Question 1

It is June. You are over-borrowed from October to January on your deposit book. How would you hedge using FRAs?
A) Sell 3x6
B) Buy 3x6
C) Sell 4x7
D) Buy 4x7

Accepted Answer

The answer of It is June. You are over-borrowed from...

Question 2

3-month EUR/USD FX swaps are quoted to you at 8/12. If the "points are in your favor", what have you done?
A) Bought and sold 3-month EUR/USD through the swap
B) Sold and bought 3-month EUR/USD through the swap
C) Made the quote
D) Cannot say

Accepted Answer

When the points are in your favor, it means you have bought the base currency (EUR) and sold the quote currency (USD) through the swap.

Question 3

Complete the following sentence. If a bank has an asset repricing in 6 months funded by a liability repriced in 3 months:
A) the bank would benefit from higher interest rates
B) the bank could hedge this interest rate risk with a 3x6 derivative
C) the bank will make mark-to-market losses if rates decrease
D) the bank could hedge this interest rate risk by selling a 6x9 derivative

Accepted Answer

The answer of Complete the following sentence. If a bank...

Question 4

A bank borrowing USD for 12 months and lending them for 6 months creates:
A) Forward-forward loan
B) Forward-forward deposit
C) Negative gap
D) An over-lent position

Accepted Answer

The answer of A bank borrowing USD for 12 months...

Question 5

What is a short strangle option strategy?
A) A short call option + long put option with a higher strike price than the call option
B) A long call option + long put option with a lower strike price than the call option
C) A short call option + short put option with a lower strike price than the call option
D) A long call option + long put option with higher strike price than the call option

Accepted Answer

A short strangle option strategy involves selling both a call and put option with a lower strike price than the current market price, typically with the expectation that the underlying asset will remain within a certain price range. This results in a limited profit potential but a higher probability of success compared to other option strategies. Option A and D involve long options, while option B involves purchasing options with a higher strike price, which does not match the description of a short strangle.

Question 6

Which of the following statements about leverage ratios under Basel III is correct?
A) The leverage ratio is the ratio of the bank's Tier 1 Capital to total assets of the bank, excluding its off- balance sheet exposures and derivatives.
B) The purpose of introducing a leverage ratio is to avoid the build-up of excess leverage that could potentially lead to a "credit crunch" in stressed conditions.
C) The leverage ratio under Basel III must be higher than 4%.
D) The leverage ratio is the ratio of the bank's Tier 1 and Tier 2 Capital to total assets of the bank, including its off-balance sheet exposures and derivatives.

Accepted Answer

The purpose of introducing a leverage ratio is to avoid the build-up of excess leverage that could potentially lead to a "credit crunch" in stressed conditions.

Question 7

What is a short straddle option strategy?
A) A long call option + long put option with the same strike prices
B) A short call option + short put option with the same strike prices
C) A long call option + short put option with the same strike prices
D) A short call option + long put option with the same strike prices

Accepted Answer

A short straddle is a neutral options trading strategy that involves selling a call option and a put option with the same strike price and expiration date. This means the trader is betting that the underlying stock will not move significantly in either direction. Selling both options creates a limited profit potential, but unlimited risk if the stock moves significantly in either direction. The short straddle is best used in a market that is expected to remain relatively stable.

Question 8

A euro zone-based bank that is asset-sensitive to market interest rate changes might reduce interest rate risk by:
A) entering into a pay fixed I receive variable standard interest rate swap
B) entering into a receive fixed I pay variable standard interest rate swap
C) entering into a pay fixed / receive variable amortizing interest rate swap
D) entering into a GBP/USD FX swap

Accepted Answer

Entering into a receive fixed I pay variable standard interest rate swap will allow the bank to receive a fixed interest rate and pay a variable interest rate, which would reduce its exposure to changes in market interest rates. The bank would receive a fixed interest rate that would offset any decrease in the value of its assets due to falling market interest rates.

