Question 1

You have quoted a Swiss customer spot USD/CHF as 1.3710-15, but he asks you to quote it as CHF/USD. What do you quote
A) 0.7291-94
B) 0.7294-91
C) 1.3710-15
D) None of these

Accepted Answer

To convert the quote from USD/CHF to CHF/USD, you take the reciprocal of each rate. So, 1/1.3715 = 0.7291 and 1/1.3710 = 0.7294, resulting in a quote of 0.7291-94.

Question 2

You have received a gift from a good friend who also happens to be your USD/YEN broker. Under such circumstances, the Model Code recommends that you should:
A) Always decline gifts.
B) Give the gift to charity.
C) Keep the gift.
D) Report the gift to management.

Accepted Answer

The Model Code recommends that any gifts received from a broker should be reported to management, even if they are from a friend. This helps to ensure transparency and prevent any perception of impropriety or favoritism. Options A and B are not necessarily required, but it is important to follow the guidance of the Model Code and report the gift to management. Keeping the gift without reporting it could lead to potential ethical issues.

Question 3

If 6-month EUR/AUD is quoted at 29/32, which of the following statements is correct?
A) EUR rates are higher than AUD rates in the 6-month
B) AUD rates are higher than EUR rates in the 6-month
C) There is a positive EUR yield curve
D) There is not enough information to decide

Accepted Answer

The quote 29/32 indicates that the forward points are positive, meaning the AUD interest rates are higher than the EUR interest rates for the 6-month period.

Question 4

What is the purpose of a long strangle option strategy?
A) To anticipate very low volatility in the price of
B) To anticipate moderately high volatility in the pr
C) To anticipate moderate volatility in the price of
D) To anticipate very high volatility in the price of

Accepted Answer

The purpose of a long strangle option strategy is to anticipate very high volatility in the price of an underlying asset. This strategy involves buying both a call option and a put option with the same expiration date but with different strike prices. By having both options, the investor can potentially profit from a significant price move in either direction. However, this strategy also involves higher costs due to purchasing two options.

Question 5

Banks have a fiduciary responsibility to ensure that clients have all necessary information to understand the transaction because this:
A) Will encourage clients to do more business.
B) Will help prevent potential litigation.
C) Will help banks sell sophisticated risk management
D) Is required by all regulators.

Accepted Answer

Banks have a fiduciary responsibility to act in the best interest of their clients and providing all necessary information helps prevent potential litigation. It is not primarily done to encourage clients to do more business or sell sophisticated risk management, although these might be secondary benefits. While regulators may require certain disclosures, this is not the primary motivation for the fiduciary responsibility.

Question 6

For which countrys currency is ZAR the ISO code?
A) Saudi Arabia
B) South Africa
C) Zimbabwe
D) Zambia

Accepted Answer

ZAR is the ISO code for the South African Rand, making option B the correct answer. Saudi Arabia's currency is the Saudi riyal (SAR), Zimbabwe's currency is the Zimbabwean dollar (ZWL), and Zambia's currency is the Zambian kwacha (ZMW).

Question 7

Which of the following would not constitute an event of market disruption under the Model Code?
A) The imposition of capital controls.
B) A major terrorist attack on a financial centre.
C) The failure of SWIFT.
D) Concerted central bank intervention.

Accepted Answer

Concerted central bank intervention is a common occurrence in the foreign exchange market and does not constitute a market disruption under the Model Code. The imposition of capital controls, a major terrorist attack on a financial center, and the failure of SWIFT are all events that can disrupt markets and are specifically mentioned as examples of market disruptions in the Model Code.

Question 8

Dealers should not conduct dealing activities outside the bank unless:
A) Clear written guidelines issued by management are
B) They are in an approved brokers office.
C) There are on holiday.
D) None of the above.

Accepted Answer

Dealers should not conduct dealing activities outside the bank unless clear written guidelines issued by management are available to ensure regulatory compliance and risk management. Choices B and C are not relevant or practical criteria for determining whether dealers can conduct dealing activities outside the bank.

