Question 1

In dealing terminology, what does "my risk" refer to?
A) the market amount for which the quote is valid
B) the acknowledgement by the broker that he may be stuffed
C) the acknowledgement by the dealer receiving the quote that the rate may have to be re-quoted
D) the quoting dealer cautions the receiver of the quote that the price may have to be re-quoted at the receiver's risk

Accepted Answer

The answer of In dealing terminology, what does "my risk"...

Question 2

Which one of the following statements concerning covenants is incorrect?
A) Covenants are clauses in bank credit agreements and bond indentures designed to assure debt holders that the creditworthiness of the borrower(s)/issuer(s) will remain satisfactory
B) Covenants must be tailored to reflect the specific needs of the borrower/issuer and the specific risks perceived by the debt holders.
C) Covenants require the holder of the debt to refrain from doing certain specific things.
D) Three different types of covenants in credit agreements and bond indentures are affirmative, negative and financial.

Accepted Answer

Covenants typically require the borrower/issuer to refrain from doing certain things, not the holder of the debt.

Question 3

Under Basel rules, what is the meaning of LGD?
A) Loss Given Default
B) Liquidity Given Distress
C) Limit Given Default
D) Loss Given Distress

Accepted Answer

LGD stands for Loss Given Default, which is the amount of money lost by a lender if a borrower defaults on a loan. It represents the percentage of the outstanding loan balance that the lender will not be able to recover in case of default.

Question 4

What is the recommended follow-up procedure in case of a settlement discrepancy?
A) All investigation cases should be handled within the same day
B) All investigation cases should be handled within 2 days
C) Investigation cases received before noon should be handled within the same day and those received after midday should be handled before noon the next day
D) Investigation cases received before noon should be handled within the same day and those received after midday within 24 hours

Accepted Answer

This option provides a clear and practical timeline for handling discrepancies, ensuring timely resolution while considering the time of receipt.

Question 5

Which SWIFT message should be used to advise the netting position of a currency resulting from FX, NDF, options and other trades?
A) MTn99
B) MT300
C) MT370
D) MT670/671

Accepted Answer

MT370 is used to advise the netting position of a currency resulting from FX, NDF, options, and other trades.

Question 6

What do you call a combination of a long (short) call option and short (long) put option with same face value, same expiration date, same style, where the strike price is equal to the forward price?
A) a synthetic forward
B) a straddle
C) risk reversal
D) a strangle

Accepted Answer

This is a synthetic forward, as it effectively mimics the payoff of a forward contract using options. The long (short) call option gives the holder the right to buy (sell) the underlying asset at the strike price, while the short (long) put option obligates the holder to sell (buy) the underlying asset at the strike price. Since the strike price is equal to the forward price, the combination effectively locks in a price for the underlying asset at the expiration date, similar to a forward contract.

Question 7

Using the following rates: 3M (90-day) EUR deposit     0.25% 6M (180-day) EUR deposit     0.50% What is the rate for a EUR deposit, which runs from 3 to 6 months?
A) 0.25%
B) 0.375%
C) 0.75%
D) 0.50%

Accepted Answer

The answer of Using the following rates: 3M (90-day) EUR...

Question 8

The seller of a floor:
A) Receives compensation if a reference interest rate falls below an agreed level
B) Pays compensation if a reference interest rate falls below an agreed level
C) Receives compensation if a reference interest rate rises above an agreed level
D) Pays compensation if a reference interest rate rises above an agreed level

Accepted Answer

A floor is a type of derivative contract where the seller pays compensation to the buyer if a reference interest rate falls below an agreed level. Therefore, the seller of a floor pays compensation if the reference interest rate falls below the agreed level.

Question 9

How is a USD Overnight Indexed Swap (OIS) settled?
A) Periodic exchange of fixed and floating payments up to and including maturity
B) At maturity by net payment
C) After maturity by exchange of fixed and floating payments
D) Two days after maturity by net payment

Accepted Answer

The answer of How is a USD Overnight Indexed Swap...

Question 10

Which of the following statements about the Net Stable Funding Ratio is correct?
A) Assets are classified with an available stable funding factor (ASF).
B) Liabilities are classified with a required stable funding factor (RSF).
C) The ratio of available funding to required funding has to be higher than 50%n
D) Equity has an available stable funding factor of 100%.

Accepted Answer

Equity is considered the most stable form of funding, so it is assigned an available stable funding factor (ASF) of 100% in the Net Stable Funding Ratio framework.

Question 11

The two-week repo rate for the 5.25% Bund 2011 is quoted to you at 3.33-38%. You agree to reverse in bonds worth EUR 266,125,000.00, but insist on an initial margin of 2%. You would earn repo interest of:
A) EUR 337,874A0
B) EUR 342,947.58
C) EUR 337,739.24
D) EUR 342,810.40

Accepted Answer

The answer of The two-week repo rate for the 5.25%...

Question 12

A bank expects interest rates to fall with a parallel downward shift in the yield curve. What action should the bank take, if it wants to benefit from this view?
A) increase the maturity of its liabilities
B) reduce the maturity of its asset portfolio
C) runazerogap
D) lengthen the maturity of its asset portfolio

Accepted Answer

If the bank believes interest rates will fall and there will be a parallel downward shift in the yield curve, then it should lengthen the maturity of its asset portfolio. This will allow the bank to benefit from the higher yields on longer-term assets as interest rates fall. Additionally, by lengthening the maturity of its assets, the bank can lock in a higher rate for a longer period of time, while potentially keeping its liabilities at shorter maturities to minimize interest rate risk.

Question 13

Which one of the following statements about "CLS rescinds" is correct?
A) CLS settlement members may rescind instructions unilaterally provided that the rescind messages reach the CLS Bank before the 00:00 CET deadline.
B) CLS settlement members may rescind instructions unilaterally provided that the rescind messages reach the CLS Bank before the 06:30 CET deadline.
C) CLS settlement members may rescind instructions bilaterally only if the rescind messages reach the CLS Bank before the 00:00 CET deadline.
D) CLS settlement members may rescind instructions bilaterally only if the rescind messages reach the CLS Bank after the 06:30 CET deadline.

Accepted Answer

CLS settlement members may rescind instructions unilaterally provided that the rescind messages reach the CLS Bank before the 00:00 CET deadline.

Question 14

Your broker quotes you EUR/USD at 1.3425-28. You respond by saying "yours". Which one of the following statements is true?
A) You are committed to sell a marketable EUR amount unless the quote was for a specific amount.
B) You are committed to sell to the counterparty his full EUR amount subject to credit limits on the counterparty.
C) You are committed to sell EUR up to the amount permitted by your credit limits on the counterparty.
D) You are committed to sell a marketable USD amount unless the quote was for a specific amount.

Accepted Answer

By saying "yours," you are agreeing to sell euros at the bid price of 1.3425, which is the price the broker is willing to buy euros from you.

Question 15

From the following CAD rates: 1M (31-day) CAD deposit     0.95% 1x2 CAD (30-day) FRA     1.21% 2x3 CAD (31-day) FRA     2.01% Calculate the 3-month implied cash rate.
A) 1.42%
B) 1.39%
C) 2.01%
D) 4.21%

Accepted Answer

To calculate the 3-month implied cash rate, we need to first calculate the 2-month CAD forward rate using the 1x2 FRA. (1 + 0.0121*60/360)/(1 + 0.0095*31/360) - 1 = 0.01201 or 1.201% Now, we can use the 2-month forward rate and the 2x3 FRA to calculate the 3-month implied cash rate. (1 + 0.0201*31/360)/(1 + 0.01201*61/360) - 1 = 0.0139 or 1.39%. Therefore, the best choice is B.

Question 16

The process of confirming trades is a function that can be performed by:
A) any dealer as long as he/she is not a party to the trade
B) staff in the back-office/operations who are independent of the trade
C) staff in the dealing room who are not dealing
D) any staff outside the dealing room

Accepted Answer

The process of confirming trades should be performed by staff in the back-office/operations who are independent of the trade. This ensures an objective and impartial confirmation process, reducing the likelihood of errors or fraud.

Question 17

When may a broker assume a deal is closed?
A) When one of the principals confirms the deal
B) When the principals give a written undertaking for all deals done at the end of the day
C) When acknowledgement is received from the principals that the deal is done
D) When both back offices acknowledge the deal

Accepted Answer

The broker should assume a deal is closed when acknowledgement is received from the principals that the deal is done. This ensures that both parties agree that the deal is final and eliminates any misunderstandings or miscommunications. The other options listed (A, B, and D) cannot guarantee that the deal is truly closed without further confirmation or verification.

Question 18

Which of the following statements is correct?
A) Hedging a long bond position with payer's swap involves basis risk
B) Hedging the credit risk of an asset swap package with a credit default swap has no basis risk
C) Basis risk is a result only of maturity mismatches
D) Basis risk is a result only of duration mismatches.

Accepted Answer

Hedging a long bond position with a payer's swap involves basis risk because the swap and the bond may not respond identically to changes in interest rates or other market conditions, leading to imperfect hedging.

Question 19

An 'at-the-money' call option:
A) Costs more than an 'in-the-money' call option
B) Costs less than an 'out-of-the-money' call option
C) Costs more than an 'out-of-the-money' call option
D) Costs the same as an 'in-the-money' put option

Accepted Answer

An at-the-money call option has a strike price that is equal or very close to the current market price of the underlying asset. This means that the option has no intrinsic value and only consists of time value. As a result, it will cost more than an out-of-the-money option (which has no intrinsic value and less time value) but less than an in-the-money option (which has significant intrinsic value and more time value). An in-the-money put option is not directly comparable to an at-the-money call option, so option D is incorrect.

Question 20

What does the Model Code advise regarding the taping of telephone conversations?
A) The tapes and other records should be kept until the transaction has been settled
B) Firms should ensure that they comply with local privacy laws
C) Management should ensure that the installation and control of recording equipment complies with local legislation, including laws on data protection, privacy and human rights as well as the manufacturers minimum requirements
D) All front office personnel should have access to these tapes and records

Accepted Answer

The answer of What does the Model Code advise regarding...

Exam 2: ACI Dealing Certificate-Part B

In dealing terminology, what does "my risk" refer to?

Which one of the following statements concerning covenants is incorrect?

Under Basel rules, what is the meaning of LGD?

What is the recommended follow-up procedure in case of a settlement discrepancy?

Which SWIFT message should be used to advise the netting position of a currency resulting from FX, NDF, options and other trades?

What do you call a combination of a long (short) call option and short (long) put option with same face value, same expiration date, same style, where the strike price is equal to the forward price?

Using the following rates: 3M (90-day) EUR deposit 0.25% 6M (180-day) EUR deposit 0.50% What is the rate for a EUR deposit, which runs from 3 to 6 months?

The seller of a floor:

How is a USD Overnight Indexed Swap (OIS) settled?

Which of the following statements about the Net Stable Funding Ratio is correct?

The two-week repo rate for the 5.25% Bund 2011 is quoted to you at 3.33-38%. You agree to reverse in bonds worth EUR 266,125,000.00, but insist on an initial margin of 2%. You would earn repo interest of:

A bank expects interest rates to fall with a parallel downward shift in the yield curve. What action should the bank take, if it wants to benefit from this view?

Which one of the following statements about "CLS rescinds" is correct?

Your broker quotes you EUR/USD at 1.3425-28. You respond by saying "yours". Which one of the following statements is true?

From the following CAD rates: 1M (31-day) CAD deposit 0.95% 1x2 CAD (30-day) FRA 1.21% 2x3 CAD (31-day) FRA 2.01% Calculate the 3-month implied cash rate.

The process of confirming trades is a function that can be performed by:

When may a broker assume a deal is closed?

Which of the following statements is correct?

An 'at-the-money' call option:

What does the Model Code advise regarding the taping of telephone conversations?