Question 1

The Model Code recommends that, in the case or complaints about transactions, management should:
A) Ensure complaints are investigated by the senior management or a firm not involved in the disputed transaction.
B) Ensure complaints are rairly and independently investigated, in the first instance, by the ACIs Committee for Professionalism.
C) Ensure complaints are investigated by representatives of a broking firm not directly involved in the disputed transaction and selected by both parties to the dispute.
D) Ensure complaints are fairly and independently investigated, whenever practicable, by staff not directly involved in the disputed transaction.

Accepted Answer

The Model Code recommends that complaints about transactions should be investigated fairly and independently, whenever practicable, by staff not directly involved in the disputed transaction. Option A suggests senior management or a firm not involved in the transaction should investigate, which may not always be feasible or practical. Option B suggests the ACI Committee for Professionalism investigate, which may not be appropriate as they are not part of the management of the firm involved in the dispute. Option C suggests representatives of a broking firm investigate, which may not be neutral or impartial. Therefore, option D is the best choice.

Question 2

You bought USD 5,000,000 against EUR at 1.1037 and 3,000,000 at 1.1052. If the EUR/USD rate is now quoted 1.1015/17, and it you deal at that rate, what profitwould you make?
A) Nil
B) A profit of EUR 16,847.58
C) A loss
D) A profit of EUR 18,166.05

Accepted Answer

The profit is calculated by converting the USD amounts back to EUR at the current rate and comparing it to the initial EUR amounts. The profit is EUR 16,847.58.

Question 3

A dealer has indicated his intention of assigning an interest rate swap to a third party soon after transacting that swap. When about to execute an assignment
A) The dealer is entitled to provide the name of the original counterparty to the assignee.
B) The dealer is entitled to provide the name of the assignee to the original counterparty.
C) The dealer should seek the permission of the assignee before releasing the name to the original counterparty.
D) The dealer should seek the permission of the original counterparty before releasing the name to the assignee.

Accepted Answer

The dealer should seek the permission of the assignee before releasing the name to the original counterparty. This is because the assignee is the new counterparty to the swap and has the right to privacy.

Question 4

Which of the following is true?
A) The CME eurodollar futures contract has a tick value (for one full basis point equivalent) of USD25 and a face value of USD 1,000,000
B) The Euronext. LIFFE EURIBOR futures contract has a tick value (for one full basis point equivalent) of EUR25 and a face value of EUR 1,000,000
C) The Euronext.LIFFE CHF futures contract has a tick value (for one full basis point equivalent) of CHF25 and a face value of CHF 1,000,000
D) All of the above

Accepted Answer

All of the futures contracts listed have the same tick value and face value.

Question 5

How is an outright forward FX transaction quoted?
A) Forward points
B) Full forward exchange rate
C) Depends on whether is interbank or to a customer
D) Depends on the currency pair and sometimes the term

Accepted Answer

An outright forward FX transaction is quoted using the full forward exchange rate, which includes both the spot rate and the forward points.

Question 6

In a dispute between the dealer and a broker, the Model Code recommends that this should be referred in the first instance to:
A) Central bank.
B) Senior management of the bank and the brokerage firm.
C) Head of compliance.
D) ACI's Committee for Professionalism (CFP).

Accepted Answer

The Model Code recommends that a dispute between the dealer and a broker should be referred in the first instance to the senior management of the bank and the brokerage firm in order to resolve the issue at its lowest level. Only if this fails should the matter be escalated to external bodies such as the central bank or ACI's Committee for Professionalism (CFP). The head of compliance may also become involved in the resolution process, but it is not the recommended first step according to the Model Code.

Question 7

In spite of having agreed to a deal, dealers are not bound to the deal if it is subject to documentation. The Model Code:
A) Does not regard this as a good practice.
B) Urge dealers to be bear this in mind, as this is common practice for capital market deals.
C) Does not comment on this matter.
D) Recommends that national ACI Associations deal with this according to their local customs.

Accepted Answer

The Model Code states that dealers are not bound to a deal if it is subject to documentation, and that this is not regarded as good practice.

Question 8

Spot cable is quoted at 1.6048-53 in the brokers and you quote a customer 1.6050-55 in USD 3 million, If they sell USD to you, how much GSP will you be short of?
A) 4,816,500.00
B) 1,868,809.57
C) 1.868,576.77
D) 4,815,900.00

Accepted Answer

To calculate the GSP shortfall, we need to take the difference between the broker's bid price and the customer's offer price, and multiply it by the amount of USD sold.

Bid-ask spread = 1.6048-1.6053 = 0.0005
Customer offer price = 1.6050-1.6055 = 0.0005
Difference = 0.0005
Amount sold = USD 3 million

GSP shortfall = 0.0005 x 3,000,000 = USD 1,500

However, we need to convert this USD shortfall into GBP at the current spot rate:

USD/GBP spot rate = 1.6048-1.6053
GBP/USD spot rate = 0.6230-0.6233

We will use the GBP/USD spot rate of 0.6233.

GSP shortfall in GBP = 1,500 x 0.6233 = GBP 934.995

Therefore, the answer is C) 1.868,576.77 (rounded to two decimal places).

Question 9

It is now permissible in most markets for brokers to be owned by banks and other principals. Where there is shared management, or a share holding or other investment in a broker by a counterparty:
A) The broker is not obligated to reveal the connection provided Chinese Walls are in place.
B) The broker is not obligated to reveal the connection in the professional market.
C) The broker should advise the other counterparty of the connection.
D) The matter is covered in the Model Code.

Accepted Answer

The broker should advise the other counterparty of the connection to ensure transparency and avoid any conflict of interest. This is in line with ethical standards and good business practice. Chinese Walls are not sufficient to completely eliminate the potential for conflicts of interest, so disclosure is necessary. While the matter may be covered in the Model Code, it is still important for brokers to act in good faith and disclose any potential conflicts of interest to their clients.

Question 10

If GSP/USD is quoted to you at 1.61 20-30, how much GSP would you receive if you sold USD 2000,000?
A) 1,239,925.60
B) 1,237,873.80
C) 1,240,694.79
D) 1,242,720.50

Accepted Answer

The correct answer is A because 2,000,000 USD x 1.6120 = 1,239,925.60 GSP.

Question 11

If a broker refers to "the payer of 5-year euro at 4.12", what is this party doing?
A) Paying a fixed rate of 4.12% per annum on a 30/360 basis over 5 years in euros through an interest rate swap in exchange for receiving a floating rate of 6-month Euribor on an actual/360 basis reset semi-annually and paid in arrears.
B) Paying a fixed rate of 4.12% per annum on an actual/actual basis over 5 years in euros through an interest rate swap in exchange for receiving a floating rate of 6-month Euribor on an actual/360 basis reset semi-annually and paid in arrears.
C) Paying a 5-year euro deposit and receiving a rate of interest of 4.12% on an actual/360 basis. Taking a 5-year euro deposit and paying a rate ol interest of 4.12% on an actual/360 basis.

Accepted Answer

The use of the term "payer" implies that this party is paying a fixed rate, and the mention of an interest rate swap and a floating rate of 6-month Euribor suggests that this is an OTC derivative contract. The use of a 30/360 basis and actual/360 basis also suggests that this is an interest rate swap. Option B includes an actual/actual basis, which is less commonly used in interest rate swaps, and Option C refers to a euro deposit, which is a different financial instrument altogether.

Question 12

The term "under reference" refers to:
A) An unavailability of credit limit for the counterparty.
B) The need to reconfirm a transaction.
C) The unacceptability of the counterparty's name.
D) The rate quoted is going to be revised.

Accepted Answer

When a transaction is "under reference," it means that further confirmation or verification is needed before the transaction can be finalized. This could include reconfirming details of the transaction with the counterparty or ensuring that all necessary documentation has been provided.

Question 13

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

Accepted Answer

Conventionally, the base currency is the currency against which other currencies are quoted. In this case, the EUR is typically the base currency when quoting the exchange rate between EUR and AUD.

Question 14

If a dealer has any intention of assigning an interest rate swap to a third party soon after transacting that swap:
A) The dealer should not reveal his future dealing intentions to his counterparty.
B) The dealer should make his intention to assign clear before transacting.
C) The dealer should agree the method of assignment before transacting.
D) The counterparty should specify whether or not assignment would be acceptable in negotiations.

Accepted Answer

It is important for the dealer to make their intention to assign the swap clear before transacting to avoid any miscommunication or misunderstandings with their counterparty. This will also allow the counterparty to make an informed decision about whether or not they are comfortable with the potential assignment.

Question 15

The premium on an option contract is:
A) The price of the underlying commodity at the time of the transaction
B) The price at which the transaction on the underlying commodity will be carried out if and when the option is exercised
C) The price the buyer of the option pays to the seller when entering into the options contract
D) The price at which the two counterparties can close-out their position

Accepted Answer

The premium on an option contract is the price the buyer pays to the seller when entering into the options contract. This premium is paid upfront and is non-refundable. It gives the buyer the right, but not the obligation, to exercise the option at a later date. Option premiums are affected by a variety of factors including the current price of the underlying asset, the strike price, the time to expiration, and the implied volatility of the underlying asset.

Question 16

What does the Model Code say about netting?
A) Market participants are strongly recommended to net bilateral transactions with counterparties where activity justifies it.
B) Market participants should establish payments netting agreements with cross-border counterparties where activity justifies it.
C) Market participants should establish legally viable bilateral netting agreements with counterparties where activity justifies it.
D) Market participants should establish legally viable multilateral netting agreements where activity justifies it.

