Question 1

If a dealer has interest on one side, and the other side is dealt away, the broker should:
A) Immediately put the price "under reference" and check with the dealer to ascertain his original intention.
B) Cancel the order.
C) Continue with the order.
D) None of the above.

Accepted Answer

If one side of the trade is dealt away and the dealer has an interest in the other side, the broker should immediately put the price "under reference" and check with the dealer to ascertain their original intention. This ensures that the dealer's intention is clear and avoids any potential misunderstandings or problems with the trade. Canceling the order or continuing with the order without clarification could lead to errors and potential losses. Therefore, option A is the best choice.

Question 2

Bank XYZ calls you for a quote in EUR/USD for EURO 20 million. If you decide to quote to Bank XYZ:
A) You must be prepared to deal up to EUR 20 million.
B) You may quote without stating the amount you are prepared to deal.
C) You are only committed to deal in a marketable amount.
D) None or the above.

Accepted Answer

When quoting a price for a specific amount, you must be prepared to deal up to that amount if the counterparty accepts the quote.

Question 3

Banks have a fiduciary responsibility to ensure that clients have all necessary information to understand the transaction because this:
A) Will encourage clients to do more business.
B) Will help prevent potential litigation.
C) Will help banks sell sophisticated risk management solutions.
D) Is required by all regulators.

Accepted Answer

Banks have a fiduciary responsibility to act in their clients' best interests and provide all necessary information to help prevent potential litigation. While providing sufficient information may encourage clients to do more business, it is primarily to fulfill their fiduciary duty and prevent legal issues. While regulators may require certain disclosures, this alone is not the main reason behind a bank's fiduciary responsibility. Providing information to sell risk management solutions is also not the primary reason for a bank's fiduciary duty.

Question 4

When a broker calls "off" at the very instant a dealer "hits" the broker's price:
A) The transaction should be concluded.
B) The broker decides whether or not the deal is done.
C) ACI's Committee for Professionalism will decide whether the transaction should be concluded.
D) The transaction should not be concluded.

Accepted Answer

In this scenario, the broker has called "off" which means they have decided not to proceed with the transaction. Therefore, the transaction should not be concluded.

Question 5

What is the risk of dealing through an agent with an unknown principal?
A) You may not be able to ensure that your firm can avoid suspicion of trading on non-public information or other allegations of bad or illegal trading practice.
B) You may not be able to net your exposure in an insolvency.
C) You may not be able to net your exposure for capital adequacy purposes.
D) All of the above.

Accepted Answer

Dealing through an agent with an unknown principal carries multiple risks, including potential regulatory and legal issues related to trading on non-public information, difficulty in netting exposures in case of insolvency or for capital adequacy purposes. Therefore, all of the above options (A, B, and C) are best choices.

Question 6

An option premium is a positive function of:
A) Time to expiry
B) The volatility of the price of the underlying commodity
C) The moneyness of the option
D) All of the above

Accepted Answer

All three factors - time to expiry, volatility of the price of the underlying commodity, and the moneyness of the option, have a significant impact on the option premium. The longer the time to expiry, the higher the premium as there is more time for the underlying price to move in favor of the option holder. Higher volatility also leads to higher premiums, as there is a greater likelihood of the price moving in favor of the option. The moneyness of the option, i.e. the strike price in relation to the current market price of the underlying commodity, also affects the premium, with the prices for in-the-money and at-the-money options being higher compared to out-of-the-money options.

Question 7

Where repos or securities lending transactions are entered into, the Model Code recommends:
A) Documentation should be in place beforehand.
B) Management should approve all transactions.
C) Copies of the underlying documentation should be lodged with regulators.
D) All of the above.

Accepted Answer

The Model Code recommends that documentation should be in place beforehand to ensure clarity and legal certainty in repos or securities lending transactions.

Question 8

Where the Committee for Professionalism of the ACI has been notified of a breach of the letter or spirit of the Model Code, it
A) Will examine the complaint.
B) May consult with the local ACI.
C) Will bring the matter to the attention of the local regulator.
D) None of the above.

Accepted Answer

The Committee for Professionalism of the ACI will examine the complaint if it has been notified of a breach of the letter or spirit of the Model Code.