Question 9

EUR/USD is 1.3080-83 and EUR/CHF is 1.2160-63. What price would you quote to a customer who wishes to sell CHF against USD?
A) 1.0759
B) 0.9299
C) 1.5909
D) 0.9295

Accepted Answer

The answer of EUR/USD is 1.3080-83 and EUR/CHF is 1.2160-63....

Question 10

What is interest rate immunization in the context of bank gap management?
A) the strategy of holding more interest rate sensitive assets than interest rate sensitive liabilities
B) the strategy of holding fewer interest rate sensitive assets than interest rate sensitive liabilities
C) reducing the size of the balance sheet
D) structuring a bank's portfolio so that its net interest revenue and/or the market value of its portfolio will not be adversely affected by changes in interest rates

Accepted Answer

The answer of What is interest rate immunization in the...

Question 11

A futures clearing house is:
A) The buyer to each seller and the seller to each buyer
B) A clearing agent only
C) The self-regulatory organization for the futures exchange
D) The owner of the futures exchange

Accepted Answer

A futures clearing house acts as the buyer to each seller and the seller to each buyer, ensuring the integrity and stability of the futures market by managing counterparty risk.

Question 12

You are paying 5% 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 4.95%. You expect 6-month LIBOR in 6 months to fix at 5.25%, in 12 months at 5.35% and in 18 months at 5.40%. What do you expect the net settlement amounts to be over the next 2 years? Assume 30-day months.
A) Pay 250.00, receive 1,250.00, receive 1,750.00, receive 2,000.00
B) Receive 250.00, pay 1,250.00, pay 1,750.00, pay 2,000.00
C) Pay 2,500.00, receive 12,500.00, receive 17,500.00, receive 20,000.00
D) Receive 2,500.00, pay 12,500.00, pay 17,500.00, pay 20,000.00

Accepted Answer

The answer of You are paying 5% per annum paid...

Question 13

If you are trading spot on an ATS (Automated Trading System) and see a price for EUR/USD of 1.3050-53. If you hit the button marked "YOURS", what have you done?
A) Bought EUR at 1.3053
B) Bought USD at 1.3053
C) Sold EUR at 1.3050
D) Sold USDatl.3050

Accepted Answer

Hitting the button marked "YOURS" means that you are accepting the sell price of 1.3050, which means you are selling EUR at that price.

Question 14

A Eurodollar futures price of 99.685 implies:
A) A forward-forward rate of 0.685%
B) A forward-forward rate of 0.315%
C) Current 3-month LIBOR of 0.6850%
D) Current 3-month LIBOR of 0.3150%

Accepted Answer

A Eurodollar futures price of 99.685 implies a 3-month LIBOR rate of 100 - 99.685 = 0.315%. Therefore, the forward-forward rate would be the expected 3-month LIBOR rate minus the current 3-month LIBOR rate, which is 0% since it is the same date. Thus, the correct answer is B.

Question 15

You sold a JPY 500,000,000 1x12 FRA at 0.35%. The settlement rate is 11-month (334-day) JPY LIBOR, which is fixed at 0.4450%. What is the settlement amount at maturity?
A) You pay JPY 440,694
B) You receive JPY 440,694
C) You pay JPY 438,882
D) You receive JPY 438,882

Accepted Answer

The settlement amount at maturity can be calculated as follows:
JPY 500,000,000 x (0.4450% - 0.35%) x (334/365) = JPY 438,882
Since you sold the FRA, you will be paying the settlement amount at maturity, therefore the correct choice is C) You pay JPY 438,882.

Question 16

The forward points are calculated using:
A) The level of interest rates in the base currency
B) The level of interest rates in the quoted currency
C) The interest rates in the two currencies
D) Your expectations of the future spot rate

Accepted Answer

The forward points are calculated based on the difference between the interest rates in the two currencies being traded. This difference in interest rates reflects the cost of borrowing one currency to buy another, and is therefore used to determine the forward exchange rate. The other options may affect the determination of the forward exchange rate, but they are not directly used in calculating the forward points.