Question 9

Bank participants have a duty to make it clear that their prices are firm or merely indicative:
A) Only if they are dealing with brokers.
B) Only if they are dealing in a fast moving market.
C) Only if the amount is not marketable.
D) At all times.

Accepted Answer

Bank participants have a duty to make it clear whether their prices are firm or merely indicative at all times, regardless of the circumstance. This is important in maintaining transparency and ensuring fair transactions between parties.

Question 10

You are quoted the following market rates: spot EUR/CHF 1.1005 6M (180-day) EUR 3.45% 6M (180-day) CHF 1.25% What are the 6-month EUR/CHF forward points?
A) +121
B) +120
C) -116
D) -119

Accepted Answer

The answer of You are quoted the following market rates:...

Question 11

You are quoted spot NZD/USD 0.6821-28 and USD/CHF 1.4652-56, at what price can you buy CHF against NZD?
A) 0.9993
B) 1.0006
C) 1.0007
D) 0.9994

Accepted Answer

The answer of You are quoted spot NZD/USD 0.6821-28 and...

Question 12

The Model Code strongly recommends that intra-day oral deal checks should:
A) Be conducted out at the end of the morning and aft
B) Be only be conducted after the close of business.
C) Be mutually agreed between the bank and the broker
D) Be the responsibility of the broker.

Accepted Answer

Intra-day oral deal checks should be mutually agreed between the bank and the broker to ensure accuracy and prevent misunderstandings.

Question 13

One of your brokers asks you to buy and sell EUR/USD at the same price net of brokerage in order to allow him to clear a transaction.
A) You must have prior senior management approval.
B) You must have the authority to switch names.
C) You must execute such transactions as promptly as
D) All of the above.

Accepted Answer

All of the above are necessary requirements for executing the requested transaction. Prior senior management approval is necessary to ensure compliance with regulations and company policies. The authority to switch names may be necessary if the broker is seeking anonymity in the transaction. Prompt execution is necessary to ensure the transaction is cleared in a timely manner.

Question 14

If the value date of forward USD/JPY transactions is declared a holiday in either New York or Tokyo, the correct value date will be:
A) The value date of the centre which is open.
B) The next business day of the centre which is close
C) The next business day when both New York and Tokyo
D) None of the above.

Accepted Answer

The correct value date for forward USD/JPY transactions is the next business day when both New York and Tokyo are open, ensuring that both financial centers are operational for the transaction.

Question 15

How can material divergences between the value of cash and collateral be managed in a documented sell/buy-back?
A) Margin maintenance
B) Re-pricing
C) Either of the above, but usually (a)
D) Either of the above, but usually (b)

Accepted Answer

The answer of How can material divergences between the value...

Question 16

Bank B's price is shown by a broker
A) Bank A can call Bank B directly.
B) Bank A should wait 10 minutes before calling Bank
C) Bank A cannot increase the amount.
D) Bank A should go back to the broker .

Accepted Answer

The answer of Bank B's price is shown by a...

Question 17

Cable is quoted at 1.6075-80 and you say "5 yours!" to the broker. What have you done?
A) Sold USD 5 million at 1.6075
B) Sold GBP 5 million at 1.6075
C) Bought GBP 5 million at 1.6080
D) Bought USD 5 million at 1.6080

Accepted Answer

"5 yours!" is a slang term used in the foreign exchange market which means "I'm selling 5 million of yours" (referring to the currency being quoted second in the currency pair). In this case, the currency being quoted second is GBP, so by saying "5 yours!" the trader is selling 5 million GBP at the bid price of 1.6075. Therefore, the correct answer is B - Sold GBP 5 million at 1.6075.

Question 18

From the following GBP deposit rates: 1M (31-day) GBP deposits3.15% 2M (61-day) GBP deposits3.25% 3M (91-day) GBP deposits3.41% 4M (120-day) GBP deposits3.56% 5M (152-day) GBP deposits3.73% 6M (182-day) GBP deposits3.90% calculate the 3x4 forward-forward rate.
A) 3.410%
B) 3.977%
C) 3.996%
D) 3.997%

Accepted Answer

The 3x4 forward-forward rate is calculated using the formula: [(1 + 4M rate * (120/360)) / (1 + 3M rate * (91/360))]^(360/29) - 1. Plugging in the given rates, the calculation results in approximately 3.997%.

