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SECTION 6.1: The Fragmented FX Landscape

Introductory video

SECTION 6.1

Lecture video 1

The Fragmented FX Landscape

I. The OTC Architecture and How the Market Is Measured

II. Instruments

III. Fragmentation and the Liquidity Mirage

IV. Internalization and Invisible Trading

V. Execution Methods and the Counterparty Shift

VI. Geography and Settlement Risk

VII. From Structure to Execution Policy

Section Summary

SECTION 6.2: Parity Conditions and Market Frictions

SECTION 6.2

Lecture Video 2

Parity Conditions and Market Frictions

I. Purchasing Power Parity and the Law of One Price

II. What the Evidence Actually Says

III. Interest Rate Parity: Uncovered and Covered

IV. The Cross-Currency Basis as a Diagnostic

V. Case Example: Intermediation in the Chilean Peso

VI. Why Hedging Costs Rise Exactly When Hedging Matters

VII. Frictions and Their Persistence

VIII. From Diagnosis to Decision

SECTION 6.3: The Modern Monetary System

SECTION 6.3

Lecture Video 3

The Modern Monetary System

I. The Trilemma Under a Global Financial Cycle

II. The Integrated Policy Framework: Buying Autonomy With a Balance Sheet

III. Managed Floats and the Band Mechanism

IV. Reserves as Macro-Financial Insurance

V. Case Example: Peru's Non-Conventional Toolkit

VI. Original Sin Redux

VII. Digital Intermediation and Capital Flow Management

VIII. From Regime to Exposure Decision

SECTION 6.4: Taxonomy of Exposure

SECTION 6.4

Lecture Video 4

Taxonomy of Exposure

I. Three Exposures, Three Different Questions

II. Transaction Risk and the Pre-Transaction Window

III. Translation and Remeasurement: Two Different Operations

IV. When an Accounting Entry Becomes an Economic Event

V. Phantom Risk

VI. Economic Risk

VII. The Boundary of Hedgeability

VIII. From Taxonomy to Workflow

SECTION 6.5: Hedging Mechanics and Risk Allocation

SECTION 6.5

Lecture video 5

Hedging Mechanics and Risk Allocation

I. The Instrument Set

II. The Real Cost of a Forward

III. Operational Hedges: Reducing the Notional First

IV. The Execution Trilemma

V. Accounting Consequences

VI. Proxy Hedging and Its Limits

VII. Sophistication and Correlated Exposure

VIII. From Instrument to Policy

SECTION 6.6: Global Capital and Original Sin Redux

SECTION 6.6

Lecture video 6

Global Capital and Original Sin Redux

I. From Original Sin to Its Successor

II. Why Foreign Investors Do Not Hedge

III. The Duration Multiplier

IV. NBFI Procyclicality and the Dash for Cash

V. The Sovereign-Bank Nexus

VI. Colombia: Index Inclusion in Both Directions

VII. K-Shaped Capital Flows

VIII. From Diagnosis to Funding Decision

SECTION 6.7: International Accounting and Consolidation

SECTION 6.7

Lecture video 7

International Accounting and Consolidation

I. Functional Currency as the Master Switch

II. Two Frameworks, Two Diagnostic Styles

III. Remeasurement and the Monetary Divide

IV. Consolidation: Step-by-Step Against Direct

V. Hyperinflation and the Point of Divergence

VI. The Frozen Balance Sheet

VII. CTA and Partial Disposal

VIII. From Standard to Policy

SECTION 6.8: Algorithmic Execution and Model Risk

SECTION 6.8

Lecture Video 8

Algorithmic Execution and Model Risk

I. The Risk Shift, and the Trilemma It Creates

II. Three Generations of Algorithm

III. Why Artificial Intelligence Sits Offline

IV. Microstructure Risks and Correlated Behavior

V. Case Example: Performance in High-Volatility Regimes

VI. Governance: Pre-Trade, In-Flight, Post-Trade

VII. Settlement: Project Agorá and Tokenised Rails

VIII. From Governance to Decision

Knowledge Check

Knowledge Check:  The OTC Architecture

Knowledge Check:  Fragmentation and Liquidity

Knowledge Check:  Purchasing Power Parity

Knowledge Check:  Interest Rate Parity

Welcome to "Currencies, Exchange Rate Risk, and Global Capital," a comprehensive and advanced online course designed to demystify the complex world of foreign exchange (FX) markets, international capital flows, and corporate risk management. In today's highly interconnected global economy, understanding the fragmented FX landscape is no longer optional for financial professionals—it is a critical necessity.

Welcome to "Currencies, Exchange Rate Risk, and Global Capital," a comprehensive and advanced online course designed to demystify the complex world of foreign exchange (FX) markets, international capital flows, and corporate risk management. In today's highly interconnected global economy, understanding the fragmented FX landscape is no longer optional for financial professionals—it is a critical necessity. This course takes you deep into the mechanics of the modern monetary system, exploring everything from Over-The-Counter (OTC) architecture and liquidity mirages to parity conditions, market frictions, and the realities of purchasing power parity.

Throughout this intensive program, you will explore the complete taxonomy of currency exposure, learning to distinguish between transaction, translation, and economic risks, while mastering hedging mechanics and risk allocation strategies. We will also dive into the macroeconomic forces shaping global capital, including the "Original Sin Redux," non-bank financial intermediation (NBFI) procyclicality, and the sovereign-bank nexus. Furthermore, the curriculum bridges the crucial gap between finance and accounting by thoroughly examining international accounting standards, consolidation methods, and the profound impact of functional currency decisions on the balance sheet. Finally, you will navigate the cutting-edge realm of algorithmic execution, model risk, microstructure dynamics, and tokenized settlement rails like Project Agorá. Whether you are a corporate treasurer, investment professional, or financial controller, this course equips you with the sophisticated, practical tools needed to make defensible, strategic decisions in the face of exchange rate volatility and global capital shifts.

Chapter 6

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            <p>Navigating the complexities of international finance requires a deep understanding of how currencies operate within a highly fragmented global landscape. This course, "Currencies, Exchange Rate Risk, and Global Capital," provides a comprehensive exploration of the foreign exchange (FX) market's architecture, moving beyond basic economic theories to examine the real-world frictions and structural realities that dictate capital flows. By dissecting the over-the-counter (OTC) nature of FX trading, the illusion of infinite liquidity, and the modern monetary system's evolving trilemma, learners will uncover the underlying mechanics that drive exchange rate volatility and influence macroeconomic policy.</p>

<p>Building upon this foundational market structure, the curriculum systematically breaks down the taxonomy of currency exposure—distinguishing between transaction, translation, and economic risks—and equips professionals with the strategic frameworks necessary for effective risk allocation. Participants will delve into the mechanics of hedging instruments, the intricacies of international accounting and consolidation, and the profound impact of global capital movements, including the phenomenon of "Original Sin Redux." Furthermore, the course addresses the cutting-edge intersection of finance and technology, analyzing algorithmic execution, model risk, and the future of tokenized settlement, ensuring that decision-makers are fully prepared to defend their financial strategies in an increasingly interconnected and digitized global economy.</p>
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