PROFIT AND LOSS MEASURE AND ANALYSIS

The middle office in charge of P&L have in charge the production of daily P&L reporting and the monthly P&L reconciliation between accounting P&L and economic P&L.

Financial P&L

• ·         Different types of P&L : front and back, economic and accounting
• ·         Regulatory framework
• ·         Accounting framework
• ·         Valuation methods: accruals, MTM, fair value, amortized cost

Economic P&L management

• ·         P&L components: realized, unrealized, funding and FX component
• ·         Other components: commissions, fees, sales credit, reserves
• ·         Book hierarchy and organisation
• ·         Daily, monthly and yearly reporting
• ·         FX management of P&L generated in foreign currency
• ·         Initialisation of cash balances
• ·         Year end transfer and initialisation

Accounting P&L

• ·         Accounting principles for financial instruments
• ·         Balance Sheet and Off Balance Sheet products
• ·         Accounting schemes
• ·         Valuation methods: local and IFRS accounting norms
• ·         Liquidation on Futures: FIFO, LIFO methods
• ·         FX Profit and Loss

Reconciliation between accounting and economic P&L

• ·         Differences between accounting and economic P&L,
• ·         FX positions and FX valuations,
• ·         Reconciliation of realized P&L,
• ·         Reconciliation of unrealized P&L, hypothetical P&L,
• ·         Links between risk factors and P&L: income attribution

ASSET LIABILITY MANAGEMENT

Introduction to Asset Liability Management

• ·         The retail bank model and the financing of the economy,
• ·         Banking accounting: assets and liabilities, profit and charges,
• ·         Banking revenues : interest rate margin,
• ·         The role of the central Treasurer,
• ·         The Alco: Asset Liability Committee

Financial revenues and FTP

• ·         The trading and the banking book,
• ·         Margin interest and performance via the Raroc,
• ·         Risk indicators and the Basel requirements,
• ·         Variable rate modelling,
• ·         Hidden interest rate options,
• ·         Definition of FTP (funding transfer price)?

Financial risk and ALM

• ·         Risk management and risk allocation,
• ·         Global interest rate risk: treasury gaps,
• ·         Risk measurement methods :sensitivity,
• ·         Hedging interest rate risks,
• ·         Liquidity risk and Basel 3 new ratios,
• ·         RR: reimbursement risk,
• ·         ALM modelling: forecasting and simulations.

ALM Management

• ·         Interest rate risk hedging,
• ·         Budgeting and forecasting : macro economical studies,
• ·         How to preserve margins in a complex economical environment: liquidity ratios, rates decline,
• ·         Modern P&L methods : Mark To Market,
• ·         New accounting methods: amortized cost.

PERFORMANCE in ASSET MANAGEMENT

Performance measures

• ·         Definition of rate of returns,
• ·         Arithmetic and geometric means,
• ·         Chaining methods and compounding.

Performance methods

• ·         IRR method,
• ·         DIETZ method,
• ·         Modified DIETZ method,
• ·         TWRR and MWRR methods,
• ·         Comparisons

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