Accepted Answer

The Model Code recommends that market participants establish legally viable bilateral netting agreements with counterparties where activity justifies it. While payments netting agreements (option B) and multilateral netting agreements (option D) may also be beneficial in certain situations, the Model Code specifically mentions bilateral netting agreements as a recommended practice. Option A is not a correct answer because it uses the word "recommended" instead of "should establish", which implies a stronger commitment.

Question 17

Which of the following is not true?
A) The Model Code is published by ACI's Committee for Professionalism.
B) The Model Code sets out the practicalities of dealing in those financial instruments listed in the Model Code.
C) The Model Code is an attempt to deal with the legal issues relating to every conceivable financial instrument.
D) The Model Code sets out the manner and spirit in which foreign exchange and money market business should be conducted in order that participants maintain high standards of professionalism, integrity and ethical conduct.

Accepted Answer

The statement that the Model Code attempts to deal with the legal issues relating to every conceivable financial instrument is not true. The Model Code sets out principles for ethical conduct and professional behavior in foreign exchange and money market business. It does not specifically address legal issues related to specific financial instruments.

Question 18

The use of standard settlement instructions (SSI's) is strongly encouraged because:
A) It reduces operational risk.
B) It splits differences arising from failed settlement between the two counterparties.
C) It removes the need for sending out SWIFT payment authorisations.
D) All of the above.

Accepted Answer

The use of standard settlement instructions (SSI's) is strongly encouraged because it reduces operational risk. It does not split differences arising from failed settlement between the two counterparties or remove the need for sending out SWIFT payment authorisations.

Question 19

In all dealing conversations, the Model Code strongly recommends:
A) Dealers stick to market terminology in order to avoid the impression that they are offering an advisory or fiduciary role.
B) Dealers clarity what is being proposed rather than using any terminology that could be misinterpreted.
C) Dealers restrict themselves to terminology listed and explained in Chapter 11 of the Model Code.
D) Dealers define complex terminology in the confirmation of a deal.

Accepted Answer

Dealers should use clear and unambiguous terminology to avoid misinterpretation and misunderstanding between counterparties. It is important to ensure both parties understand the terms of the agreement and what is being proposed. While the Model Code provides a list of recommended terminology in Chapter 11, it is not necessary to restrict oneself to this list as long as the terms used are easily understood by both parties. Dealers should also define any complex terminology in the confirmation of the deal to ensure complete transparency.

Question 20

Bank B's price is shown by a broker to Bank A and is dealt by Bank A. If Bank A wants to increase the amount of the transaction, what is good market practice according to the Model Code:
A) Bank A can call Bank B directly.
B) Bank A should wait 10 minutes before calling Bank B.
C) Bank A cannot increase the amount.
D) Bank A should go back to the broker.

Accepted Answer

According to the Model Code, Bank A should go back to the broker to negotiate a larger transaction. Directly calling Bank B could be seen as attempting to bypass the broker and could be considered bad market practice. Waiting 10 minutes before calling Bank B is not mentioned as a requirement in the Model Code.

Exam 2: ACI Dealing Certificate-Part B

The Model Code recommends that, in the case or complaints about transactions, management should:

You bought USD 5,000,000 against EUR at 1.1037 and 3,000,000 at 1.1052. If the EUR/USD rate is now quoted 1.1015/17, and it you deal at that rate, what profitwould you make?

A dealer has indicated his intention of assigning an interest rate swap to a third party soon after transacting that swap. When about to execute an assignment

Which of the following is true?

How is an outright forward FX transaction quoted?

In a dispute between the dealer and a broker, the Model Code recommends that this should be referred in the first instance to:

In spite of having agreed to a deal, dealers are not bound to the deal if it is subject to documentation. The Model Code:

Spot cable is quoted at 1.6048-53 in the brokers and you quote a customer 1.6050-55 in USD 3 million, If they sell USD to you, how much GSP will you be short of?

It is now permissible in most markets for brokers to be owned by banks and other principals. Where there is shared management, or a share holding or other investment in a broker by a counterparty:

If GSP/USD is quoted to you at 1.61 20-30, how much GSP would you receive if you sold USD 2000,000?

If a broker refers to "the payer of 5-year euro at 4.12", what is this party doing?

The term "under reference" refers to:

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

If a dealer has any intention of assigning an interest rate swap to a third party soon after transacting that swap:

The premium on an option contract is:

What does the Model Code say about netting?

Which of the following is not true?

The use of standard settlement instructions (SSI's) is strongly encouraged because:

In all dealing conversations, the Model Code strongly recommends:

Bank B's price is shown by a broker to Bank A and is dealt by Bank A. If Bank A wants to increase the amount of the transaction, what is good market practice according to the Model Code: