Question 1

If the value date of a forward USD/JPY transaction is declared a holiday in either New York or Tokyo, the correct value date will be:

Accepted Answer

The value date for a forward transaction must be a business day in both financial centers involved, so it will be the next business day when both New York and Tokyo are open.

Question 2

Regarding access to production systems, which of the following is incorrect?

Accepted Answer

Developers should not have unrestricted access to production systems as it can pose a security risk. Instead, their access should be controlled and limited to the specific tasks they need to perform.

Question 3

What is the correct interpretation of a EUR 2,000,000.00 overnight VaR figure with a 97% confidence level?

Accepted Answer

The correct interpretation of an overnight VaR (Value at Risk) figure with a 97% confidence level is that a loss of at least EUR 2,000,000.00 can be expected in 3 out of the next 100 days. This means that there is a 97% probability that the loss in the portfolio will not exceed EUR 2,000,000.00 over the next 24 hours. Therefore, option C is the best choice.

Question 4

What is the meaning of "under reference" in the terminology of trading?

Accepted Answer

"Under reference" means that the rate quoted in the market may no longer be valid and requires confirmation before any trades can be agreed upon. This is commonly used in situations where the market has moved quickly and the quoted rate may no longer be accurate. It is a cautionary term to ensure that all parties understand that the quoted rate is subject to change.

Question 5

The use of standard settlement instructions (SSI's) is strongly encouraged because:

Accepted Answer

The use of standard settlement instructions (SSI's) helps reduce operational risk by ensuring that all parties involved in a trade are using the same information when settling the transaction. This helps prevent errors and delays in settlement, which can be costly and time-consuming for both parties. SSI's do not split differences arising from failed settlement, remove the need for sending out SWIFT confirmations, or secure trading on more secure platforms.

Question 6

Which Greek letter is used to describe the ratio of change in the option price compared with change in the price of the underlying instrument, when all other conditions are fixed?

Accepted Answer

Delta is the Greek letter used to describe the ratio of change in the option price compared with the change in the price of the underlying instrument, holding all other factors constant.

Question 7

How long does the Model Code recommend that tapes and other records of dealers/brokers be kept?

Accepted Answer

The answer of How long does the Model Code recommend...

Question 8

Which of the following statements is true?

Accepted Answer

Prices quoted by brokers are generally considered firm in marketable amounts unless they specify otherwise, meaning they are committed to transact at those prices.

Question 9

What ought to be done in the event a trade erroneously occurs at an off-market rate?

Accepted Answer

If a trade erroneously occurs at an off-market rate, it is necessary to correct the error as soon as practically possible. By agreement between the two counterparties, the trade should either be cancelled or have its rate amended to an appropriate market rate. It is important to ensure that both parties agree to the solution and that the correct market rate is used for the trade. Simply doing nothing or adjusting the rate without agreement from the counterparty could lead to disputes and legal consequences.

Question 10

Hybex Electrics is a highly rated company with a considerable amount of fixed rate liabilities and would like to increase the percentage of floating rate debt. Which of the following is the best course of action?

Accepted Answer

The answer of Hybex Electrics is a highly rated company...

Question 11

Responsibility for the activities of all personnel engaged in dealing (both dealers and support staff) for both principals and brokers lies with:

Accepted Answer

The responsibility for the activities of all personnel engaged in dealing for both principals and brokers lies with the management of such organizations. Ultimately, it is the responsibility of senior management to ensure that all staff are properly trained and monitored to ensure compliance with regulations and ethical standards. The market supervisor, national ACI association, and central bank may have roles in regulating and overseeing the activities of financial institutions, but the primary responsibility lies with the management of those institutions.

Question 12

You request use of funds from your agent bank for 1 day on an amount of EUR 100,000,000.00, EONIA was 0.812% and the ECB deposit facility rate is 0.50%. What use of funds settlement amount should you expect?

Accepted Answer

The use of funds settlement amount can be calculated as follows:
(100,000,000 x (0.812% - 0.50%)) / 365 = 1,561.11 EUR
Therefore, the answer is B.

Question 13

Which one of the following statements is true?

Accepted Answer

Brokers should only reveal the names of their bank counterparties if they are dealing with counterparties who are serious about completing the transaction. This is because the reputation and stability of the bank is important to consider when entering into a transaction. Counterparties who do not display a serious intention to transact may not be able to perform on their obligations, which can be risky for both parties. Therefore, brokers should ensure that both sides of the transaction have a genuine interest in completing the trade before revealing the names of their bank counterparties.

Question 14

When do bank participants have a duty to make absolutely clear whether the prices they are quoting are firm or merely indicative?

Accepted Answer

Bank participants have a duty to make it absolutely clear whether the prices quoted are firm or indicative always to avoid any confusion or misinterpretation. It is a fundamental principle of fair dealing in financial markets.

Question 15

A broker offers a dealer a financial incentive in the form of a price reduction to the previously agreed brokerage arrangements between the firms.

Accepted Answer

The answer of A broker offers a dealer a financial...

Question 16

When banks transact FX swaps, the spot price should be determined:

Accepted Answer

The answer of When banks transact FX swaps, the spot...

Question 17

How frequently should business contingency procedures be tested and updated?

Accepted Answer

Business contingency procedures should be tested and updated at least yearly to ensure they are current and effective in the event of an emergency or disruption.

Question 18

Which of the following is typical of liquid assets held by banks under prudential requirements?

Accepted Answer

The answer of Which of the following is typical of...

Question 19

Which of the following does the Model Code mention with regards to recording telephone conversations?

Accepted Answer

The Model Code mentions that the periods for which tapes and other records should be retained should reflect the way in which the terms and conditions of transactions have been agreed, and the duration of transactions. This means that the length of time recordings need to be kept will vary depending on the transaction and agreement. Option A is incorrect because counterparties and clients should be informed that conversations will be recorded. Option B is incorrect because the Model Code does not specify a specific length of time that tapes and other records should be kept for. Option D is incorrect because the Model Code emphasizes the importance of conducting business communication in a professional manner, rather than a casual manner.

Question 20

Which one of the following statements correctly describes the increased capital ratios that will come into effect under Basel III?

Accepted Answer

According to Basel III, the minimum tier 1 capital ratio is 6% and the minimum total capital ratio including the conservation buffer is 10.5%. Therefore, option D is the correct statement.

Exam 2: ACI Dealing Certificate-Part B