Deck 2: ACI Dealing Certificate-Part B

Question 1

The tom/next GC repo rate for German government bonds is quoted to you at 1.75-80%. As collateral, you sell EUR 10,000,000.00 nominal of the 5.25% Bund July 2012, which is worth EUR 11,260,000.00, with no initial margin. The Repurchase Price is:

A) EUR 10,000,500.00
B) EUR 10,000,486.11
C) EUR 11,260,563.00
D) EUR 11,260,547.36

Answer 1

C

Question 2

You have taken 3-month (92 days) deposits of CAD 12,000,000.00 at 1.10% and CAD 6,000,000.00 at 1.04%. Minutes later, you quote 3-month CAD 1.09-14% to another bank. The other dealer takes the CAD 18,000,000.00 at your quoted price. What is your profit or loss on this deal?

A) CAD 2,722.19
B) CAD 460.00
C) CAD 3,220.00
D) CAD 2,760.00

Answer 2

D

Question 3

A CD with a face value of EUR 10,000,000.00 and a coupon of 3% was issued at par for 182 days and is now trading at 3.10% with 120 days remaining to maturity. What has been the capital gain or loss since issue?

A) -EUR 52,161.00
B) -t-EUR 47,839.00
C) -EUR 3,827.67
D) Nil

Answer 3

C

Question 4

Which of the following currencies is quoted on an ACT/360 basis in the money market?

A) SGD
B) PLN
C) GBP
D) NZD

Question 5

Which of the following is not a negotiable instrument?

A) CD
B) FRA
C) BA
D) ECP

Question 6

What is the maximum maturity of an unsecured USCP?

A) One year
B) 270 days
C) 183 days
D) 5 years

Question 7

You have quoted spot USD/CHF at 0.9423-26. Your customer says "I take 5". What does he mean?

A) He buys CHF 5,000,000.00 at 0.9423
B) He buys CHF 5,000,000.00 at 0.9426
C) He buys USD 5,000,000.00 at 0.9423
D) He buys USD 5,000,000.00 at 0.9426

Question 8

Which party usually takes an initial margin in a classic repo?

A) The buyer
B) The seller
C) Neither
D) Both

Question 9

If EUR/USD is quoted to you as 1.3050-53, does this price represent?

A) The number of EUR per USD
B) The number of USD per EUR
C) Depends on whether the price is being quoted in Europe or the US
D) Depends on whether the price is being quoted interbank or to a customer

Question 10

Are the forward points significantly affected by changes in the spot rate?

A) Never
B) For very large movements and longer terms
C) Always
D) Spot is the principal influence

Question 11

The tom/next GC repo rate for German government bonds is quoted to you at 1.75-80%. As collateral, you sell EUR 10,000,000.00 million nominal of the 5.25% Bund July 2012, which is worth EUR 11,260,000.00. If you have to give an initial margin of 2%, the Repurchase Price is:

A) EUR 11,035,336.41
B) EUR 11,035,351.74
C) EUR 11,039,752.32
D) EUR 11,039,767.65

Question 12

Which of the following is a Eurocurrency deposit?

A) A 3-month deposit of USD 10,000,000.00 offered by a US bank in New York
B) A 3-month deposit of USD 10,000,000.00 offered by the US branch of a UK bank in New York
C) A 3-month deposit of USD 10,000,000.00 offered by a US bank in London
D) A 3-month deposit of GBP 10,000,000.00 offered by the UK branch of a US bank in London

Question 13

What is the amount of the principal plus interest due at maturity on a 1-month (32-day) deposit of USD 50,000,000.00 placed at 0.37%?

A) EUR 50,015,416.67
B) EUR 50,016,219.18
C) EUR 50,016,444.44
D) EUR 50,016,958.33

Question 14

What happens when a coupon is paid on bond collateral during the term of a classic repo?

A) Nothing
B) A margin call is triggered on the seller
C) A manufactured payment is made to the seller
D) Equivalent value plus reinvestment income is deducted from the repurchase price

Question 15

The seller of a EUR/RUB NDF could be:

A) a potential buyer of EUR against RUB
B) speculating on an appreciation of the Russian Rouble
C) expecting rising EUR/RUB exchange rates
D) a seller of Russian Rouble

Question 16

What are the primary reasons for taking an initial margin in a classic repo?

A) Counterparty risk and operational risk
B) Counterparty risk and legal risk
C) Collateral illiquidity and counterparty risk
D) Collateral illiquidity and legal risk

Question 17

How many GBP would you have to invest at 0.55% to be repaid GBP 2,000,000.00 (principal plus interest) in 90 days?

