The foreign exchange market serves as the primary mechanism for making payments across borders, transferring funds, and determining exchange rates between different national currencies.

In the past decade, we have witnessed the broadening and the massive expansion of the foreign exchange market. While in the past, commercial banks dominated the market; participants today also include commercial as well as investment banks, foreign exchange dealers and brokerage companies, multinational corporations, money managers, commodity trading advisors, insurance companies, governments, central banks, pension and hedge funds, investment companies, brokers/dealers, money transfer firms and other participants.

The effective management of risk is an important aspect of all business activities. In Foreign Exchange operations, risk management is even more critical because many of the day-to-day operational risks are not well understood. Not understanding ones “enemy” is a sure prescription for disaster.

This course represents a practical approach to explaining the unique risks in foreign exchange operations, as well as how to implement an effective operational risk management system for these transactions.

In part-one of this course, we examine the basic principles surrounding the use and operational aspects of Foreign Exchange – specifically we are going examine how funds move around the globe, how transactions are settled and the major operational risks in this market and the steps that have been taken to lessen these.

Subjects that we cover include:

  • How foreign exchange works,
  • Foreign exchange terminology,
  • Correspondent banking,
  • SWIFT,
  • The foreign exchange settlement process,
  • Settlement risk and exposures,
  • Continuous Linked Settlement. 

In part-two we cover best practices in the management of operational risk in foreign exchange activities together with a case study  of a recent series of events at a major global bank that clearly illustrate all that we have covered in parts 1 and 2 of this course.

On completing both parts of the course, attendees will be in a position to implement the standards of best practice in their own work environment.

Learning Objectives
  • Explore the principles involved in the operation of the foreign exchange market.
  • Discover the different methods used for settling foreign exchange transactions.
  • Identify the different risks involved in the foreign exchange process.
  • Recognize the true flow of funds in foreign exchange transactions.
  • Discover how SWIFT messages operate.
Last updated/reviewed: August 9, 2023
4 Reviews (12 ratings)


Anonymous Author
This course provides interesting information regarding how Foreign Exchange activities occur and the unique challenges and risks associated with Foreign Exchange activities.

Anonymous Author
There is a lot to consider when you are starting to settle transactions in different foreign currencies. This does provide a good review of what you need to understand.

Member's Profile
This is a good introductory course on understanding the risks exposure within the FX activities.

Member's Profile
Excellent refresher or overview of the risks to consider around FX payment transactions.

Course Complexity: Advanced
  • No advanced preparation or prerequisites are required for this course (Part 1).
Education Provider Information
Company: Illumeo, Inc., 75 East Santa Clara St., Suite 1215, San Jose, CA 95113
Contact: For more information regarding this course, including complaint and cancellation policies, please contact our offices at (408) 400- 3993 or send an e-mail to .
Instructor for this course
Course Syllabus
Introduction And Overview
  Managing Operational Risk in Foreign Exchange Activities Part 1- Basic Principles 5:31
  Operational Risk2:53
  Foreign Payments and Accounting7:39
  Foreign Exchange Basics7:19
  Bank Communications5:12
  International Payments Correspondent Banking2:20
  How Correspondent Banking is Settled7:25
  Herstatt Risk8:16
  Continuous Linked Settlement12:31
  The Foreign Exchange Process Flow4:08
Continuous Play
  Managing Operational Risk in Foreign Exchange Activities Part 1- Basic Principles 1:03:26
Supporting Material
  Slides: Managing Operational Risk in Foreign Exchange Activities Part 1- Basic PrinciplesPDF
  Managing Operational Risk in Foreign Exchange Activities Part 1- Basic Principles Glossary/IndexPDF
Review And Test