Question 19

You buy a 181-day 2.75% CD with a face value of USD 1,500,000 at par when it is issued. You sell it in the secondary market after 150 days at 2.60%. What is your holding period yield?
A) 2.60%
B) 2.75%
C) 2.775%
D) 2.813%

Accepted Answer

The answer of You buy a 181-day 2.75% CD with...

Question 20

Using the following rates: spot GBP/CHF 2.3785-15 spot CHF/SEK 5.5975-85 3M GBP/SEK swap 725/690 What is the price for 3-month outright GBP/SEK?
A) 13.3860-13.4020
B) 13.2435-13.2615
C) 13.2412-13.2638
D) 13.2445-13.2605

Accepted Answer

To calculate the outright rate, we can use the cross rate formula:
GBP/SEK = (GBP/CHF) x (CHF/SEK)

Taking the bid side of each rate:
GBP/CHF = 2.3785
CHF/SEK = 5.5975
Therefore, GBP/SEK = 2.3785 x 5.5975 = 13.3363

To calculate the 3M GBP/SEK outright rate, we use the 3M GBP/SEK swap points. The 3M GBP/SEK swap points are 725/690, which means the market is pricing in a premium for GBP over SEK.

We can calculate the 3M outright rate as follows:
Outright = Spot + Swap points/10,000 x (1+(360/T))
where T is the number of days in the underlying deposit rate period (we assume 360 days for simplicity).

Using the bid side of the rates, we get:
Spot GBP/SEK = 13.3363
Swap points = 690
T = 90 (since it is a 3-month swap rate)
Outright = 13.3363 + 0.0690 x (1 + (360/90)) = 13.2638

So the answer is C) 13.2412-13.2638 since the swap points imply a bid-ask spread on the outright rate, hence the answer can not be as narrow as A) or D), and the answer can't be as wide as B).

Exam 1: ACI Dealing Certificate-Part A

You have quoted a Swiss customer spot USD/CHF as 1.3710-15, but he asks you to quote it as CHF/USD. What do you quote

You have received a gift from a good friend who also happens to be your USD/YEN broker. Under such circumstances, the Model Code recommends that you should:

If 6-month EUR/AUD is quoted at 29/32, which of the following statements is correct?

What is the purpose of a long strangle option strategy?

Banks have a fiduciary responsibility to ensure that clients have all necessary information to understand the transaction because this:

For which countrys currency is ZAR the ISO code?

Which of the following would not constitute an event of market disruption under the Model Code?

Dealers should not conduct dealing activities outside the bank unless:

Bank participants have a duty to make it clear that their prices are firm or merely indicative:

You are quoted the following market rates: spot EUR/CHF 1.1005 6M (180-day) EUR 3.45% 6M (180-day) CHF 1.25% What are the 6-month EUR/CHF forward points?

You are quoted spot NZD/USD 0.6821-28 and USD/CHF 1.4652-56, at what price can you buy CHF against NZD?

The Model Code strongly recommends that intra-day oral deal checks should:

One of your brokers asks you to buy and sell EUR/USD at the same price net of brokerage in order to allow him to clear a transaction.

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

How can material divergences between the value of cash and collateral be managed in a documented sell/buy-back?

Bank B's price is shown by a broker

Cable is quoted at 1.6075-80 and you say "5 yours!" to the broker. What have you done?

From the following GBP deposit rates: 1M (31-day) GBP deposits3.15% 2M (61-day) GBP deposits3.25% 3M (91-day) GBP deposits3.41% 4M (120-day) GBP deposits3.56% 5M (152-day) GBP deposits3.73% 6M (182-day) GBP deposits3.90% calculate the 3x4 forward-forward rate.

You buy a 181-day 2.75% CD with a face value of USD 1,500,000 at par when it is issued. You sell it in the secondary market after 150 days at 2.60%. What is your holding period yield?

Using the following rates: spot GBP/CHF 2.3785-15 spot CHF/SEK 5.5975-85 3M GBP/SEK swap 725/690 What is the price for 3-month outright GBP/SEK?