Question 17

If spot NZD/CHF is quoted to you as 0.7406-09. How many NZD would you receive in exchange for CHF 5,000,000.00 if you dealt on the price?
A) 3,704,500.00
B) 6,748,549.06
C) 3,703,000.00
D) 6,751,282.74

Accepted Answer

To calculate the amount of NZD received, we need to divide the CHF 5,000,000.00 by the bid price of 0.7406.

NZD received = CHF 5,000,000.00 ÷ 0.7406 = NZD 6,748,549.06

Therefore, the correct answer is B.

Question 18

Today, you sold 10 December EURODOLLAR futures contracts at 99.50. The closing price is fixed by the exchange at 99.375. What variation margin will be due?
A) You will have to pay USD 312.50
B) You will receive USD 312.50
C) You will have to pay USD 3,125.00
D) You will receive USD 3,125.00

Accepted Answer

The answer of Today, you sold 10 December EURODOLLAR futures...

Question 19

The Liquidity Coverage Ratio (LCR) in Basel III:
A) is a new rule that compares liquid asset levels in banks to their available equity capital
B) spells out a modernized system for calculating the required minimum reserve that banks must hold at the central bank
C) compares liquid and reliably liquidating assets to expected cash outflows from specified run-off rates for various liability classes under a short-term stress scenario
D) tied directly into the internal ratings-based approach for determining the liquidity of credit-counterparties

Accepted Answer

The answer of The Liquidity Coverage Ratio (LCR) in Basel...

Question 20

An Overnight Indexed Swap (OIS) is:
A) A fixed-floating money market swap in which the floating rate is an overnight index fixed periodically over the term of the swap
B) A fixed-floating money market swap in which the floating rate is the mean of the overnight index over the term of the swap
C) A fixed-floating money market swap in which the floating rate is an overnight index compounded daily
D) A floating-for-floating rate swap in different currencies in which both floating rates are overnight indexes compounded daily

Accepted Answer

An Overnight Indexed Swap (OIS) is a fixed-floating money market swap in which the floating rate is an overnight index compounded daily. This means that the floating interest rate is calculated based on the daily compounded average overnight index rate. Choice A is partially correct, but not complete as it does not mention the compounding aspect. Choice B is not correct because the floating rate is not the mean of the overnight index, but rather the compounded average. Choice D is not correct because it involves two different currencies.

Exam 2: ACI Dealing Certificate-Part B

It is June. You are over-borrowed from October to January on your deposit book. How would you hedge using FRAs?

3-month EUR/USD FX swaps are quoted to you at 8/12. If the "points are in your favor", what have you done?

Complete the following sentence. If a bank has an asset repricing in 6 months funded by a liability repriced in 3 months:

A bank borrowing USD for 12 months and lending them for 6 months creates:

What is a short strangle option strategy?

Which of the following statements about leverage ratios under Basel III is correct?

What is a short straddle option strategy?

A euro zone-based bank that is asset-sensitive to market interest rate changes might reduce interest rate risk by:

EUR/USD is 1.3080-83 and EUR/CHF is 1.2160-63. What price would you quote to a customer who wishes to sell CHF against USD?

What is interest rate immunization in the context of bank gap management?

A futures clearing house is:

If you are trading spot on an ATS (Automated Trading System) and see a price for EUR/USD of 1.3050-53. If you hit the button marked "YOURS", what have you done?

A Eurodollar futures price of 99.685 implies:

You sold a JPY 500,000,000 1x12 FRA at 0.35%. The settlement rate is 11-month (334-day) JPY LIBOR, which is fixed at 0.4450%. What is the settlement amount at maturity?

The forward points are calculated using:

If spot NZD/CHF is quoted to you as 0.7406-09. How many NZD would you receive in exchange for CHF 5,000,000.00 if you dealt on the price?

Today, you sold 10 December EURODOLLAR futures contracts at 99.50. The closing price is fixed by the exchange at 99.375. What variation margin will be due?

The Liquidity Coverage Ratio (LCR) in Basel III:

An Overnight Indexed Swap (OIS) is: