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

• Analyze the primary **market risk exposures** of a DFI balance sheet (e.g., currency, interest rate, commodity price) derived from long-term project lending.
• Customize and apply **Value-at-Risk (VaR)** models to measure market risk for DFI treasury portfolios, considering illiquid holdings.
• Design and execute strategic **hedging programs** using financial derivatives (e.g., cross-currency swaps, interest rate caps) to mitigate balance sheet mismatches.
• Establish a comprehensive **market risk limits framework** (e.g., VaR limits, sensitivity limits) aligned with the DFI's risk appetite and mandate.
• Develop robust **scenario analysis and stress testing** to assess the impact of extreme market movements on the DFI's capital and funding position.
• Master the operational controls and governance required for the prudent use of derivatives in a DFI treasury environment.
• Understand the regulatory and accounting treatment (e.g., hedge accounting, IFRS 9) of market risk instruments.
• Formulate policy recommendations for optimizing funding and lending strategies to naturally reduce market risk exposures.

• Treasury Managers and Dealers at Development Finance Institutions (DFIs).
• Market Risk Analysts and Modelers.
• Asset-Liability Management (ALM) Specialists.
• Internal Auditors focused on Trading and Treasury Controls.
• Supervisory and Regulatory Staff overseeing DFI Market Risk.
• Senior Management responsible for setting Market Risk Limits.

• Market Risk VaR Modeling Workshops (Practical Application)
• Group Activities on Designing a Market Risk Limits Framework for a DFI Treasury
• Case Studies on Hedging Strategy Failures and Basis Risk Analysis
• Expert Lectures on IFRS 9 Hedge Accounting and Derivative Valuation
• Treasury Stress Testing Simulation Exercises (Interest Rate and Currency Shocks)
• Individual Exercises on Calculating Sensitivity Metrics and Duration Gap

Unit 1: DFI Market Risk Profile and Sources

• Mapping the key sources of market risk: debt issuance, asset-liability mismatches, liquid asset portfolio.
• Understanding the high exposure to **currency risk** due to foreign currency debt funding local currency assets, and vice versa.
• Analyzing **interest rate risk** from fixed-rate lending funded by variable-rate debt, and vice versa.
• The challenge of measuring market risk for illiquid, long-term development assets with no observable market price.
• Review of global standards for DFI market risk governance.

Unit 2: Measuring Market Risk (VaR and Sensitivities)

• Introduction to **Value-at-Risk (VaR)** methodologies (historical, parametric, Monte Carlo) and selection for DFI portfolios.
• Customizing VaR to handle illiquid assets and sovereign risk components.
• Using **sensitivity analysis** (e.g., basis point value, duration gap) as a complementary risk metric to VaR.
• Protocols for **backtesting and validating** VaR models against actual DFI portfolio returns.
• Designing the internal market risk reporting package for management and the Board.

Unit 3: Hedging Strategies and Derivatives Use

• Implementing a strategic **hedging program** to mitigate currency and interest rate mismatches arising from core business activities.
• Operational and risk controls for the use of derivatives: swaps, forwards, options, and futures.
• Applying **Hedge Accounting** (IFRS 9) to ensure that hedging gains/losses are matched with the underlying exposure.
• Protocols for selecting counterparties, managing credit risk in derivative transactions, and collateral management.
• Analyzing the residual basis risk and hedge effectiveness in long-term development lending.

Unit 4: Market Risk Limits and Stress Testing

• Developing a comprehensive **Market Risk Appetite Statement** and cascading limits down to desk level.
• Setting prudent limits for VaR, duration, open currency positions, and counterparty exposure.
• Designing and executing **market risk stress tests** simulating extreme volatility, liquidity withdrawal, and interest rate spikes.
• Protocols for monitoring limit utilization, breach reporting, and escalation procedures.
• The role of the Asset-Liability Committee (ALCO) in overseeing market risk limits and strategy.

Unit 5: Governance and Operational Controls

• Establishing a clear segregation of duties between the front office (dealers), middle office (risk), and back office (settlements).
• Protocols for trade execution, confirmation, and settlement, ensuring integrity and auditability.
• Internal audit requirements for treasury systems, models, and operational controls.
• Managing the technology and system requirements for real-time market risk measurement and surveillance.
• Compliance protocols for regulatory reporting and disclosure of market risk exposures.