Upon completion of this program, participants will be able to:

• Explain the core rationale (precautionary, intervention, transaction) for holding foreign exchange reserves.
• Apply quantitative methodologies to determine the optimal level of **reserve adequacy** (e.g., IMF ARA metric, short-term debt coverage).
• Draft and analyze the components of a comprehensive **Investment Policy Statement (IPS)**.
• Evaluate the primary investment objectives: Safety, Liquidity, and Return, and their necessary trade-offs.
• Identify, measure, and manage the key risks within the reserve portfolio (credit, market, currency).
• Understand the legal and governance framework for reserve management, including roles and responsibilities.
• Describe the operational process for selecting custodians, settling trades, and managing the treasury function.
• Formulate a risk-based framework for strategic asset allocation (SAA) and benchmarking.

• Central Bank Reserves and Portfolio Managers
• Central Bank Treasury and Balance Sheet Analysts
• Government Debt Management Officials
• Commercial Bank Treasury and Asset-Liability Management (ALM) Staff
• Custody and Securities Operations Specialists
• Internal Audit and Compliance Professionals for Reserves

Reserve adequacy calculation exercises, Group project on drafting an Investment Policy Statement (IPS), Portfolio risk analysis workshops, Case studies on historical reserve management failures, Discussions on the trade-off of Safety-Liquidity-Return, Technical deep dives into fixed income instruments.

Unit 1: Rationale and Adequacy Frameworks

• The role of reserves in supporting the exchange rate regime and managing external shocks.
• Reserves as a buffer against capital flight and financial crisis.
• Distinguishing between operational (liquidity) and investment (return) tranches.
• The impact of reserve holdings on central bank independence and balance sheet strength.

• Traditional adequacy metrics (e.g., import coverage, money supply coverage).
• The **IMF Assesing Reserve Adequacy (ARA) Metric** and its application.
• Assessing vulnerabilities: coverage of short-term debt and contingent liabilities.
• Policy for determining the optimal size and composition of the reserve portfolio.

Unit 2: Governance and Investment Policy

• Establishing clear roles, responsibilities, and authority (Board, Investment Committee, Management).
• The legal mandate for reserve management and its delegated powers.
• The importance of segregation of duties (front, middle, and back office).
• Policy for ethical standards, conflict of interest, and external manager selection.

• Defining the hierarchy of objectives: **Safety, Liquidity, Return** (in that order).
• Establishing the official risk tolerance and maximum loss parameters.
• Defining the eligible asset universe, benchmark, and performance metrics.
• The process of regular review and formal approval of the IPS.

Unit 3: Risk Management and Asset Allocation

• Credit risk: counterparty limits, credit ratings, and management of issuer risk.
• Market risk: duration, modified duration, and management of interest rate exposure.
• Liquidity risk: ensuring the ability to mobilize funds for intervention or debt repayment.
• Currency risk: the role of the operational and investment currency mix.

• The SAA process: risk budgeting, liability-driven investing (LDI), and mean-variance optimization.
• Defining the benchmark for the investment tranches.
• Tactical Asset Allocation (TAA) and the policy for deviations from the SAA.
• Portfolio implementation and rebalancing rules.

Unit 4: Operational and Future Challenges

• Middle and back office functions: trade confirmation, settlement, and reconciliation.
• The role of custodians and sub-custodians in asset safekeeping.
• Operational risk management and business continuity planning for the dealing room.
• Technology requirements for portfolio and risk management systems.