Question 1

Lending for 3 months and borrowing for 6 months creates a 3x6 forward-forward deposit. The cost of that deposit is called:
A) Break-even rate
B) Implied rate
C) Forward-forward rate
D) All of the above

Accepted Answer

The answer of Lending for 3 months and borrowing for...

Question 2

The two-week repo rate for the 5.25% bund 2007 is quoted to you at 3.33-38%. You agree to reverse in bonds worth EUR 266,125,000 with no initial margin. You would earn repo interest of:
A) EUR 349,806
B) EUR 344,632
C) EUR 319,315
D) EUR 324,110

Accepted Answer

To calculate the earned repo interest, we need to use the following formula:

Interest = (Bonds value x Repo rate x Days) / 360

Days = 14 (two weeks)

Bonds value = EUR 266,125,000

Repo rate = (3.33 + 3.38) / 2 = 3.355%

Interest = (266125000 x 3.355 x 14) / 360 = EUR 344,632

Therefore, the answer is B.

Question 3

What is the maximum maturity of a London CD?
A) One year
B) 270 days
C) 183 days
D) 5 years

Accepted Answer

London CDs, or Euro CDs, can have maturities of up to 5 years.

Question 4

What is a master agreement intended to do?
A) Describe the parameters of a dealing relationship
B) Set out the rights and obligations of two parties
C) Apply to all transactions between two parties
D) All of the above

Accepted Answer

A master agreement is designed to describe the parameters of a dealing relationship and set out the rights and obligations of two parties. It is a comprehensive contract that applies to all transactions between the parties, providing a framework for future dealings.

Question 5

A CD with a face value of USD 250 million was issued at par with a coupon of 5% for 91 days. You buy it in the secondary market when it has 30 days remaining to maturity and is trading at 5.25%. How much do you pay?
A) USD 252,056,972.97
B) USD 252,028,916.32
C) USD 250,000,000.00
D) USD 248,911,014.31

Accepted Answer

The correct answer is A because the price of the CD can be calculated using the formula: Price = Face Value * (1 - (Coupon Rate * Days to Maturity / 360)) / (1 + (Yield to Maturity * Days to Maturity / 360)). Plugging in the given values, we get: Price = 250,000,000 * (1 - (0.05 * 30 / 360)) / (1 + (0.0525 * 30 / 360)) = 252,056,972.97.

Question 6

What is the Overnight Index for EUR?
A) EURIBOR
B) EONIA
C) Eurepo
D) TMP

Accepted Answer

The Overnight Index for EUR is EONIA (Euro OverNight Index Average). EONIA is the reference rate for overnight interbank lending in the eurozone and is calculated as a weighted average of the overnight lending rates of a panel of banks. EURIBOR (Euro Interbank Offered Rate) is a different reference rate that reflects the rates at which banks are willing to lend to each other for various periods, ranging from overnight to 12 months. Eurepo and TMP are not relevant to the overnight index for EUR.

Question 7

A 7% CD was issued recently, 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

Accepted Answer

When the interest rate on a CD decreases from 7% to 6.75%, the price of the CD increases above its face value because the fixed interest payments are more attractive compared to the current lower rate.

Question 8

When is interest conventionally due on a 3-year interbank eurodollar deposit?
A) At maturity
B) Annually
C) Semi-annually
D) Quarterly

Accepted Answer

The answer of When is interest conventionally due on a...

Question 9

Purchasing a USD/JPY call option is equivalent to:
A) Selling an JPY/USD put option
B) Selling a JPY/USD call option
C) Purchasing an JPY/USD put option
D) None of the above

Accepted Answer

Purchasing a USD/JPY call option is equivalent to purchasing a JPY/USD put option because both positions benefit from the appreciation of USD against JPY.

Question 10

Brokers should confirm all transactions:
A) Initially by fax or other acceptable electronic me
B) Only if the deal is between overseas counterpartie
C) Only if the transaction is not for a marketable am
D) To both counterparties immediately by fax or other

Accepted Answer

Brokers should confirm all transactions to both counterparties immediately by fax or other acceptable electronic means. This helps to ensure that both parties have a clear understanding of the transaction and reduces the risk of any misunderstandings or disputes arising later on. It is important to confirm all transactions, regardless of the size or nature of the deal, and regardless of whether the counterparties are based in the same country or overseas.

Question 11

Where dealing through an intermediary with an unidentified principal, the Model Code recommends:
A) It is good practice for compliance, legal or credi
B) Management should have in place a clear written po
C) Management needs to be aware of the risks involved
D) All of the above.

Accepted Answer

The Model Code recommends all of the above. It is good practice to have compliance, legal or credit involved when dealing with an unidentified principal through an intermediary, management should have a clear written policy in place, and they need to be aware of the risks involved in such transactions.

