How the Financial Markets Work

A practical guide shows you how various securities are constructed, the risks they pose, how to value them, how they interrelate, and about the timing of their issuance

  • Course Instructor

    Financial markets specialist with over 25 years experience in all major asset classes including fixed income, equity and property investment.

Course overview

'How the Financial Markets Work' provides delegates with a comprehensive understanding of the global financial markets and their role in the World’s economy.  The relationship between the real economy and financial markets is explored, including the role of financial intermediaries in facilitating international capital and money flows.  Full coverage of fundamental financial mathematics is provided from first principles to enable delegates to model securities prices and to carry out sensitivity analysis of prices to key risk factors.  Through case studies and practical, hands-on exercises, delegates will gain knowledge and experience of the mechanisms underpinning the functioning of the financial system and an understanding of the key factors underlying risks and returns in securities markets and portfolios.  The programme offers a 360⁰ view of financial markets from the perspectives of issuers and borrowers, investors, traders and regulators.  The course covers all traditional securities and derivatives markets as well as providing insights into the latest innovations in financial products such as credit derivatives and exchange traded funds and their impact on the structure of financial markets.  Through detailed case study analyses, delegates will gain a deep understanding of some of the principal weaknesses within financial markets which have resulted in the system being undermined and the difficulties facing regulators in maintaining confidence in the system.  

Summary of course content

  • How inter-related global financial markets serve the real economy
  • The role of participants in global securities and money markets
  • The role of derivative markets in risk management and speculation
  • Practical market analysis tools for traders, investors and regulators
  • Global financial system strengths and weaknesses and recent innovations


Active participation is encouraged to ensure understanding and reinforce concepts. You will be provided with complete lecture notes, cases, and selected readings to serve as a reference.

Who should attend this training course?

This course is suitable for those who want to gain an overall perspective on financial markets from banks, financial institutions and corporations, etc.

  • Analysts
  • Risk Managers
  • Credit Managers
  • Traders and Dealers
  • Financial Consultants
  • Financial and Treasury Managers
  • Accountants and Auditors
  • Lawyers and legal professionals

Supporting publications:



Day 1

How do financial markets relate to the real economy?

  • The globalised nature of the world’s economy
  • National economies: internal and external factors
  • Key economic indicators
  • The Business Cycle
  • Financial intermediation: purpose and structure
  • The banking system: wholesale, retail and “universal” banks
  • The role of securities exchanges and market makers
  • Institutional investors: pension funds and insurance firms
  • Offshore markets: “Euro-” securities
  • The global financial markets in 2014

Interest rates

  • Interest rates as the opportunity cost of capital
  • The time value of money: present and future values
  • How are interest rates determined?
  • Overview of global interest rate markets
  • Pivotal role of interest rates in money, bond, equity and FX markets

Practical exercise: the time value of money
In small groups, delegates will work through a number of simple exercises to reinforce their understanding of key concepts

Risk and return in financial markets

  • Return generation factors
  • Characterising risk in financial markets
  • The risk/return trade off

Day 2

Overview of the main instruments

  • Money markets: short dated debt
  • Bonds: longer dated Government debt and credit markets
  • Equities: ownership stakes in commercial enterprises
  • Foreign exchange markets
  • Commodities
  • Introduction to Derivatives
    • Swaps
    • Futures
    • Options
    • Interest rate derivatives: FRAs, Caps and Floors
    • How securities markets are inter-related

Introduction to money markets

  • What distinguishes “money” markets from “capital” markets?
  • Discount versus interest bearing securities
  • Key instrument types
    • Certificates of Deposits (CDs)
    • Bills and Notes
    • Commercial Paper
    • Repurchase Agreements (Repos)

Practical exercise: money market instruments
Delegates will work through a number of short exercises to reinforce their understanding of money markets and their associated financial arithmetic.

Introduction to bond markets

  • What is a bond?
  • How do bond markets work?
  • The principal bond markets
    • Government bonds
    • The Credit market
    • US Dollar denominated debt securities
    • Emerging markets
    • The role of credit derivatives
  • The key players
    • Originators and arrangers
    • Market makers
    • Institutional investors
    • Hedge funds
    • Credit ratings agencies
  • Bond prices and yields
    • What does a bond’s price represent?
    • What information is contained in bond yields?

Day 3

Bond analysis I – Prices and Yields

  • Bonds as a series of future cash flows
  • Valuation: calculating a bond’s fair value price
  • Bond yields: the market price of risk
  • Calculating yield: the internal rate of return (IRR) of a bond
  • The role of benchmark bonds
  • Credit spreads
  • How the market adjusts for excess supply and demand

Practical exercise: bond analysis
Delegates will reinforce their understanding of bond analysis through a structured exercise involving the calculation of a bond’s price from fundamental inputs of cash flows and yield.

Bond analysis II – Risk Metrics

  • Time-weighted cash flows
  • Macaulay’s Duration: calculation and use
  • Modified Duration: calculation and use

Foreign Exchange (FX) Markets

  • What drives FX markets?
    • Trade balances
    • Interest rates
  • Key FX market participants
  • Spot rates – pivotal role of US Dollar
  • Cross rates – derivation and calculation
  • Forward rates – derivation from spot rates and interest rates

Practical exercise: foreign exchange
Delegates will reinforce their understanding of foreign exchange market dynamics by working through exercises to calculate cross and forward rates from spot rates and interest rates

Technical Analysis

  • Role of technical analysis in financial markets
  • Underlying statistical theory and assumptions
  • Key concepts
    • Mean reversion
    • Momentum
    • Support & resistance
    • Behavioural finance
  • Overview of principal techniques
    • Chartist
    • Candlesticks
    • Filter rules
    • Momentum models
    • Moving averages

Day 4

Introduction to equity markets

  • The big picture: equity markets, inflation and global demographics
  • Position of equity relative to debt in a firm’s capital structure
  • Private versus public equity markets
  • The role of stock exchanges
  • How are returns generated for equity owners?
  • Equity valuation and company accounts: the key ratios
  • Equity valuation modelling
  • Assessing risk and return in equity markets

Practical exercise: equity valuation
Delegates will run through a series of equity valuation exercises, based on case studies from different industrial sectors to deepen their understanding of equity markets and valuation and the difficulties involved in fair market valuation.

Commodity Markets

  • What are commodities?
  • The key global commodity markets
    • Energy
    • Minerals
    • Agriculture
    • Rising markets including freight, carbon credits and semi-conductors
  • Principal participants: hedgers, investors and speculators
  • How do financial markets facilitate commodity trading?
  • Commodity pricing fundamentals
  • Commodity derivatives

Practical exercise: commodity future pricing
Delegates will run through a series of commodity future valuation exercises, based on different spot markets, to deepen their understanding of commodity market dynamics.

Day 5

Financial derivatives

  • Forwards and futures
  • Swaps
  • Options

Financial market risk management

  • What is risk?
  • Risk specification
    • Asset-Liability Management (ALM)
    • Portfolio mandates
    • Risk tolerance
  • Measuring risk
  • Managing risk
  • Matching cash flows of assets to liabilities
  • Portfolio diversification

Practical exercise: risk modelling
Delegates will run through a series of exercises exemplifying approaches to risk measurement and modelling to reinforce their understanding of the theory and practice of risk management.

Case Study: how the Financial Markets don’t Work

Securitisation and the Sub-prime mortgage market

  • Participating in financial markets

Simulation: portfolio management
Delegates will be given a portfolio comprising equities, bonds and cash to manage through four calendar periods. Their objective will be to optimise their risk versus return whilst remaining within the constraints specified by the trustees. In addition to the diversification opportunities open to them, delegates will be able to manage their risk using futures, forward FX, options and swaps.

Course summary and close

  • The Course Director has 25 years experience in financial markets, gained in senior positions at leading financial institutions including Rothschild and Threadneedle Asset Management. His experience spans all major asset classes including fixed income, equity and property investment, and his responsibilities have included investment strategy formulation, portfolio construction, treasury management, risk analysis and the use of derivatives for position taking and risk management.

    In his early career he was a quantitative analyst and was the recipient of the Institute of Investment Management and Research prize for Statistics and Financial Mathematics. Through board level positions at specialist boutique finance houses he has gained considerable experience of alternative asset classes, structured products and derivatives.

    He is a long-standing member of the CFA UK’s examination panel, with particular responsibility for the Fixed Interest and Economics subject areas for the Investment Management Certificate (IMC) qualification. He has been a guest lecturer at the London Financial Academy and on MSc Finance courses at London Metropolitan University. His teaching style is highly interactive, using worked examples and case studies wherever possible to bring the course material to life and welcomes questions and discussion, particularly regarding the application of theory to real life situations.

    He has published a book on asset management and recently authored an article on risk management for Bloomsbury Press. A lawn tennis tour professional in his youth, he now spends his leisure time participating in (and recovering from!) triathlon events.

    Courses run by this instructor

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