Question 1

Three of the following non-EU countries have unilaterally adopted the Euro. Which one has not?
A) Kosovo
B) Andorra
C) Albania
D) Montenegro

Accepted Answer

Albania has not adopted the Euro unilaterally. Kosovo, Andorra, and Montenegro use the Euro without being EU members.

Question 2

Once a prime-broker has matched and accepted a trade, separate confirmations must be exchanged between:
A) the prime-broker and the executing dealer only
B) the prime-broker and the executing dealer, and between the executing dealer and the client
C) the prime-broker and the executing dealer, and between the prime-broker and the client
D) the prime-broker and the client, and between the executing dealer and the client

Accepted Answer

Separate confirmations are required between the prime-broker and the executing dealer, and between the prime-broker and the client. The executing dealer is not required to send a confirmation to the client, as this is the responsibility of the prime-broker.

Question 3

Which of the following pays a return in the form of a discount to face value?
A) Treasury bill
B) CD
C) Interbank deposit
D) Classic repo

Accepted Answer

Treasury bills are issued at a discount from their face value, so the return to the investor is the difference between the discounted purchase price and the face value when the bill matures.

Question 4

When a broker needs to switch a name this should be done:
A) only after consultation with the local regulator
B) only if the switching transaction is done at the current market rate
C) only provided that such transactions are identified as switching transactions
D) only after approval by the broker's senior management

Accepted Answer

Switching transactions should be clearly identified to ensure transparency and compliance with regulatory requirements.

Question 5

If I say that I have "bought and sold" EUR/USD in an FX swap, what have I done?
A) Bought EUR and sold USD spot, and sold EUR and bought USD forward
B) Bought USD and sold EUR spot, and sold USD and bought EUR forward
C) Synthetically taken a USD loan in exchange for making a EUR loan with the same counterparty
D) Sold EUR/USD spot and bought back EUR/USD forward

Accepted Answer

In an FX swap, "bought and sold" EUR/USD means buying EUR and selling USD in the spot market, and simultaneously selling EUR and buying USD in the forward market.

Question 6

You are the fixed-rate payer in a plain vanilla interest rate swap. If your counterparty defaults, your exposure at default is:
A) greater, the higher the market swap rate and the shorter the term
B) lower, the lower the market swap rate and the shorter the term
C) lower, the lower the market swap rate and the longer the term
D) greater, the higher the market swap rate and the longer the term

Accepted Answer

If the market swap rate is higher than the fixed rate you are paying, the swap has positive value to you, increasing your exposure. A longer term increases the potential for rate changes, further increasing exposure.

Question 7

Where there are shared management responsibilities or where an investment or shareholding exists in a broker by a counterparty:
A) the broker is not obligated to reveal any material connections provided Chinese Walls are in place.
B) the broker is not required to reveal any connections at all.
C) the broker is legally obliged to advise his clients of any material connections that exist.
D) is a matter which is not covered by the Model Code.

Accepted Answer

According to the Model Code, the broker is legally obliged to advise his clients of any material connections that exist when there are shared management responsibilities or where an investment or shareholding exists in a broker by a counterparty. This is to ensure transparency and avoid conflicts of interest.

Question 8

Dealers are authorized to deal:
A) anywhere, even away from their own dealing premises
B) after-hours, but only if listed as such by management
C) after-hours, but only from their private residence
D) away from their broker's dealing premises

Accepted Answer

The answer of Dealers are authorized to deal:
A) anywhere, even...

Question 9

Which of the following market participants would least likely be a user of repo?
A) Investment funds
B) Credit institutions and central banks
C) Corporates
D) Retail and private customers

Accepted Answer

Retail and private customers are the least likely users of repo as this market is typically dominated by institutional players such as investment funds, credit institutions, and central banks. Corporates may also use repo for short-term funding needs.

Question 10

Which of the following is a Model Code good practice regarding the passing of names?
A) Bank dealers should, wherever possible, give brokers prior indication of counterparties with whom they would be unwilling to do business.
B) Brokers may divulge the names of principals prematurely to induce a counterparty to transact.
C) Dealers should never give brokers guidance on the extent of their price differentiation across broad categories of counterparties.
D) When a principal's name proves unacceptable to another principal, the broker is bound to divulge who refused it.