Question 9

Management policy on the use of mobile devices by trading sales and settlement staff should:
A) Ban them from the dealing room or back office.
B) State whether they are allowed in the dealing room and back office, and can be used.
C) Ban their use in the dealing room or back office.
D) Restrict their use to senior management and authorised out-of-hours trading and sales staff.

Accepted Answer

Completely banning mobile devices from the dealing room or back office may not be practical or feasible, as they can be useful tools for communication and staying in touch with clients. However, a clear policy should be in place stating whether they are allowed and under what circumstances they can be used. This can help ensure that mobile device use does not interfere with work or compromise security.

Question 10

The Chairman and members of the ACls Committee for Professionalism are ready to assist in resolving disputes through the ACIs Expert Determination Service in situations where:
A) The amount of the deal exceeds EUR 5 million.
B) The local regulator or central bank declines to intervene.
C) Litigation has already commenced.
D) At the request of one of the counterparties.

Accepted Answer

The option that best fits the situation when the ACls Committee for Professionalism can assist in resolving disputes through the ACIs Expert Determination Service is when one of the counterparties requests their assistance. The other options (A, B, and C) are not necessary criteria for the ACIs Expert Determination Service to be used.

Question 11

Which of the following currencies is quoted on an actual/360 basis?
A) EUR
B) JPY
C) CHF
D) All of the above

Accepted Answer

All of the above currencies are quoted on an actual/360 basis.

Question 12

The delta of an option is:
A) The sensitivity of the option value to changes in interest rates
B) The sensitivity of the option value to changes in volatility
C) The sensitivity of the option value to changes in the time to expiry
D) The sensitivity of the option value to changes in the price of the underlying

Accepted Answer

Delta is the sensitivity of the option value to changes in the price of the underlying asset. It measures the amount of price change in the option for every $1 change in the underlying asset. Therefore, the correct answer is D. Choices A, B, and C are incorrect because they refer to other measures such as gamma, vega, and theta respectively.

Question 13

You and a dealer at another bank have an informal bilateral reciprocal arrangement to quote each other two-way prices. During periods of high volatility, the other dealer refuses to quote to you. The Model Code states that
A) The other dealer should act with honour, honesty and integrity.
B) It is a purely matter for your two institutions.
C) Such arrangements are not in any way enforceable or binding.
D) All of the above.

Accepted Answer

The answer of You and a dealer at another bank...

Question 14

Cable is quoted at 1.6075-80 and you say "5 yours!" to the broker. What have you done?
A) Sold USD 5 million at 1.6075
B) Sold GBP 5 million at 1.6075
C) Bought GBP 5 million at 1.60B0
D) Bought USD 5 million at 1.6080

Accepted Answer

Saying "5 yours" to the broker means you are selling 5 million of the quoted currency, which in this case is GBP, at the bid price of 1.6075. Therefore, the correct answer is B - Sold GBP 5 million at 1.6075.

Question 15

What is the purpose of a long strangle option strategy?
A) To anticipate very low volatility in the price of the underlying commodity
B) To anticipate moderately high volatility in the price of the underlying commodity
C) To anticipate moderate volatility in the price of the underlying commodity
D) To anticipate very high volatility in the price of the underlying commodity

Accepted Answer

The purpose of a long strangle option strategy is to anticipate very high volatility in the price of the underlying commodity. This strategy involves buying a call option and a put option at the same time, with both options having the same expiration date but different strike prices. The hope is that the price of the underlying asset will fluctuate significantly, causing one of the options to be profitable while the other expires worthless. This strategy is often used by traders who believe that there will be a large price movement in the near future but are uncertain about the direction of the movement.

Question 16

The Model Code recommends that when banks accept a stop-loss order
A) Management must ensure ongoing lines of communication are in place between the parties.
B) Management must report to the central bank.
C) Management allows only experienced dealers to take such orders.
D) Bank staff must secure the approval of the counterpartqs management to accept such orders.

Accepted Answer

The Model Code recommends that when banks accept a stop-loss order, management must ensure ongoing lines of communication are in place between the parties to avoid any confusion or miscommunication. This ensures that any changes in market conditions or the client's objectives can be addressed promptly.

Question 17

The two-week repo rate br the 5.25% bund 2007 is quoted to you at 3.33-38%. You agree to reverse in bonds worth EUR 266,125,000 with no initial margin. You would earn repo interest ot
A) EUR 349,806
B) EUR 344,632
C) EUR 319,315
D) EUR 324,110

Accepted Answer

To calculate the repo interest earned, we need to first calculate the interest rate for the two-week repo.

We can do this by taking the midpoint of the quoted rate:

(3.33% + 3.38%) / 2 = 3.355%

Next, we need to calculate the interest earned:

EUR 266,125,000 * (3.355% / 360 * 14) = EUR 344,632

Therefore, the answer is B, EUR 344,632.

Question 18

When dealing with a fund manager, who will allocate shares in a transaction to his unknown clients after the transaction has been executed with you, you should:
A) Agree in writing with the fund manager that the allocation will be confirmed as soon as practicable after the transaction is executed.
B) Insist on the allocation being made and confirmed before the transaction is executed.
C) Agree in writing with the fund manager that he will guarantee the transaction until the allocation is confirmed.
D) Any of the above.

Accepted Answer

While insisting on the allocation being made and confirmed before the transaction is executed would be preferred, it may not always be possible or practical in dealing with a fund manager who has unknown clients. Therefore, agreeing in writing with the fund manager that the allocation will be confirmed as soon as practicable after the transaction is executed provides a degree of assurance and transparency in the process. However, it is not necessary to request a guarantee of the transaction.

Question 19

If you buy GBP 2,000,000 against USD at 1.6020; GSP 1,000,000 at 1.6035 and GBP 3,000,000 at 1.6028, what is the average rate of your position?
A) 1.6035
B) 1.6027
C) 1.6030
D) 1.6023

Accepted Answer

We need to calculate the weighted average rate for the position:

(2,000,000 x 1.6020) + (1,000,000 x 1.6035) + (3,000,000 x 1.6028) = 10,814,600

Total amount = 2,000,000 + 1,000,000 + 3,000,000 = 6,000,000

Weighted average rate = 10,814,600/6,000,000 = 1.8024333

Rounding off to 4 decimal places, we get:

Weighted average rate = 1.6027

Therefore, the best choice is B.

Question 20

Dealers should not conduct dealing activities outside the bank unless:
A) Clear written guidelines issued by management are in place.
B) They are in an approved brokers office.
C) There are on holiday.
D) None of the above.

Accepted Answer

Conducting dealing activities outside the bank can increase the potential for errors, fraud, and other risks. Therefore, clear written guidelines issued by management are necessary to ensure that proper procedures are followed and risks are mitigated. The other choices, being in an approved broker's office or on holiday, do not necessarily provide sufficient protection against potential risks.

Exam 2: ACI Dealing Certificate-Part B

If a dealer has interest on one side, and the other side is dealt away, the broker should:

Bank XYZ calls you for a quote in EUR/USD for EURO 20 million. If you decide to quote to Bank XYZ:

Banks have a fiduciary responsibility to ensure that clients have all necessary information to understand the transaction because this:

When a broker calls "off" at the very instant a dealer "hits" the broker's price:

What is the risk of dealing through an agent with an unknown principal?

An option premium is a positive function of:

Where repos or securities lending transactions are entered into, the Model Code recommends:

Where the Committee for Professionalism of the ACI has been notified of a breach of the letter or spirit of the Model Code, it

Management policy on the use of mobile devices by trading sales and settlement staff should:

The Chairman and members of the ACls Committee for Professionalism are ready to assist in resolving disputes through the ACIs Expert Determination Service in situations where:

Which of the following currencies is quoted on an actual/360 basis?

The delta of an option is:

You and a dealer at another bank have an informal bilateral reciprocal arrangement to quote each other two-way prices. During periods of high volatility, the other dealer refuses to quote to you. The Model Code states that

Cable is quoted at 1.6075-80 and you say "5 yours!" to the broker. What have you done?

What is the purpose of a long strangle option strategy?

The Model Code recommends that when banks accept a stop-loss order

The two-week repo rate br the 5.25% bund 2007 is quoted to you at 3.33-38%. You agree to reverse in bonds worth EUR 266,125,000 with no initial margin. You would earn repo interest ot

When dealing with a fund manager, who will allocate shares in a transaction to his unknown clients after the transaction has been executed with you, you should:

If you buy GBP 2,000,000 against USD at 1.6020; GSP 1,000,000 at 1.6035 and GBP 3,000,000 at 1.6028, what is the average rate of your position?

Dealers should not conduct dealing activities outside the bank unless: