Question 1

A 3-month (91-day) UK Treasury bill with a face value of GBP 50,000,000.00 is quoted at a yield of 4.25%. How much is the bill worth?
A) GBP 47,875,000.00
B) GBP 49,462,847.22
C) GBP 49,470,205.48
D) GBP 49,475,760.27

Accepted Answer

The answer of A 3-month (91-day) UK Treasury bill with...

Question 2

What is the minimum basis on which a BCP should be updated and tested?
A) Every 6 months
B) Yearly
C) Whenever the BCP procedures are changed
D) Every 3 months

Accepted Answer

The answer of What is the minimum basis on which...

Question 3

You have made a price by a Japanese bank in (SD 2,000,000.00 against JPY. They made you 98.95-03 and you took the offer. USD/JPY is now quoted 98.78-81 and you square your position. What is your profit or loss?
A) Profit of JPY 340.000
B) Profit of JPY 1.500,000
C) Loss of JPY 340.000
D) LossofJPV 500.000

Accepted Answer

The answer of You have made a price by a...

Question 4

When initially negotiating an interest rate swap, a principal indicated his intention to assign it to a third party. In executing such a transfer:
A) The principal is entitled to provide the name of the original counterparty to the transferee.
B) The principal is entitled to provide the name of the transferee to the original counterparty.
C) The principal should obtain the consent of the transferee before releasing its name.
D) The principal should obtain the consent of the original counterparty before releasing its name to the transferee.

Accepted Answer

The answer of When initially negotiating an interest rate swap,...

Question 5

What does the Model Code recommend regarding the practice of "name switching/substitution"?
A) Dealers may seek a compensation payment in favor of the bank or an adjustment to brokerage bills from the broker for switching names.
B) If requested by a broker to clear a transaction through name switching, a dealer must ensure that such activities have the prior approval of senior management.
C) The practice of name switching/substitution is neither acceptable nor desirable.
D) Name switching/substitution transactions should be executed as promptly as possible not considering credit limits and policy guidelines.

Accepted Answer

The Model Code recommends that if a broker requests to clear a transaction through name switching, the dealer must ensure that such activities have the prior approval of senior management. The practice of name switching/substitution is not considered acceptable or desirable, so the recommended course of action is to ensure that all necessary approvals are obtained. Option A is incorrect as the Model Code does not provide for dealers seeking compensation payments from banks or adjustments to brokerage bills for name switching. Option C is correct in stating that the practice of name switching/substitution is not considered acceptable or desirable, but does not provide a recommended course of action. Option D is incorrect as it recommends executing name switching/substitution transactions without consideration of credit limits and policy guidelines, which is not recommended by the Model Code.

Question 6

Dealers are allowed to trade for their own account only if:
A) they have good track records in dealing both for their institution and for themselves
B) there have been no previous conflicts of interest in the dealing room
C) there is a clearly defined and written policy about the matter
D) the dealers see no conflict of interest in such dealing

Accepted Answer

It is important for there to be a clearly defined and written policy about dealers trading for their own account in order to prevent conflicts of interest and ensure fair dealing practices. A and D rely too much on the subjective opinions and actions of the dealers and do not provide sufficient safeguards for clients. B is too vague and does not provide any concrete policy or guidelines.

Question 7

If there is a need for assistance to help resolve a dispute over differences between a broker and a bank, the Model Code suggests turning to:
A) the monetary authority in the country where the broker is located
B) the banking association in the country where the bank is located
C) the Committee for Professionalism of the ACI
D) the local foreign exchange market committee

Accepted Answer

The Model Code suggests turning to the Committee for Professionalism of the ACI for assistance in resolving disputes between brokers and banks.

Question 8

In spite of having agreed to a deal, dealers are not bound to its terms if it is "subject to documentation". What position does the Model Code take with regard to this practice?
A) The practice of making a transaction subject to documentation is not regarded as good practice.
B) It urges dealers to be bear in mind that this is a common practice for capital market deals.
C) The Model Code does not comment on the matter.
D) It recommends that national ACI Associations deal with this issue according to their local customs.

Accepted Answer

The Model Code does not support the practice of making a transaction subject to documentation, as it is not regarded as good practice.

Question 9

What are 1MM dates?
A) the tenth of the following months: March, June, September and December
B) the third Wednesday of January, April, July and October
C) the Monday before the third Wednesday of March, June, September and December
D) the third Wednesday of March, June, September and December

Accepted Answer

1MM dates refer to the third Wednesday of March, June, September, and December. This is because MM stands for the Roman numeral for 2000 and these dates were chosen by the ISO 8601 standard as a way to uniformly represent dates in the 21st century. Therefore, the correct answer is D.

Question 10

When performing a gap analysis, into which of the following time buckets should a 5-year floating-rate note with a 6-month LIBOR coupon be slotted?
A) the 6-month bucket
B) the 2.5-year bucket
C) the 5-year bucket
D) It should be weighted and apportioned in each of the time buckets in accord with the periodic coupon payments.

Accepted Answer

A 5-year floating-rate note with a 6-month LIBOR coupon should be slotted into the 6-month bucket because the interest rate resets every 6 months, affecting the repricing of the note.

Question 11

Which of the following are quoted in terms of a discount rate?
A) USTreasury bill
B) CD
C) Interbank deposit
D) ECP

Accepted Answer

U.S. Treasury bills are quoted in terms of a discount rate, which is the difference between the face value and the purchase price, annualized based on a 360-day year.

Question 12

Risk capital is intended to ensure that an institution can:
A) Survive a liquidity crisis
B) Absorb credit losses
C) Absorb any type of unexpected loss
D) Absorb any type of expected loss

Accepted Answer

Risk capital is meant to absorb unexpected losses, providing a buffer against unforeseen financial setbacks.

Question 13

You have just sold USD 5,000,000.00 spot against JPY. What type of risk does not apply?
A) Market risk
B) Settlement risk
C) Basis risk
D) Credit risk

Accepted Answer

Basis risk does not apply because it involves the risk of a mismatch between the hedging instrument and the underlying asset, which is not relevant in a straightforward spot currency transaction.

Question 14

What does the Model Code recommend with regard to any give-up agreement between a prime broker and an executing dealer?
A) That the Master FX Give-Up Agreement (FMLG - New York FED FXC) published by the Foreign Exchange Committee can be used for this purpose.
B) That this agreement need not specify the permitted transaction types, tenors or credit limits.
C) That this agreement must include instructions that the prime broker must advise the executing dealer promptly of trades for give-up.
D) That this agreement should not involve any requirement for the executing dealer to inform the prime broker of the material terms of the transaction once a trade has been executed.

Accepted Answer

The Model Code recommends using the Master FX Give-Up Agreement published by the Foreign Exchange Committee for agreements between a prime broker and an executing dealer.

Question 15

To establish and maintain a short position in deliverable securities, you must:
A) Sell
B) Sell and subsequently buy back
C) Sell and borrow
D) Sell, borrow and buy back simultaneously

Accepted Answer

To establish a short position in deliverable securities, you must first sell the securities that you do not own. However, since the securities are deliverable, you need to borrow the securities to meet your obligation to deliver them at settlement. Therefore, the correct choice is option C, which involves selling and borrowing the securities. Selling and subsequently buying back (option B) is used to close out a short position, while option D involves buying back the securities simultaneously with borrowing and selling them, which is not practical or possible.

Question 16

On fixing date, the settlement payment of an NDF reflects the differential between the agreed forward rate and:
A) the fixing spot rate
B) the daily high
C) the days' average rate
D) the average rate over the NDF period

Accepted Answer

The settlement payment of an NDF reflects the differential between the agreed forward rate and the fixing spot rate, which is the rate on the fixing date. This is because an NDF is a type of currency forward contract where the settlement is in cash and based on the difference between the NDF rate and the fixing spot rate on the settlement date. The daily high, days' average rate, and average rate over the NDF period may be used for informational purposes, but they are not directly relevant to the settlement payment calculation.

Question 17

If EUR/USD is quoted to you as 1.3030-40 and GBP/USD as 1.5320-30, at what rate can you sell GBP and buy EUR?
A) 0.8500
B) 0.8506
C) 0.8512
D) 0.8505

Accepted Answer

The answer of If EUR/USD is quoted to you as...

Question 18

When an employee executes a personal trade in advance of a client's or institution's order to benefit from the anticipated movement in the market price following the execution of a large trade, it is called:
A) front running
B) ex ante trading
C) insider dealing
D) forward-facing

Accepted Answer

This scenario is known as front running, where the employee takes advantage of their knowledge of a pending trade by executing a personal trade before the client's or institution's trade, thereby benefiting from an expected price movement in the market. This practice is generally considered unethical and illegal. "Ex ante trading" and "forward-facing" are not commonly used terms in finance, and "insider dealing" refers to trading based on non-public information, which may or may not be related to pending client orders.

Question 19

In case of a default on a repo by the seller:
A) The buyer can liquidate the collateral
B) The buyer has to liquidate the collateral
C) The buyer cannot liquidate the collateral until the seller is declared insolvent
D) A court is appointed to decide what happens to the collateral

Accepted Answer

If the seller defaults on a repo, the buyer has the right to liquidate the collateral to recover their money.

Question 20

What recommendation does the Model Code make in cases of market disruption?
A) Market participants should strictly adhere to the rules issued by local regulators, supervisors or central banks in order to maintain efficiency and avoid disputes.
B) Even if local provisions are in place, market participants should only adhere to the ACI best practices of the Model Code in order to maintain efficiency and avoid disputes.
C) Participants must at all times adhere to the rules issued by local regulators, supervisors or central banks even if these rules or procedures conflict with any provision of an existing written agreement.
D) Parties may unilaterally decide whether they wish to adhere to the terms of the agreement or to amend the terms of the transaction to follow the relevant procedure.

Accepted Answer

Market participants should strictly adhere to the rules issued by local regulators, supervisors or central banks in order to maintain efficiency and avoid disputes.

Exam 2: ACI Dealing Certificate-Part B

A 3-month (91-day) UK Treasury bill with a face value of GBP 50,000,000.00 is quoted at a yield of 4.25%. How much is the bill worth?

What is the minimum basis on which a BCP should be updated and tested?

You have made a price by a Japanese bank in (SD 2,000,000.00 against JPY. They made you 98.95-03 and you took the offer. USD/JPY is now quoted 98.78-81 and you square your position. What is your profit or loss?

When initially negotiating an interest rate swap, a principal indicated his intention to assign it to a third party. In executing such a transfer:

What does the Model Code recommend regarding the practice of "name switching/substitution"?

Dealers are allowed to trade for their own account only if:

If there is a need for assistance to help resolve a dispute over differences between a broker and a bank, the Model Code suggests turning to:

In spite of having agreed to a deal, dealers are not bound to its terms if it is "subject to documentation". What position does the Model Code take with regard to this practice?

What are 1MM dates?

When performing a gap analysis, into which of the following time buckets should a 5-year floating-rate note with a 6-month LIBOR coupon be slotted?

Which of the following are quoted in terms of a discount rate?

Risk capital is intended to ensure that an institution can:

You have just sold USD 5,000,000.00 spot against JPY. What type of risk does not apply?

What does the Model Code recommend with regard to any give-up agreement between a prime broker and an executing dealer?

To establish and maintain a short position in deliverable securities, you must:

On fixing date, the settlement payment of an NDF reflects the differential between the agreed forward rate and:

If EUR/USD is quoted to you as 1.3030-40 and GBP/USD as 1.5320-30, at what rate can you sell GBP and buy EUR?

When an employee executes a personal trade in advance of a client's or institution's order to benefit from the anticipated movement in the market price following the execution of a large trade, it is called:

In case of a default on a repo by the seller:

What recommendation does the Model Code make in cases of market disruption?