Question 1

If the duration gap is zero, how will a small parallel shift in interest rates affect the market value of the bank's equity?
A) If interest rates rise, the market value of equity will increase
B) If interest rates rise, the market value of equity will decrease
C) The bank is immunised from changes in interest rates.
D) The market value of equity will decrease due to an increase in interest rates

Accepted Answer

A duration gap of zero means that the bank's assets and liabilities have the same maturity, and hence, changes in interest rates will have an equal impact on both sides. Therefore, the market value of equity will remain unaffected as the bank is immunised from changes in interest rates.

Question 2

When considering interest rate risk in the banking book, retail demand deposits without fixed contractual maturity:
A) should be assumed to have zero duration
B) should be treated like other instantly variable rate liabilities, such as overnight money market borrowing.
C) should be assumed to have a low correlation with money market reference rates
D) represent a minor contributor to interest rate risk and can safely be disregarded

Accepted Answer

Retail demand deposits without fixed contractual maturity typically have a low correlation with money market reference rates, as they are often stable and not directly tied to market interest rate fluctuations.

Question 3

From 2019 on the total capital requirement for banks under Basel III will be defined as:
A) 8% of RWA plus conservation buffer
B) 10.5% of RWA plus conservation buffer
C) 8% of RWA plus countercyclical buffer
D) 10.5% of RWA plus countercyclical buffer

Accepted Answer

The answer of From 2019 on the total capital requirement...

Question 4

Using reprising gap analysis, a bank's balance sheet is considered liability-sensitive to market interest rate changes, if:
A) more liabilities than assets will be reprised in the near term
B) more assets than liabilities will be reprised in the near term
C) more assets than liabilities have variable rates or short residual maturities
D) non-interest bearing liabilities are greater than non-interest bearing assets

Accepted Answer

A bank's balance sheet is considered liability-sensitive if more liabilities than assets will be reprised in the near term, meaning that liabilities are more sensitive to interest rate changes than assets.

Question 5

Under Basel rules the risk weight for MA-rated claims on corporate in the standardized approach
A) 0%
B) 15%
C) 20%
D) 75%

Accepted Answer

Under the Basel II and III frameworks, the standardized approach assigns a 20% risk weight to claims on corporates that are rated AA- to AA+, which includes MA-rated claims.

Question 6

Which of the following risks are considered market risks?
A) interest rate, currency, equity and commodity risk
B) interest rate, currency, equity and default risk
C) interest rate, equity, liquidity and default risk
D) legal, reputation and regulatory risk

Accepted Answer

Market risk refers to the risk of changes in market prices or rates, such as interest rate risk, currency risk, equity risk, and commodity risk. Option A only includes market risks. Option B includes default risk which is classified as credit risk. Option C includes liquidity risk which is categorized as non-market risk. Option D includes legal, reputation, and regulatory risk which are categorized as non-market risks.

Question 7

What does the Model Code say about omitting the "big figure" in voice communication?
A) The "big figure" should not be included in outright quotations.
B) In order to avoid misunderstandings, the "big figure" should not be mentioned when repeating the details (facts/rates) of the deal.
C) For the sake of brevity and efficiency, "big figures" should never be quoted at all in spot FX trading.
D) The Model Code recommends that the "big figure" be included in all outright and spot FX quotations.

Accepted Answer

The Model Code recommends that the "big figure" be included in all outright and spot FX quotations to ensure clarity and avoid misunderstandings.

Question 8

What is the meaning of CCP within the Basel framework?
A) Collateralized Clearing Process
B) Central Clearing Counterparty
C) Collateralized Counterparty Protection
D) Collateralized Credit Protection

Accepted Answer

CCP stands for Central Clearing Counterparty within the Basel framework.

Question 9

Which one of the following statements about mark-to-model valuation is correct?
A) Mark-to-model valuation is used for exchange-traded positions to ensure correct pricing.
B) Asset managers are not allowed to use mark-to-model valuation.
C) Mark-to-model valuation is used for complex financial instruments; it is always accurate and in line with potential tradable prices.
D) Mark-to-model valuation refers to prices determined by financial models, rather than actual market prices.

Accepted Answer

Mark-to-model valuation refers to the practice of determining the current value of a financial asset or liability based on financial models or assumptions, rather than actual market prices. This method is commonly used for complex financial instruments that may not have a readily available market price. However, it is important to note that mark-to-model valuations can be subjective and may not always accurately reflect the true market value of an asset or liability.

Question 10

At the end of the day, you are short CHF 3,500,000.00 against SEK at 6.9275. You are asked to revalue your position at 6.9190. What is the resulting profit or loss?
A) Profit of CHF 29,750.00
B) Profit of SEK 29,750.00
C) Loss of SEK 29,750.00
D) Loss of CHF 29,750.00

Accepted Answer

The answer of At the end of the day, you...

Question 11

Under Basel III rules the meaning of RSF is:
A) Reviewed Supervisory Factor
B) Required Stable Funding
C) Riskless Stable Funding
D) Riskless Supervised Funding

Accepted Answer

RSF stands for Required Stable Funding, which is a key element of the Basel III liquidity framework. It requires banks to maintain a stable funding profile in relation to their on- and off-balance sheet activities, based on the liquidity risk profile of those activities.

Question 12

Which of the following statements about the Liquidity Coverage Ratio is correct?
A) The LCR is a measure to ensure that the reserve of high quality liquid assets is sufficient to cover short term demand for liquidity in a stress situation.
B) the ratio (cash outflow in a 30-day stress period divided by high quality liquid assets) has to be greater than 100%.
C) Covered bonds are class 1 assets.
D) Obligations issued by central banks or government agencies are class 2 assets.

Accepted Answer

The Liquidity Coverage Ratio (LCR) is designed to ensure that financial institutions maintain an adequate level of high-quality liquid assets to cover potential cash outflows during a 30-day stress scenario.

Question 13

Which of the following are all goals of the originator of securitized assets?
A) to increase funding diversification , to reduce funding costs, to achieve regulatory and accounting benefits, to increase the size of the balance sheet
B) to increase funding diversification , to reduce funding costs, to achieve regulatory and accounting benefits
C) to increase funding diversification , to reduce operational risk, to achieve regulatory and accounting benefits, to decrease the size of the balance sheet
D) to increase funding diversification , to reduce operational risk, to achieve regulatory and accounting benefits, to increase the size of the balance sheet

Accepted Answer

The originator of securitized assets aims to increase funding diversification by accessing a larger pool of potential investors, reduce funding costs by accessing less expensive sources of funding, and achieve regulatory and accounting benefits such as reducing capital requirements. Increasing the size of the balance sheet or decreasing operational risk are not necessarily goals of the originator of securitized assets.

Question 14

Claims should be communicated in writing via e-mail or preferably by authenticated SWIFT. What information should be provided in the claim?
A) the details of the transaction involved, the number of days the payment was delayed and the resulting cost
B) the details of the transaction involved, the number of days the payment was delayed and the cost, together with Central Bank rate to be applied
C) the details of the transaction involved, the number of days the payment was delayed and the cost, together with reference rates to be applied
D) the details of the transaction involved, the number of days the payment was delayed and the cost, together with the calculation methodology being claimed

Accepted Answer

The claim should include the details of the transaction involved, the number of days the payment was delayed and the resulting cost, and the calculation methodology being claimed. This will help ensure that the claim is clear and concise, and that the amount being claimed is easily understandable and verifiable. Including reference rates or Central Bank rates may be helpful, but is not necessary.

Question 15

Which of the following statements best describes the conditions under which a prime broker may accept a trade given up?
A) the trade is within the specified tenor limits
B) the trade is within the tenor limits and is of an applicable trade type
C) the trade is within the tenor limits and credit limits
D) the trade is within the tenor limits, credit limits and is of an applicable trade type

Accepted Answer

A prime broker may accept a trade given up only if it meets the requirements of tenor limits, credit limits, and an applicable trade type. So the correct answer choice is D.

Question 16

You and a dealer at another bank have a verbal bilateral reciprocal arrangement to quote each other two-way prices. During periods of high volatility, the other dealer refuses to quote to you. What does the Model Code say about this situation?
A) The other dealer is bound to reciprocate.
B) This is not in any way an enforceable or binding commitment.
C) The Model Code does not comment on dealing reciprocity.
D) It is common market practice to suspend reciprocity in periods of high volatility.

Accepted Answer

The Model Code does not create any legally binding commitments and therefore cannot enforce this bilateral reciprocal arrangement between dealers.

Question 17

What does the Model Code recommend in respect of prices and orders made on electronic trading platforms?
A) They must be posted with a clear intent to be tradable.
B) They must be identified as indicative rates only.
C) They must be posted subject to later credit line approval.
D) They need not be posted in an appropriate trading style.

Accepted Answer

The Model Code recommends that prices and orders made on electronic trading platforms must be posted with a clear intent to be tradable. This means that the prices and orders posted should reflect the actual market conditions, and not be used to mislead other market participants.

Question 18

You are the buyer of a receiver's swap. All other things being equal your counterparty risk is increasing if
A) the swap curve is shifting downwards
B) the swap curve is shifting upwards
C) swaption volatilities are decreasing
D) time to expiry is becoming shorter

Accepted Answer

When the swap curve shifts downwards, the present value of the fixed payments you are set to receive increases, thus increasing the counterparty risk as the counterparty's obligation becomes more valuable.

Question 19

Which of the following statements is correct regarding duration?
A) It is a measure of the average price of a financial instrument.
B) It doesn't take into account the timing and market value of cash flows.
C) It increases if the average coupon increases.
D) It decreases as maturity decreases

Accepted Answer

Duration is a measure of a bond's sensitivity to changes in interest rates, and it decreases as maturity decreases. Option A is incorrect because duration is not a measure of the average price of a financial instrument. Option B is incorrect because duration does take into account the timing and market value of cash flows. Option C is incorrect because if the average coupon increases, the bond's cash flows will be higher and thus the bond's duration will also increase.

Question 20

A closed position in a particular foreign currency exists:
A) when the net spot position plus the forward position plus the delta equivalent of the foreign currency options book add up to zero
B) when the forward purchases of a foreign currency are equivalent to the equity position in that same currency
C) when the reverse repurchases of foreign currency are equal to the forward purchases of the functional currency
D) when the maturity structure of the assets in one currency is closely matched to the maturity structure of liabilities in another

Accepted Answer

A closed position exists when the net spot position (the total amount of foreign currency owned or owed at the current spot exchange rate), plus the forward position (amount agreed to buy or sell at a future date), plus the delta equivalent of the foreign currency options book (the change in value of currency options with respect to changes in the spot rate) add up to zero. This means that all positions in the foreign currency have been offset, resulting in no exposure to currency fluctuations.

Exam 2: ACI Dealing Certificate-Part B

If the duration gap is zero, how will a small parallel shift in interest rates affect the market value of the bank's equity?

When considering interest rate risk in the banking book, retail demand deposits without fixed contractual maturity:

From 2019 on the total capital requirement for banks under Basel III will be defined as:

Using reprising gap analysis, a bank's balance sheet is considered liability-sensitive to market interest rate changes, if:

Under Basel rules the risk weight for MA-rated claims on corporate in the standardized approach

Which of the following risks are considered market risks?

What does the Model Code say about omitting the "big figure" in voice communication?

What is the meaning of CCP within the Basel framework?

Which one of the following statements about mark-to-model valuation is correct?

At the end of the day, you are short CHF 3,500,000.00 against SEK at 6.9275. You are asked to revalue your position at 6.9190. What is the resulting profit or loss?

Under Basel III rules the meaning of RSF is:

Which of the following statements about the Liquidity Coverage Ratio is correct?

Which of the following are all goals of the originator of securitized assets?

Claims should be communicated in writing via e-mail or preferably by authenticated SWIFT. What information should be provided in the claim?

Which of the following statements best describes the conditions under which a prime broker may accept a trade given up?

You and a dealer at another bank have a verbal bilateral reciprocal arrangement to quote each other two-way prices. During periods of high volatility, the other dealer refuses to quote to you. What does the Model Code say about this situation?

What does the Model Code recommend in respect of prices and orders made on electronic trading platforms?

You are the buyer of a receiver's swap. All other things being equal your counterparty risk is increasing if

Which of the following statements is correct regarding duration?

A closed position in a particular foreign currency exists: