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Treasury Finance and Development Banking: A Guide to Credit, Debt, and Risk, + Website

Book Description

Credit and credit risk permeates every corner of the financial world. Previously credit tended to be acknowledged only when dealing with counterparty credit risk, high-yield debt or credit-linked derivatives, now it affects all things, including such fundamental concepts as assessing the present value of a future cash flow. The purpose of this book is to analyze credit from the beginning—the point at which any borrowing entity (sovereign, corporate, etc.) decides to raise capital through its treasury operation. To describe the debt management activity, the book presents examples from the development banking world which not only presents a clearer banking structure but in addition sits at the intersection of many topical issues (multi-lateral agencies, quasi-governmental entities, Emerging Markets, shrinking pool of AAA borrowers, etc.).

This book covers:

  • Curve construction (instruments, collateralization, discounting, bootstrapping)

  • Credit and fair valuing of loans (modeling, development institutions)

  • Emerging markets and liquidity (liquidity, credit, capital control, development)

  • Bond pricing (credit, illiquid bonds, recovery pricing)

  • Treasury (funding as an asset swap structure, benchmarks for borrowing/investing)

  • Risk and asset liability management (leverage, hedging, funding risk)

Note: The ebook version does not provide access to the companion files.

Table of Contents

  1. Cover
  2. Series
  3. Title Page
  4. Copyright
  5. Dedication
  6. List of Figures
  7. List of Tables
  8. Acknowledgments
  9. Introduction
    1. I.1 TREASURY, FUNDING, AND THE REASONS BEHIND THIS BOOK
    2. I.2 FUNDING ISSUES AS CREDIT AND PRICING ISSUES
    3. I.3 TREASURY FINANCE AND DEVELOPMENT BANKING
    4. I.4 THE STRUCTURE OF THE BOOK
  10. Chapter 1: An Introductory View to Banking, Development Banking, and Treasury
    1. 1.1 A REPRESENTATION OF THE CAPITAL FLOW IN A FINANCIAL INSTITUTION
    2. 1.2 LENDING
    3. 1.3 BORROWING
    4. 1.4 INVESTING AND ALM
    5. 1.5 THE BASIC STRUCTURE OF A TRADITIONAL FINANCIAL INSTITUTION
    6. 1.6 DEVELOPMENT BANKING
  11. Chapter 2: Curve Construction
    1. 2.1 WHAT DO WE MEAN BY CURVE CONSTRUCTION?
    2. 2.2 THE INSTRUMENTS AVAILABLE FOR CURVE CONSTRUCTION
    3. 2.3 USING MULTIPLE INSTRUMENTS TO BUILD A CURVE
    4. 2.4 COLLATERALIZED CURVE CONSTRUCTION
    5. 2.5 NUMERICAL EXAMPLE: BOOTSTRAPPING AN INTEREST RATE CURVE
  12. Chapter 3: Credit and the Fair Valuing of Loans
    1. 3.1 CREDIT AS AN ASSET CLASS
    2. 3.2 A BRIEF OVERVIEW OF CREDIT MODELING
    3. 3.3 FAIR VALUE OF LOANS AND THE SPECIAL CASE OF DEVELOPMENT INSTITUTIONS
    4. 3.4 NUMERICAL EXAMPLE: CALCULATING THE FAIR VALUE OF A LOAN
  13. Chapter 4: Emerging Markets and Liquidity
    1. 4.1 THE DEFINITION OF EMERGING MARKETS
    2. 4.2 THE MAIN ISSUES WITH EMERGING MARKETS
    3. 4.3 EMERGING MARKETS AND DEVELOPMENT BANKING
    4. 4.4 CASE STUDIES OF DEVELOPMENT PROJECTS
  14. Chapter 5: Bond Pricing
    1. 5.1 WHAT IS A BOND?
    2. 5.2 A FEW FUNDAMENTAL CONCEPTS OF THE BOND WORLD
    3. 5.3 EXPRESSING CREDIT EXPLICITLY WHEN PRICING A BOND
    4. 5.4 ILLIQUID BONDS
    5. 5.5 NUMERICAL EXAMPLE: ESTIMATING THE COUPON OF AN EMERGING MARKET DEBT INSTRUMENT
  15. Chapter 6: Treasury Revisited
    1. 6.1 FUNDING AS AN ASSET SWAP STRUCTURE
    2. 6.2 FUNDING LEVEL TARGETS
    3. 6.3 THE FUNDAMENTAL DIFFERENCES BETWEEN INVESTMENT BANKING AND DEVELOPMENT BANKING
    4. 6.4 BENCHMARKS FOR BORROWING AND INVESTING
  16. Chapter 7: Risk and Asset Liability Management
    1. 7.1 THE ISSUE OF LEVERAGE
    2. 7.2 HEDGING
    3. 7.3 MANAGING RISK RELATED TO FINANCIAL OBSERVABLES
    4. 7.4 FUNDING RISK
  17. Chapter 8: Conclusion
    1. 8.1 CREDIT IS EVERYWHERE
    2. 8.2 THE FUNDAMENTAL STEPS TO BORROWING, LENDING, AND INVESTING: A SUMMARY
  18. Appendix A: Implying Zero Rates from FX Forward Quotes
  19. Appendix B: CDS Spreads and Default Probabilities
  20. Appendix C: Modeling the Credit-Driven Prepayment Option of a Loan
  21. Appendix D: The Relation between Macaulay and Modified Durations
  22. Appendix E: The Impact of Discounting on an Asset Swap Spread
  23. Appendix F: Replication Leading to Risk-Neutral Probabilities
  24. References
  25. About the Web Site
    1. THE IMPLEMENTATION OF THE BOOTSTRAPPING OF AN INTEREST RATE CURVE
    2. THE IMPLEMENTATION OF THE BOOTSTRAPPING OF A HAZARD RATE CURVE
  26. Index