A) GBP 1,997,253.78
B) GBP 1,997,291.34
C) GBP 1,997,287.67
D) GBP 1,997,250.00

Question 18

Today's spot value date is the 30th of June. What is the maturity date of a 2-month EUR deposit deal today? Assume no bank holidays.

A) 27th August
B) 30th August
C) 31st August
D) 1 September

Question 19

A 7% CD was issued at par, which you now purchase at 6.75%. You would expect to pay:

A) The face value of the CD
B) More than the face value
C) Less than the face value
D) Too little information to decide

Question 20

Which of the following CHF/JPY quotes that you have received is the best rate for you to buy CHF?

A) 105.80
B) 105.75
C) 105.70
D) 105.85

Question 21

Which of the following is true?

A) The 3-month EURODOLLAR futures contract has a basis point value of USD 50.00 and a face value of USD 1,000,000.00
B) The 3-month EURIBOR futures contract has a a basis point value of EUR 12.50 and a face value of EUR 500,000.00
C) The 3-month Sterling (SHORT STERLING) futures contract has a a basis point value of GBP 12.50 and a face value of GBP 500,000.00
D) The 3-month Euro Swiss Franc (EUROSWISS) futures contract has a a basis point value of CHF 50.00 and a face value of CHF 2,000,000.00

Question 22

A "time option" is an outright forward FX transaction where the customer:

A) has the option to fulfill the outright forward or not at maturity
B) may freely choose the maturity, given a 24-hour notice to the bank
C) can choose any maturity within a previously fixed period
D) may decide to deal at the regular maturity or on either the business day before or after

Question 23

A 12-month EUR/USD swap is quoted at 41/44. EUR interest rates are expected to fall, with USD interest rates remaining stable. Assuming no change in the spot rate what effect would you expect on the forward points?

A) Unchanged
B) Move towards 28/31
C) Move towards 5 7/60
D) Insufficient information

Question 24

You are quoted the following market rates: spot USD/SEK 6.3850 1M (30-day) USD 0.40% 1M (30-day) SEK 1.15% What is 1-month USD/SEK?

A) 6.4250
B) 6.3810
C) 6.7850
D) 6.3890

Question 25

You have a short position of 50 EURODOLLAR futures contracts. You can hedge your position by:

A) Selling a FRA for a similar notional amount
B) Buying a FRA for a similar notional amount
C) Selling a call option on the contract
D) Selling a put option on the contract

Question 26

Which of the following is true?

A) The 3-month Sterling (SHORT STERLING) futures contract has a basis point value of GBP 25.00 and a face value of GBP 1,000,000 .00
B) The EUROYEN TIBOR futures contract has a basis point value of JPY 25,000 and a face value of JPY 1,000,000,000
C) The CME EURODOLLAR futures contract has a minimum price interval of one-quarter basis point value (0.0025) for the nearest contract
D) The 3-month EURIBOR futures contract has a minimum price interval of half a basis point value (0.0050) for the nearest contract

Question 27

As far as fineness and weight are concerned, what are the London Bullion Market Association (LBMA) requirements for a "good delivery bar"?

A) at least 995/1000 pure gold; weight between 350 and 430 fine ounces
B) minimum 999.9/1000 pure gold; weight between 350 and 430 fine ounces
C) at least 995/1000 pure gold; weight of 400 fine ounces
D) minimum 995/1000 pure gold; weight of 400 fine ounces

Question 28

The mid-rate for USD/CHF is 0.9300 and the mid-rate for NZD/USD is 0.8560. What is the mid rate for NZD/CHF?

A) 0.7961
B) 1.0864
C) 1.7860
D) 1.2561

Question 29

Assuming a flat yield curve in both currencies, when quoting a 1- to 2-month forward FX time option price in a currency pair trading at a discount to a customer:

A) you would take as bid rate the bid side of the 2-month forward and as offered rate the offered side of the 1-month forward
B) you would take as bid rate the offered side of the 2-month forward and as offered rate the bid side of the 1-month forward
C) you would take as bid rate the offered side of the 1-month forward and as offered rate the offered side of the 2-month forward
D) you would take as bid rate the bid side of the 1-month forward and as offered rate the bid side of the 2-month forward

Question 30

What is the Overnight Index for EUR?

A) EURIBOR
B) EONIA
C) EUREPO
D) EURONIA

Question 31

Which of the following is true about interest rate swaps (IRS):

A) Both parties know what their future payments will be at the outset of the swap
B) There is payment of principal at maturity
C) Payments are always made gross
D) The fixed rate payer knows what his future payments will be at the outset of the swap

Question 32

If a dealer has a 6-month USD asset and a 3-month USD liability, how could he hedge his balance sheet exposure in the FRA market?

A) Buy 3x6
B) Sell 3x6
C) Buy 0x6
D) Sell 6x9

Question 33

EURODOLLAR futures are:

A) Traded on the Chicago Mercantile Exchange (CME Group) and have a face value of USD 500,000.00
B) Traded on the Intercontinental Exchange (ICE) and have a face value of USD 1,000,000.00
C) Traded on the Intercontinental Exchange (ICE) and have a face value of USD 500,000.00
D) Traded on the Chicago Mercantile Exchange (CME Group) and have a face value of USD 1,000,000.00

Question 34

If spot AUD/USD is quoted to you as 1.0420-25 and 1-month forward AUD/USD is quoted to you as 28/23, at what rate can you buy USD 1-month outright?

A) 1.0448
B) 1.0402
C) 1.0397
D) 1.0392

Question 35

You bought a CAD 8,000,000.00 6x9 FRA at 1.95%. The settlement rate is 3-month (90-day) BBA LIBOR, which is fixed at 0.9500%. What is the settlement amount at maturity?

A) You pay CAD 20,000.00
B) You receive CAD 20,000.00
C) You pay CAD 19,952.61
D) You receive CAD 19,952.61

Question 36

Clients of a voice-broker quote EUR/USD at 1.3556-61, 1.3559-62, 1.3557-63 and 1.3555-59. What will be the broker's price?

A) 1.3559 choice
B) 1.3555-63
C) 1.3559-62
D) 1.3556-59

Question 37

Lending for 3 months and borrowing for 6 months creates a 3x6 forward-forward deposit. The cost of that deposit is called:

A) Implicit nominal rate
B) Implied forward rate
C) Funding rate
D) Effective future rate

Question 38

You quote a customer spot AUD/USD at 1.0350-55. The T/N swap is quoted to you at 3/2. The customer asks to buy USD for value tomorrow. What rate should you quote him to break-even against the other rates?

A) 1.0352
B) 1.0353
C) 1.0347
D) 1.0348

Question 39

You quote a customer a spot cable 1.6050-55 in USD 3,000,000.00. If they sell USD to you, how much GBP will you be short of?

A) 4,816,500.00
B) 1,869,158.88
C) 1,868,57677
D) 4,815,000.00

Question 40

Basis risk on a futures contract is:

A) The risk of an adverse change in the futures price
B) The risk of an adverse change in the spread between futures and cash prices
C) The progressive illiquidity of a futures contract as it approaches expiry
D) The risk of a divergence between the futures price and the final fixing of the underlying interest rate

Question 41

Supervisors would generally consider interest rate risk exposure in the banking book excessive beginning at what level of losses given a +1- 200 bps market rate movement?

A) > 2% of 6 months forward earnings
B) > 20% of regulatory capital
C) <10% of regulatory capital
D) < 5% of 12 months forward earnings

Question 42

The vega of an option is:

A) The sensitivity of the option value to changes in interest rates
B) The sensitivity of the option value to changes in implied volatility
C) The sensitivity of the option value to changes in the time to expiry
D) The sensitivity of the option value to changes in the price of the underlying

Question 43

What is a 'duration gap'?

A) the average maturity of liabilities on a balance sheet
B) the difference between the duration of assets and liabilities
C) the difference between the duration of the longest-held and shortest-held liabilities on the balance sheet
D) the average maturity of the portfolio on the asset side of a balance sheet

Question 44

Which of the following is a function of asset and liability management (ALM)?

A) coordinated limit management of a financial institution's credit portfolio
B) running a matched trading book
C) monitoring credit quality of assets and establishing a early warning system
D) managing the financial risk of the bank by protecting it from the adverse effects of changing interest rates

Question 45

Which one of the following statements is incorrect? Hedge accounting of an existing position no longer applies when:

A) the trader acquires additional exposure in the hedged item.
B) the hedging instrument is sold, terminated or exercised.
C) the hedged item is sold or settled.
D) a hedge fails the effectiveness test.

Question 46

The exercise price in an option contract is:

A) The price of the underlying instrument at the time of the transaction
B) The price at which the transaction on the underlying instrument will be carried out if and when the option is exercised
C) The price the buyer of the option pays to the seller when entering into the options contract
D) The price at which the two counterparties can close-out their position

Question 47

An option is:

A) The right to buy or sell a commodity at a fixed price
B) The right to buy a commodity at a fixed price
C) The right but not the obligation to buy or sell a commodity at a fixed price
D) The right but not the obligation to buy a commodity at a fixed price

Question 48

A corporate wishing to hedge the interest rate risk on its floating-rate borrowing would:

A) Sell interest rate caps
B) Sell futures
C) Sell FRAs
D) Buy futures

Question 49

The market is quoting: 6-month (182-day) CAD 1.25% 12-month (366-day) CAD 1.55% What is the 6x12 rate in CAD?

A) 0.300%
B) 0.946%
C) 1.935%
D) 1.835%

Question 50

Which of the following methods is a means of credit risk mitigation?

A) entering into a plain vanilla IRS
B) entering into collateral agreements
C) hedging a portfolio's USD exposure
D) investing only in sizeable and liquid markets

Question 51

Which of the following statements is correct?

A) Unilateral collateral obligations to sovereign counterparties provide liquidity to banks.
B) Under Basel III commercial banks are most likely to incur lower costs to service their sovereign clients.
C) While banks usually do not call for collateral from sovereign counterparties, they must provide collateral for the offsetting hedge transactions which are undertaken with commercial counterparties.
D) Uncollateralised exposures to sovereign counterparties will not require additional regulatory capital to be set aside against potential credit losses

Question 52

Which one of the following statements about interest rate movements is true?

A) An upward parallel shift of interest rates will cause a loss of income if the rate-sensitivity of a bank's liabilities is higher than the rate-sensitivity of its assets.
B) A bank will lose income if it has more rate-sensitive liabilities than rate-sensitive assets.
C) Falling interest rates will always result in mark-to-market profits on short positions in fixed rate securities.
D) Rising interest rates can result in mark-to-market losses on fixed-rate assets.

Question 53

Which statement about modern matched-maturity transfer pricing in banks is correct?

A) It is now a widely accepted standard that banks should use a single representative transfer price across the entire maturity spectrum.
B) Modern matched-maturity pricing systems include an additional liquidity surcharge that is specifically applied to more liquid short maturities.
C) Matched-maturity transfer prices should represent a weighted average cost of capital that incorporates the cost of equity into the cost of borrowed funds.
D) Modern matched-maturity systems differentiate transfer prices by the maturity of the commitment and also apply a marginal funding cost perspective.

Question 54

The major risk to the effectiveness of netting is:

A) Credit risk
B) Settlement risk
C) Liquidity risk
D) Legal risk

Question 55

A put option is 'out-of-the-money' if:

A) Its strike price is higher than the current market price of the underlying commodity
B) If the current market price of the underlying commodity is higher than the strike price of the option
C) Its strike price is equal to the current market price of the underlying commodity
D) If the current market price of the underlying commodity is lower than the strike price of the option

Question 56

An 'at-the-money' option has:

A) Intrinsic value but no time value
B) Time value but no intrinsic value
C) Both time value and intrinsic value
D) Neither time value nor intrinsic value

Question 57

Under Basel rules, what is the meaning of EEPE?

A) Effective Expected Potential Exposure
B) Effective Expected Positive Exposure
C) Effective Expected Price Earning
D) Effective Expected Payment Exposure

Question 58

Which of the following scenarios offer an example of wrong way risk?

A) A bank purchases credit protection on highly-rated tranches of US mortgage-backed securities from a US mortgage bank
B) A bank sells protection on the iTraxx main index at a level of 25 bps and shortly afterwards the index crosses the 200 bps level
C) A bank sells EUR put I USD call ATM options with an expiry date of 6 months and afterwards volatility moves up to substantially higher levels
D) A bank enters into a receiver's swap while interest rates are increasing

Question 59

Which of the following transactions would have the effect of lengthening the average duration of assets in the banking book?

A) buying futures contracts on 30-year German Government bonds
B) selling futures contracts on 30-year German Government bonds
C) buying put options on 30-year German Government bonds
D) buying a 3x6 forward rate agreement

Question 60

The seller of a put option has:

A) Substantial opportunity for gain and limited risk of loss
B) Substantial risk of loss and substantial opportunity for gain
C) Limited risk of loss and limited opportunity for gain
D) Substantial risk of loss and limited opportunity for gain

Question 61

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:

A) the value date of the financial centre that is open
B) the next business day of the financial centre which is closed
C) the next business day when both New York and Tokyo are open
D) the previous business day when both New York and Tokyo are open

Question 62

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

A) Profiles for functions are encouraged and should be reviewed semi-annually by a manager.
B) Developers should have unrestricted access to production systems.
C) Access to production systems should be rigorously controlled.
D) Users should not have access to change system functionalities.

Question 63

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

A) A loss of at least EUR 2,000,000.00 can be expected in 97 out of the next 100 days.
B) A loss of at most EUR 2,000,000.00 can be expected in 3 out of the next 100 days.
C) A loss of at least EUR 2,000,000.00 can be expected in 3 out of the next 100 days.
D) A loss of at most EUR 2,000,000.00 can be expected in 6 out of the next 100 days.

Question 64

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

A) a term the quoting dealer uses to caution the receiver of the quote that the price may have to be re-quoted at the receiver's risk
B) the qualification that the rate quoted in the market may no longer be valid and requires confirmation before any trades can be agreed upon
C) the statement that the rates quoted by the broker are for indication only
D) an acknowledgement by the dealer receiving the quote that the rate may have to be re-quoted at the receiver's risk

Question 65

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

A) it reduces operational risk
B) it splits differences arising from failed settlement between the two counterparties
C) it removes the need for sending out SWIFT confirmations
D) the use of SSI's secures the trading on more secure platforms

Question 66

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?

A) beta
B) gamma
C) delta
D) theta

Question 67

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

A) at least two months
B) one year
C) up to one month
D) at least three months

Question 68

Which of the following statements is true?

A) Prices quoted by brokers should be taken to be firm in marketable amounts unless otherwise qualified
B) Prices quoted by brokers should be taken to be indicative in marketable amounts unless otherwise qualified
C) Prices quoted by brokers should be taken to be firm in amounts of 1,000,000.00 of the quoted currency unless otherwise qualified
D) Prices quoted by brokers should be taken to be indicative in amounts of 1,000,000.00 of the base currency unless otherwise qualified

Question 69

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

A) By agreement between the two counterparties, the trade must be cancelled as soon as practically possible since a rate amendment is prohibited.
B) By agreement between the two counterparts, the trade should, as soon as practically possible, either be cancelled or have its rate amended to an appropriate market rate.
C) The off-market rate should be adjusted as soon as possible to the appropriate current market rate and a new authenticated SWIFT confirmation sent immediately to the counterparty.
D) Nothing need be done, since once a trade is agreed to by the front office it is a binding agreement for both counterparties.

Question 70

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?

A) Hybex should become a payer of a fixed rate on a swap against receipt of LIBOR.
B) Hybex should become a receiver of a floating rate on a swap against payment of a fixed rate
C) Hybex should become a receiver of a fixed rate on a swap against payment of LIBOR D.
D) Hybex should become a receiver of a floating rate on a swap against payment of LIBOR

Question 71

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

A) the market supervisor
B) the national ACI association
C) the management of such organizations
D) the central bank

Question 72

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?

A) EUR 1,388,89
B) EUR 1,561.11
C) EUR 2,255.56
D) EUR 2,951.39

Question 73

Which one of the following statements is true?

A) Brokers should only show the names of banks to counterparties who have prime credit ratings.
B) Brokers should only show the names of banks to counterparties who provide good liquidity to the brokered market.
C) Brokers should only show the names of banks to counterparties whom they know well.
D) Brokers should only show the names of bank counterparties if both sides display a serious intention to transact

Question 74

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

A) only if they are dealing with brokers
B) only if dealing on an e-trading platform
C) only if they are dealing in non-marketable amounts
D) always

Question 75

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

A) This is considered as a normal discount for bulk business.
B) The offer should be agreed only by directors or senior management on each side and should be recorded in writing.
C) The offer should be expressly approved by both the individuals concerned and clearly recorded in writing.
D) The Model Code strongly discourages such practices.

Question 76

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

A) anytime after the swap is transacted
B) before the swap is transacted
C) immediately after the swap is transacted
D) no less than 24 hours after the completion of the swap

Question 77

How frequently should business contingency procedures be tested and updated?

A) quarterly tests I updates as needed
B) at least every second year
C) half-yearly tests / yearly updates
D) at least yearly

Question 78

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

A) prices increase during a systemic crisis
B) return on investment is relatively high
C) absence of active market makers
D) wide bid/offer spreads

Question 79

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

A) There is no need to inform new counterparties and clients that conversations will be recorded.
B) It is normal practice that tapes and other records should be kept for at least twelve months.
C) 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.
D) Dealers and other staff are reminded that telephones and electronic text messaging systems in the firm are intended for business and private use and that conversations and exchanges of text messages should be conducted in a casual manner.

Question 80

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

A) minimum tier 1 capital of 4.5% and minimum total capital plus a conservation buffer of 10.5%
B) minimum tier 1 capital of 6% and minimum total capital including conservation buffer of 8%
C) minimum tier 1 capital of 4% and minimum total capital including conservation buffer of 10.5%
D) minimum tier 1 capital of 6% and minimum total capital including conservation buffer of 10.5%