Question 12

A dealer needs to buy USD against SGD. Of the following rates quoted to him, which is the best rate for him?
A) 1.4323-28
B) 1.4320-25
C) 1.4315-20
D) 1.4318-23

Accepted Answer

The dealer wants to buy USD, so he should look for the highest bid rate. The bid rate is the first number in the pair, and 1.4315 is the highest among the given options.

Question 13

The Model Code recommends that when banks accept a stop-loss order:
A) Management must ensure ongoing lines of communicat
B) Management must report to the central bank.
C) Management allows only experienced dealers to take
D) Bank staff must secure the approval of the counter

Accepted Answer

The Model Code recommends that when banks accept a stop-loss order, management must ensure ongoing lines of communication with the counterparty to ensure that the order is properly executed and any issues are resolved in a timely manner. The other options, such as reporting to the central bank, limiting only experienced dealers, or requiring approval from the counterparty, are not mentioned in relation to accepting stop-loss orders in the Model Code.

Question 14

An option premium is a positive function of:
A) Time to expiry
B) The volatility of the price of the underlying comm
C) The moneyness of the option
D) All of the above

Accepted Answer

Option premium is influenced by all three factors - time to expiry, volatility of the underlying commodity, and moneyness of the option. Time to expiry determines the likelihood of the option being exercised, while volatility affects the expected price movement. Moneyness refers to the relationship between the strike price and spot price of the underlying commodity. Therefore, all three factors influence the option premium.

Question 15

The extension of forward FX contracts at their historic rates is only allowed when:
A) Prior management approval has been sought.
B) They are executed within six months.
C) They are extended for not more than one year.
D) All of the above.

Accepted Answer

The answer of The extension of forward FX contracts at...

Question 16

When dealing with customers, financial market professionals are advised by the Model Code to clarify that all transactions are entered into solely at each partys risk by explicitly agreeing in writing that:
A) The customer understands the structure of the tran
B) The customer has made its own assessment and indep
C) No fiduciary or advisory relationship exists betwe
D) All of the above.

Accepted Answer

All three options presented in the question (A, B, and C) are required by the Model Code for financial market professionals to clarify with customers. Therefore, the correct answer is D, all of the above.

Question 17

Making interest rate swap transactions subject to agreement on documentation:
A) Is recommended where the complications of the tran
B) Is strictly forbidden.
C) Is considered bad practice.
D) Must have senior management approval.

Accepted Answer

The answer of Making interest rate swap transactions subject to...

Question 18

A customer sells a LIFFE Euro Swiss futures contract. Which of the following risks could he be trying to hedge?
A) An increase in forward USD/CHF
B) Falling CHF interest rates
C) A decrease in forward USD/CHF
D) Rising CHF interest rates

Accepted Answer

The customer is selling a futures contract, which means they are taking a short position on the underlying asset, in this case, Euro/Swiss franc. By doing so, the customer is exposed to the risk of rising Swiss interest rates, which would result in a decrease in the value of the futures contract. Selling the contract helps hedge against this risk. The other choices are not relevant in this case.

Question 19

How long does the Model Code recommend that tape recordings of dealers/brokers should be kept?
A) At least 2 months
B) One year
C) Up to one month
D) Until the maturity of the deal

Accepted Answer

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

Question 20

What is the ISO code for the Lebanon pound?
A) LEP
B) LBD
C) LBP
D) LNP

Accepted Answer

The ISO code for the Lebanon pound is LBP.

Exam 1: ACI Dealing Certificate-Part A

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

The two-week repo rate for the 5.25% bund 2007 is quoted to you at 3.33-38%. You agree to reverse in bonds worth EUR 266,125,000 with no initial margin. You would earn repo interest of:

What is the maximum maturity of a London CD?

What is a master agreement intended to do?

A CD with a face value of USD 250 million was issued at par with a coupon of 5% for 91 days. You buy it in the secondary market when it has 30 days remaining to maturity and is trading at 5.25%. How much do you pay?

What is the Overnight Index for EUR?

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

When is interest conventionally due on a 3-year interbank eurodollar deposit?

Purchasing a USD/JPY call option is equivalent to:

Brokers should confirm all transactions:

Where dealing through an intermediary with an unidentified principal, the Model Code recommends:

A dealer needs to buy USD against SGD. Of the following rates quoted to him, which is the best rate for him?

The Model Code recommends that when banks accept a stop-loss order:

An option premium is a positive function of:

The extension of forward FX contracts at their historic rates is only allowed when:

When dealing with customers, financial market professionals are advised by the Model Code to clarify that all transactions are entered into solely at each partys risk by explicitly agreeing in writing that:

Making interest rate swap transactions subject to agreement on documentation:

A customer sells a LIFFE Euro Swiss futures contract. Which of the following risks could he be trying to hedge?

How long does the Model Code recommend that tape recordings of dealers/brokers should be kept?

What is the ISO code for the Lebanon pound?