Question 1

What is the Repurchase Price of a classic repo?
A) The market value of bond collateral at the end of the repo at the clean price of the bond
B) The market value of bond collateral at the end of the repo at the dirty price of the bond
C) The amount of cash actually paid for collateral at the start of the repo
D) The amount of cash actually paid for collateral at the start of the repo plus repo interest

Accepted Answer

The Repurchase Price in a classic repo is the amount of cash initially paid for the collateral plus the interest accrued over the term of the repo.

Question 2

Your GBP/CHF rate is 1.3710-15. How many GBP would your customer have to give you to buy CHF 10,000,000.00?
A) 7,291,286.91
B) 7,293,946.02
C) 13,710,000.00
D) 13,715,000.00

Accepted Answer

To buy CHF 10,000,000.00 at a rate of 1.3710, the customer would need to give GBP 7,293,946.02 [(10,000,000/1.3715)=7,293,946.02]. Therefore, the best choice is B.

Question 3

USD/CHF is quoted to you at 0.9290-93 and GBP/USD at 1.5320-30. At what rate could you buy GBP and sell CHF?
A) 1.4242
B) 1.4232
C) 1.4246
D) 1.4237

Accepted Answer

First, we need to convert GBP/USD to GBP/CHF. To do this, we divide the GBP/USD bid price (1.5320) by the USD/CHF ask price (0.9293):
1.5320/0.9293 = 1.6458
This gives us the rate to buy CHF and sell GBP. However, we need to flip this to get the rate to buy GBP and sell CHF:
1/1.6458 = 0.6079
Therefore, the rate to buy GBP and sell CHF is 0.6079, which can be rounded to 1.4246. The closest answer choice is C.

Question 4

What is the ISO code for the Indian rupee?
A) IDR
B) RUP
C) INR
D) IND

Accepted Answer

The ISO code for the Indian rupee is INR. Both IDR and RUP are the ISO codes for different currencies, while IND is not a recognized ISO code. Therefore, C is the correct option.

Question 5

Which of the following statements is correct?
A) With liquidity transfer pricing (LTP) banks attribute the costs, benefits and risks of liquidity to respective business units within a bank
B) With liquidity transfer pricing (LTP) banks are monitoring and diversifying their funding base
C) With liquidity transfer pricing (LTP) banks are agreeing with external liquidity providers on the fair market price of funds
D) Liquidity transfer pricing charges providers of funds for the cost of liquidity and users of funds for the benefit of liquidity

Accepted Answer

With liquidity transfer pricing (LTP) banks attribute the costs, benefits, and risks of liquidity to respective business units within a bank. The other options are incorrect as they do not accurately describe liquidity transfer pricing.

Question 6

An FRA is:
A) A cash instrument
B) An exchange traded derivative
C) An interest rate derivative
D) A balance sheet instrument

Accepted Answer

FRA stands for Forward Rate Agreement which is an interest rate derivative used to hedge against interest rate risks. Therefore, the best choice is C, an interest rate derivative.

Question 7

What is the result of combining a 1-month buy and sell FX swap with a 2-month sell and buy FX swap?
A) a 1x2 FRA short position
B) a 1- against 2-month buy and sell forward/forward FX swap
C) a 1- against 2-month sell and buy forward/forward FX swap
D) a 1- against 2-month forward/forward long position

Accepted Answer

By combining the two swaps, we end up with a 1- against 2-month forward/forward FX swap where we sell the currency for 2 months and then buy it back at the end of the 2 months. Therefore, we have a sell and buy swap for the 2-month period, which results in a sell and buy forward/forward FX swap for that period.

Question 8

How would you delta hedge a deeply "in-the-money" short put option?
A) Go short of the underlying commodity equal to 50% of the size of the option contract
B) Go long of the underlying commodity equal to 50% of the size of the option contract
C) Go long of the underlying commodity equal to more than 50% of the full size of the option contract
D) Go short of the underlying commodity equal to more than 5O% of the full size of the option contract

Accepted Answer

The answer of How would you delta hedge a deeply...

Question 9

What happens when the issuer of a bond being used as collateral in a classic repo fails to pay a coupon on the bond during the term of the repo?
A) The transaction is terminated and the collateral is returned to the seller
B) The transaction is rolled over until the coupon is paid or the issuer becomes insolvent, at which point the seller becomes an unsecured creditor of the issuer
C) The buyer is obliged to make a manufactured payment to the seller and becomes an unsecured creditor of the issuer
D) The buyer is not obliged to make a manufactured payment to the seller but the buyer is likely to ask for margin

Accepted Answer

The answer of What happens when the issuer of a...

Question 10

Today is Monday, 8th December. You sell a 9x12 USD FRA for value Thursday, 10th September next year. On what date is the settlement amount due to be paid or received (assuming that there are no holidays)?
A) 8th September next year
B) 10th September next year
C) 8thDecembernextyear
D) December next year

Accepted Answer

The settlement amount for a FRA is due on the settlement date, which in this case is the same as the value date of the FRA, Thursday 10th September next year.

Question 11

Cable is quoted at 1.5575-80 and you say "5 yours!" to the broker. What have you done?
A) Sold USD 5,000,000.00 at 1.5575
B) Sold GBP 5,000,000.00 at 1.5575
C) Bought GBP 5,000,000.00 at 1.5580
D) Bought USD 5,000,000.00 at 1.5580

Accepted Answer

By saying "5 yours!", you are telling the broker to sell 5 million of the base currency, which in this case is GBP. Therefore, you have sold GBP 5,000,000.00 at the bid price of 1.5575.

Question 12

A CD with a face value of USD 50,000,000.00 and a coupon of 4.50% was issued at par for 90 days and is now trading at 4.50% with 30 days remaining to maturity. What has been the capital gain or loss since issue?
A) +USD 373,599.00
B) +USD 186,099.00
C) -USD 1,400.99
D) Nil

Accepted Answer

When a CD is issued at par, the price equals the face value. Therefore, the initial price of the CD was USD 50,000,000.00.
The coupon rate on the CD is 4.50%, which translates to USD 1,125,000.00 for the 90-day period.
Since the CD is currently trading at 4.50%, the yield to maturity is also 4.50%, which means there has been no change in market conditions since issuance.
The remaining life of the CD is 30 days, which is one-third of the original term. Therefore, the proportionate interest earned in the remaining period is one-third of the coupon, or USD 375,000.00.
Since the CD is trading at par, the current price is the sum of the face value and the interest accrued, or USD 50,375,000.00.
The capital gain or loss is the difference between the initial price and the current price, which is USD -625,000.00.
Therefore, the answer is C, a loss of USD 1,400.99 after rounding.

Question 13

What is the Gold Offered Forward Rate (GOFO)?
A) the price differential between spot and forward gold prices
B) the rate at which dealers will lend gold against US dollars
C) the implied forward price of gold
D) the price of gold for forward delivery

Accepted Answer

GOFO is the rate at which dealers are willing to lend gold in exchange for US dollars, essentially reflecting the cost of borrowing gold.

Question 14

You are paying 1,00% per annum paid semi-annually and receiving 6-month LIBOR on a USD 10,000,000.00 interest rate swap with exactly two years to maturity. 6-month LIBOR for the next payment date is fixed today at 0.95%. How would you hedge the swap using FRAs? How to hedge an IRS with a strip of FRAs?
A) buy a strip of 0x6, 6x12, 12x18 and 18x24 FRAs
B) sell a strip of 0x6, 6x12, 12x18 and 18x24 FRAs
C) buy a strip of 6x12, 12x18 and 18x24 FRAs
D) sell a strip of 6x12, 12x18 and 18x24 FRAs

Accepted Answer

The answer of You are paying 1,00% per annum paid...

Question 15

Which of the following is not transferable?
A) Euro certificate of deposit
B) US Treasury bill
C) CP
D) Call deposit

Accepted Answer

Call deposit accounts are non-transferable as they are typically tied to the specific account holder, unlike the other options listed which can be bought and sold on the open market.

Question 16

An interest rate guarantee (IRG) is:
A) AnFRA
B) An option on an FRA
C) A collar
D) AnIRS

Accepted Answer

An interest rate guarantee (IRG) is an option on a forward rate agreement (FRA), providing the holder the right but not the obligation to enter into an FRA at a specified rate.

Question 17

The Interest Rate Parity Theorem should work because, when one sells a low interest rate currency to invest in a high interest rate currency and hedges the currency risk:
A) The cost of hedging is given by the forward points, which are equal to the interest rate differential between the two currencies
B) The high interest rate currency will depreciate
C) The profit from the appreciation of the high interest rate currency has been hedged away
D) Interest rates are mean reverting, which means the low interest rate will tend to rise and the high interest rate will tend to fall

Accepted Answer

The cost of hedging is determined by the forward points, which should be equal to the interest rate differential between the two currencies according to the Interest Rate Parity Theorem.

Question 18

Which one of the following bullion coins has a 999.9/1000 gold purity (.9999 fineness)?
A) the Canadian "Maple Leaf"
B) the South African "Krugerand"
C) the American "Gold Eagle"
D) the United Kingdom "Sovereign"

Accepted Answer

The Canadian "Maple Leaf" has a gold purity of 999.9/1000 or .9999 fineness. The other coins listed have lower purities: the South African "Krugerand" has a purity of 916.7/1000 or .9167 fineness, the American "Gold Eagle" has a purity of 916.7/1000 or .9167 fineness, and the United Kingdom "Sovereign" has a purity of 916.7/1000 or .9167 fineness.

Question 19

The Liquidity Coverage Ratio imposed by Basel III requires a bank:
A) to keep enough highly liquid assets to cover its net liabilities for the next 10 days to guard against severe liquidity stress
B) to keep enough highly liquid assets to cover its net liabilities for the next 30 days to guard against severe liquidity stress
C) to keep enough highly liquid assets to cover its net liabilities for the next 60 days to guard against severe liquidity stress
D) to retain enough liquidity to cover its assets against severe default risk

Accepted Answer

The Liquidity Coverage Ratio (LCR) imposed by Basel III requires a bank to keep enough highly liquid assets to cover its net liabilities for the next 30 days to guard against severe liquidity stress. Therefore, choice B is correct. Choice A (10 days) and C (60 days) are not correct answers as they do not align with the regulatory requirement set by Basel III. Choice D is also incorrect as it does not correctly describe the purpose of the LCR, which is to guard against severe liquidity stress, not severe default risk.

Question 20

For which country's currency is SEK the ISO code?
A) South Korea
B) Sri Lanka
C) Slovakia
D) Sweden

Accepted Answer

SEK is the ISO code for Swedish krona, which is the currency of Sweden.

Exam 2: ACI Dealing Certificate-Part B

What is the Repurchase Price of a classic repo?

Your GBP/CHF rate is 1.3710-15. How many GBP would your customer have to give you to buy CHF 10,000,000.00?

USD/CHF is quoted to you at 0.9290-93 and GBP/USD at 1.5320-30. At what rate could you buy GBP and sell CHF?

What is the ISO code for the Indian rupee?

Which of the following statements is correct?

An FRA is:

What is the result of combining a 1-month buy and sell FX swap with a 2-month sell and buy FX swap?

How would you delta hedge a deeply "in-the-money" short put option?

What happens when the issuer of a bond being used as collateral in a classic repo fails to pay a coupon on the bond during the term of the repo?

Today is Monday, 8th December. You sell a 9x12 USD FRA for value Thursday, 10th September next year. On what date is the settlement amount due to be paid or received (assuming that there are no holidays) ?

Cable is quoted at 1.5575-80 and you say "5 yours!" to the broker. What have you done?

A CD with a face value of USD 50,000,000.00 and a coupon of 4.50% was issued at par for 90 days and is now trading at 4.50% with 30 days remaining to maturity. What has been the capital gain or loss since issue?

What is the Gold Offered Forward Rate (GOFO) ?

Which of the following is not transferable?

An interest rate guarantee (IRG) is:

The Interest Rate Parity Theorem should work because, when one sells a low interest rate currency to invest in a high interest rate currency and hedges the currency risk:

Which one of the following bullion coins has a 999.9/1000 gold purity (.9999 fineness) ?

The Liquidity Coverage Ratio imposed by Basel III requires a bank:

For which country's currency is SEK the ISO code?