Accepted Answer

Model Code good practice regarding the passing of names suggests that bank dealers should, wherever possible, give brokers prior indication of counterparties with whom they would be unwilling to do business. This enhances transparency and helps to avoid potential conflicts of interest. Option B is incorrect because prematurely divulging the names of principals is not ethical. Option C is incorrect because dealers should give brokers guidance on the extent of their price differentiation across broad categories of counterparties. Option D is incorrect because brokers are not bound to divulge who refused a principal's name if it proves unacceptable to another principal.

Question 11

The buyer of a USD/ARS NDF could be:
A) a buyer of Argentine Pesos
B) expecting a falling USD/ARS rate
C) hedging against a weakening of the Argentine Peso
D) speculating on an appreciation of the Argentine Peso

Accepted Answer

The buyer of a USD/ARS NDF is most likely hedging against a weakening of the Argentine Peso. This means that they are locking in a future exchange rate for a transaction that involves Argentine Pesos, to protect themselves against a potential unfavorable exchange rate movement.

Question 12

When quoting the exchange rate between the USD and AUDI which is conventionally the base currency?
A) USD
B) AUD
C) Depends on whether the price is being quoted in Australia or the US
D) Depends on whether the price is being quoted interbank or to a customer

Accepted Answer

In foreign exchange markets, the base currency is typically the first currency listed in a currency pair. For the USD/AUD pair, the USD is the base currency, and the AUD is the quote currency. However, the question seems to have a typo with "AUDI" instead of "AUD". Assuming it refers to AUD, the base currency is USD.

Question 13

If EUR/USD is 1.3025-28 and the 6-month swap is 15.50/17, what is the 6-month outright price?
A) 1.3042-1.30435
B) 1.30405-1.3045
C) 1.30095-1.3011
D) 1.4575- 1.4728

Accepted Answer

To calculate the outright price, we need to add the swap points to the spot rate. In this case, the bid swap point is 15.50, so we add it to the bid spot rate of 1.3025 to get 1.30405. The offer swap point is 17, so we add it to the offer spot rate of 1.3028 to get 1.3045. Therefore, the 6-month outright price is 1.30405-1.3045.

Question 14

A fixed rate forward/forward non-deliverable deposit/loan transaction, settled in cash with an agreed upon process for calculating the market reference at the commencement of the forward/forward period, is called:
A) an interest rate swap
B) a forward rate agreement
C) a short term interest rate future
D) an interest rate collar

Accepted Answer

The description given in the question is that of a forward rate agreement (FRA). A FRA is a cash-settled forward contract between two parties who agree to exchange a fixed interest payment on a notional amount at a specified future date, based on a specified interest rate index. The agreed upon process for calculating the market reference at the commencement of the forward period is known as the fixing date, and this is the date on which the interest rate used to determine the settlement amount is determined.

Question 15

Which of the following statements about "standard settlement instructions" (SSI) is correct?
A) The Head of Operations has the sole responsibility of ensuring the correctness and validity of the SSI set up.
B) SSIs should be stored and maintained in the bank's general static data system.
C) Each institution should have a separate SSI team to prevent I minimise the potential risk of fraud.
D) SSI staff should be fully integrated within Operations to insure consistent and reliable settlement guidelines.

Accepted Answer

The answer of Which of the following statements about "standard...

Question 16

A forward/forward FX swap:
A) is a contract by which the maturity of a regular FX swap can be extended at an historic (noncurrent) rate
B) is a swap transaction where the near leg is traded either value today or value tomorrow and the far leg is traded spot
C) is a swap that does not start spot and where both the near and the far leg are traded forward
D) is a transaction by which a maturing outright forward FX is prolonged at an historic (non-current) rate

Accepted Answer

A forward/forward FX swap is a swap transaction where both the near and far legs are traded forward, meaning they are both settled at a future date. It differs from a regular FX swap where the near leg is settled spot or within a short period of time and the far leg is settled forward. Therefore, choices A, B, and D are incorrect.

Question 17

Which of the following is not an officially published settlement or reference rate?
A) LIBID
B) LIBOR
C) EURIBOR
D) EURO LIBOR

Accepted Answer

Although LIBID does exist and is referenced in the financial industry, it is not an officially published settlement or reference rate. The other options (LIBOR, EURIBOR, and EURO LIBOR) are all officially published settlement or reference rates used in the calculation of various financial products.

Question 18

If you have created a 'synthetic asset' by buying and selling a USD/CHF swap, what have you done?
A) Created an exposure to the CHF
B) Created an exposure to the USD
C) Switched a CI-IF asset temporarily into USD without taking currency risk
D) Switched a USD asset temporarily into CHF without taking currency risk

Accepted Answer

By using a USD/CHF swap, you have effectively exchanged a CHF asset for a USD asset temporarily, without taking on currency risk, as the swap agreement typically involves exchanging principal and interest payments in one currency for those in another.

Question 19

Extended trading hours and off-premises dealing can involve additional hazards, the avoidance of which requires clear controls. The Model Code prescribes best market practice. Which of thefollowing is true?
A) Off-premises dealing should be strictly prohibited.
B) After-hours trading should be prohibited.
C) Deals transacted after normal business hours or off-premises should only be undertaken on mobile phones approved by management.
D) Deals transacted after normal business hours or off-premises either by mobile phones or any other equipment should only be undertaken with the approval of management.

Accepted Answer

The Model Code prescribes that deals transacted after normal business hours or off-premises either by mobile phones or any other equipment should only be undertaken with the approval of management. It is not necessary to strictly prohibit off-premises dealing or after-hours trading, but their risks should be managed through clear controls and approval processes. The code also does not prescribe the use of specific mobile phones, but management should approve any mobile phones or equipment used for such deals.

Question 20

What should be done when a voice broker calls "off" at the very instant the dealer hits the broker's price as "mine" or "yours"?
A) The transaction should be concluded and the broker should inform both counterparties accordingly.
B) The dealer who hits the broker's price may decide whether the deal is done or not; the broker should inform both counterparties accordingly.
C) The deal should not be concluded and the broker should inform both counterparties accordingly.
D) The broker should immediately inform both counterparties that the deal will have to berenegotiated.

Accepted Answer

If the voice broker calls "off" at the moment the dealer hits the broker's price, it indicates that the broker was no longer able to transact at that price. Therefore, the deal should not be concluded, and the broker should inform both counterparties accordingly. It may be necessary to renegotiate the terms of the deal or find a new price level that works for all parties involved.

Exam 2: ACI Dealing Certificate-Part B

Three of the following non-EU countries have unilaterally adopted the Euro. Which one has not?

Once a prime-broker has matched and accepted a trade, separate confirmations must be exchanged between:

Which of the following pays a return in the form of a discount to face value?

When a broker needs to switch a name this should be done:

If I say that I have "bought and sold" EUR/USD in an FX swap, what have I done?

You are the fixed-rate payer in a plain vanilla interest rate swap. If your counterparty defaults, your exposure at default is:

Where there are shared management responsibilities or where an investment or shareholding exists in a broker by a counterparty:

Dealers are authorized to deal:

Which of the following market participants would least likely be a user of repo?

Which of the following is a Model Code good practice regarding the passing of names?

The buyer of a USD/ARS NDF could be:

When quoting the exchange rate between the USD and AUDI which is conventionally the base currency?

If EUR/USD is 1.3025-28 and the 6-month swap is 15.50/17, what is the 6-month outright price?

A fixed rate forward/forward non-deliverable deposit/loan transaction, settled in cash with an agreed upon process for calculating the market reference at the commencement of the forward/forward period, is called:

Which of the following statements about "standard settlement instructions" (SSI) is correct?

A forward/forward FX swap:

Which of the following is not an officially published settlement or reference rate?

If you have created a 'synthetic asset' by buying and selling a USD/CHF swap, what have you done?

Extended trading hours and off-premises dealing can involve additional hazards, the avoidance of which requires clear controls. The Model Code prescribes best market practice. Which of thefollowing is true?

What should be done when a voice broker calls "off" at the very instant the dealer hits the broker's price as "mine" or "yours"?