 Cost of Carry

• Basis
• Positive Carry Market
• Negative Carry Market

5.4.10 Convergence

• Convergence
• Summary of Convergence and the Cost of Hedging

5.4.11 Hedging Short-Term Investment Rates

• Perfect Hedges
• Imperfect Hedges

5.4.12 Long-Term Instruments

• Treasury Bond Futures Contracts
• Treasury Notes

5.4.13 Hedging Long-Term Debt with Futures Contracts
5.4.14 Forward Rate Agreements
5.4.15 Foreign Exchange Forwards and Futures

• Foreign Exchange Futures
• Foreign Exchange Forwards

5.5 Interest Rates and Duration
5.5.1 The Dynamics of Interest Rates

• Domestic Components of Interest Rates
• Yield Curves:Representation of Interest Rates

5.5.2 Forward Interest Rate Calculation
5.5.3 Fixed-Rate Securities
5.5.4 Duration-Based Hedging

• Price Volatility
• Hedging
• Creating an Index of Price Risk
• Duration as an Index of Price Risk
• Modified Duration
• Programming the HP-12C for Duration
• Programming the HP-12C for Modified Duration

5.6 Interest Rate Swaps
5.6.1 Introduction

• What is an Interest Rate Swap ?
• Uses and Benefits
• What Makes Swaps Possible ?
• Market Participants
• Historical Market Perspective
• Types of Swaps

5.6.2 Coupon Swaps

• Typical Situation
• Pricing a Coupon Swap
• Analysing Structural Risk Factors

5.6.3 Money Market Swaps

• Uses and Benefits
• Typical Transactions
• Money Market Swap Spreads

5.6.4 Performance Risk

• Settlement Risk
• Market Risk
• Maximum Potential Exposure
• Treatment of Swaps in Bankruptcy

5.7 Financial Options Products
5.7.1 What is an Option?
5.7.2 Option Terminology
5.7.3 Buying and Selling Calls

• Call Options
• Hedging with a Call

5.7.4 Buying and Selling Puts

• Puts
• Hedging with a Put

5.7.5 Option Pricing Concepts

• Option Premium = Intrinsic Value + Time Value
• Intrinsic Value of an Option
• Time Value of an Option
• Factors Affecting the Time Value of an Option
• Measurement of Price Volatility
• Other Factors which Affect Option Prices
• Separating Premiums into Intrinsic and Time Value

5.7.6 Foreign Currency Options

• Regulated Exchange Currency Option Contracts
• Settlement of Currency Options Traded on Exchanges
• Margin Requirements for Futures Exchanges
• Initial or Opening Margin
• Variation Margin
• Maintenance Margin
• Margin Requirements for Options
• Over-the-Counter Market

5.7.7 Interest Rate Options

• Options on Cash
• Options of Futures
• Over-the-Counter Interest Rate Options

5.7.8 Hedging with Options

• Hedging Foreign Exchange Rate Risk
• Hedging Interest Rate Risk

5.7.9 Equivalent Option Positions

• Creating a Forward Using Options
• Creating a Call by Combining a Put and a Forward

5.7.10 Options Linked to Financial Instruments

• Bonds with Warrants
• Callable Bonds
• Puttable Bonds
• Capped Floating-Rate Notes
• Options on Swaps (Swaptions)

5.7.11 Convertibles

• Zero-coupon Convertibles
• Trends in the Convertible Bond Market

5.8 Treasury Operations
5.8.1 Limit Control
5.8.2 Position Keeping
5.8.3 Confirmations
5.8.4 Reconciliation
5.8.5 Settlement
5.8.6 Accounting
5.8.7 Hardware Issues
5.8.8 Software Issues

MODULE SIX

TRADE FINANCE

6.0 Trade Finance
6.1 Introduction - The Role of the International Bank

6.2 Trade Payment Mechanisms
6.2.1 Open Accounts
6.2.2 Consignment
6.2.3 Collections
6.2.4 Commercial Letters of Credit
6.2.5 Cash against Documents
6.2.6 Cash in Advance

6.3 Letters of Credit
6.3.1 Mechanics
6.3.2 Applications
6.3.3 Principal Documents
6.3.4 Pricing
6.3.5 Governing Regulations
6.3.6 Confirmed and Advised Letters of Credits
6.3.7 Sight and Usance Drafts
6.3.8 Credit Risk (Contingent & Direct)

6.4 Bankers' Acceptances
6.4.1 Mechanics
6.4.2 Applications
6.4.3 Pricing and Capital Adequacy Guidelines
6.4.4 Governing Regulations

6.5 Export Finance and Insurance
6.5.1 Export Finance
6.5.2 US Ex Im Bank
6.5.3 Japanese EX IM Bank
6.5.4 Korean EX Im Bank
6.5.5 ECGD
6.5.6 Hermes
6.5.7 COFACE
6.5.8 Credito Medito
6.5.9 Other Export Finance Schemes
6.5.10 Export Insurance
6.5.11 MIGA
6.5.12 OPIC

6.6 A Forteiting

6.7 Standby Letters of Credit
6.7.1 Mechanics
6.7.2 Applications
6.7.3 Risks
6.7.4 Pricing
6.7.5 Standby Letters of Credit and Capital Adequacy Guidelines

6.8 Other Trade Finance Issues
6.8.1 Commodities
6.8.2 Countertrade
6.8.3 Back Office Support

MODULE SEVEN

CAPITAL MARKETS

7.0 Capital Markets
7.1 Introduction

7.2 Equities
7.2.1 The Basics of Equities

• Equity Securities and Equity Markets
• Types of Equities
• Financial Implications of Equity Financing

7.2.2 Issuing Equities

• Initial Public Offerings
• Private Placements of Equity
• Additional Shares
• Primary and Secondary Issues
• Reporting and Listing Requirements for Public Companies
• The Role of the Underwriter
• International Equities

7.2.3 Equity Valuation

• Earnings Per Share Multiples
• Dividend and ex-Dividend Calculations
• Valuation Ratios
• Industry Standards
• Relative Valuation
• Discounted Dividend Valuation
• Asset-based Valuation
• Valuing Risk
• Valuing Volatility
• Accessing Liquidity and Market Depth

7.2.4 Equity Hybrids

• Convertible and Exchangeable Bonds
• Equity Warrants
• Warrant Hedging
• Other Equity Sweeteners

7.2.5 Innovations in Equity-Related Securities
7.2.6 Equity from the Investor's Point of View

• Asset Allocation
• Market Efficiency
• Liquidity
• Risk and Return
• International Equity Securities
• Mutual Funds and Unit Trusts

7.2.7 Risk Management

• Basic Hedging
• Options
• Stock Index Futures
• Bonds with Equity Warrants
• Convertible Bonds

7.2.8 Stock Markets in the United States

• New York Stock Exchange
• American Stock Exchange
• Over the Counter Trading

7.2.9 Stock Markets in the Far East

• Australia
• Hong Kong
• India
• Indonesia
• Japan
• Korea
• Malaysia
• New Zealand
• Philippines
• Singapore
• Taiwan
• Thailand

7.2.10 Stock Markets in Europe

• United Kingdom
• Germany
• France
• Italy
• Spain
• Other European Markets
• Emerging East European Markets

7.2.11 Other Emerging Stock Markets

7.3 Debt Securities
7.3.1 Introduction

• Bonds
• Notes
• Floating Rate Notes

7.3.2 Capital Risk Issues
7.3.3 Calculating the Value of a Bond
7.3.4 Coupon Stripping
7.3.5 Zero Coupon Bonds
7.3.6 Medium Term Notes
7.3.7 Floating Rate Notes
7.3.8 Option Linked Bonds

• Bonds with Warrants
• Callable Bonds
• Puttable Bonds
• Capped Floating-Rate Notes
• Zero-coupon Convertibles

7.3.9 Capital Markets for Debt

• Public Markets
• Private Placements

7.4 Quasi Equity Securities
7.4.1 Convertible Bonds and Notes
7.4.2 Subordinated Debentures
7.4.3 Capital Notes

MODULE EIGHT

MANAGEMENT ISSUES

8.0 Management Issues
8.1 In General

8.2 Capital Structure
8.2.1 Leverage and Gearing
8.2.2 Senior and Junior Equity
8.2.3 Quasi Equity
8.2.4 Senior and Junior Debt
8.2.5 Dealing with the Capital Markets

8.3 Asset and Liability Management
8.3.1 Capital Budgeting
8.3.2 Liquidity and Reserves
8.3.3 Asset and Liability Committee
8.3.4 Maturity Matching
8.3.5 Intermediation and Disintermediation
8.3.6 Interest Rate Issues
8.3.7 Capital Market Issues

8.4 Credit Issues
8.4.1 Credit Policies
8.4.2 Credit Procedures
8.4.3 The Credit Approval Process
8.4.4 Credit Review and Credit Examination
8.4.5 Non-Performing Loans and Loan Loss Provisions
8.4.6 Risk Management
8.4.7 Portfolio Adminstration

8.5 Operations
8.5.1 Domestic Operations Issues
8.5.2 International Operations Issues

8.6 Treasury
8.6.1 Risk Management
8.6.2 Internal Limits and Control
8.6.3 External Limits

8.7 Audit and Control
8.7.1 Cash and Custodial
8.7.2 Key and Combinations Register
8.7.3 Authorities and Approvals
8.7.4 Reporting
8.7.5 Limit Control
8.7.6 Settlement and Reconcilliation
8.7.7 Clearing
8.7.8 Security Issues

• Premises
• Personnel
• Telecommunications
• Computers
• Other

8.7.9 Authority Registers
8.7.10 Internal Procedures
8.7.11 Outside Auditors
8.7.12 Other Auditing Issues

8.8 Role of the Board of Directors

8.9 Shareholder Relations

8.10 Government Regulations

8.11 Legislative and Regulatory Issues

8.12 Relations with Other Banks

8.13 Issues of Competition