Question 1

When dealing with customers, financial market professionals are advised by the Model Code to clarify that all transactions are entered into solely at each partys risk by explicitly agreeing in writing that:
A) The customer understands the structure of the transaction.
B) The customer has made its own assessment and independent decision to enter into the transaction and is doing so at its own risk and for its own account.
C) No fiduciary or advisory relationship exists between the parties, and all the information is has received is not to be construed as investment advice or a recommendation to transact.
D) All of the above.

Accepted Answer

All of the above choices are advised by the Model Code to be explicitly agreed upon in writing to clarify that all transactions are entered into solely at each party's risk when dealing with customers. These include ensuring that the customer understands the structure of the transaction, making their own assessment and independent decision to enter into the transaction at their own risk and for their own account, and acknowledging that no fiduciary or advisory relationship exists and information received is not to be construed as investment advice or a recommendation to transact.

Question 2

Brokers should confirm all transactions:
A) Initially by fax or other acceptable electronic means, then in writing.
B) Only if the deal is between overseas counterparties and for value today.
C) Only if the transaction is not for a marketable amount.
D) To both counterparties immediately by fax or other acceptable electronic means.

Accepted Answer

Brokers should confirm all transactions to both counterparties immediately by fax or other acceptable electronic means to ensure accuracy and prevent disputes.

Question 3

You hear from several counterparties that a major market participant has taken major losses on long USD/JPY positions. You know the reports are untrue, as you have in fact bought large amounts of USD/JPY from that very firm, which means that the impact of the reports on the market would be helpful to your position.
A) As you have heard the reports from other parties, you are entitled to pass them on to market news services.
B) As you have heard the reports from other parties, you are entitled to pass them on to other market participants.
C) You should not pass any information you know to be false.
D) You should contradict the reports.

Accepted Answer

Passing on information you know to be false is unethical and could be considered market manipulation.

Question 4

If you sell USD 3-month forward to a client against EUR, what should you do to hedge your position?
A) Buy USD spot, and buy and sell a 3-month EUR/USD FX swap
B) Sell EUR/USD in the spot market, borrow EUR for 3 months and lend USD for 3 months
C) Sell a 3-month EUR/USD outright forward
D) Any of the above

Accepted Answer

All of the choices are correct ways to hedge a position in USD 3-month forward against EUR.

Question 5

If the value date of forward USD/JPY transactions is declared a holiday in either New York or Tokyo, the correct value date will be:
A) The value date of the centre which is open.
B) The next business day of the centre which is closed.
C) The next business day when both NewYork and Tokyo are open.
D) None of the above.

Accepted Answer

The value date for forward transactions should be a business day in both centers involved in the transaction. If the value date falls on a holiday in either New York or Tokyo, it is moved to the next business day when both centers are open.

Question 6

Making interest rate swap transactions subject to agreement on documentation:
A) Is recommended where the complications of the transaction warrant the practice.
B) Is strictly forbidden.
C) Is considered bad practice.
D) Must have senior management approval.

Accepted Answer

The answer of Making interest rate swap transactions subject to...

Question 7

When is a broker allowed to 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 an acknowledgement is received from the principal that the deal is done.
D) When both back offices acknowledge the deal.

Accepted Answer

The broker is allowed to assume a deal is closed when an acknowledgement is received from the principal that the deal is done. This provides clear and direct confirmation from the involved parties and reduces the risk of the broker assuming a deal is closed when it may not actually be.

Question 8

A 1-month (30-day) USCP with a race value of USD 5 million is quoted at a rate of discount of 2.31%. How much is the paper worth?
A) USD 4,884,500.00
B) USD 4,990,375.00
C) USD 4,990.506.85
D) USD 4,990,393.49

Accepted Answer

The value of the paper is calculated using the formula: Value = Face Value - (Discount Rate * Face Value * (Days/360)). Substituting the given values: Value = 5,000,000 - (0.0231 * 5,000,000 * (30/360)) = USD 4,990,375.00.

Question 9

Which of the following would not constitute an event of market isruption under the Model Code?
A) The imposition of capital controls.
B) A major terrorist attack on a financial centre.
C) The failure of SWIFT.
D) Concerted cestal bank intervention.

Accepted Answer

According to the Model Code, central bank intervention is a normal market event and therefore would not constitute an event of market disruption. The other options are all examples of potential market disruptions.

Question 10

How are Overnight Indexed Swaps 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) after maturity by net payment

Accepted Answer

The answer of How are Overnight Indexed Swaps settled?
A) periodic...

Question 11

Which of the following is true?
A) The Euronext.LIFFE short sterling futures contract has a tick value of GBP 12.50 and a face value of GBP 1,000,000
B) The Euronext.LIFFE JPY futures contract has a tick value of JPY 2,500 and a face value of JPY 1,000,000,000
C) The CME eurodollar futures contract has a minimum price interval of one-quarter tick (0.0025) for the nearest contract
D) All of the above

Accepted Answer

The answer of Which of the following is true?
A) The...

Question 12

The Model Code strongly recommends that intra-day oral deal checks should:
A) Be conducted out at the end of the morning and afternoon trading sessions.
B) Be only be conducted after the close of business.
C) Be mutually agreed between the bank and the broker or counterparty.
D) Be the responsibility of the broker.

Accepted Answer

The Model Code states that intra-day oral deal checks should be mutually agreed between the bank and the broker or counterparty.

Question 13

A customer asks for a price in 3-month CHF/JPY. You quote 56/54. The customer deals at 54. What have you done?
A) Bought CHF against JPY spot and sold JPY against CHF 3-month forward
B) Sold CHF against JPY spot and bought CHF against JPY 3-month forward
C) Bought CHF against JPY spot and sold CHF against JPY 3-month forward
D) Bought JPY against CHF 3-month outright

Accepted Answer

Quoting 56/54 means you are willing to sell CHF against JPY 3-month forward at a rate of 56 and buy at a rate of 54. The customer deals at 54, which means they are buying CHF and selling JPY at a rate of 54 for the 3-month forward. Therefore, you have bought CHF against JPY spot (at the current spot rate) and sold CHF against JPY 3-month forward (at the quoted rate of 56/54).

Question 14

An interest rate swap is:
A) A contract to exchange one stream of income payments for another
B) A temporary exchange of one deposit for another of a longer maturity in the same currency
C) A forward-forward contract
D) All of the above

Accepted Answer

An interest rate swap is a contractual agreement between two parties to exchange one stream of future interest payments for another, based on a specified notional amount. This allows each counterparty to achieve its desired mix of fixed and floating interest rates. Options B and C do not accurately describe an interest rate swap.

Question 15

You hear from a client of good standing that a major market participant has taken major losses on its proprietary trading book and is desperate for liquidity. You are not convinced that the story is true, but have a friend at another bank who you know has very large exposures to this firm and would be seriously damaged by a default. What advice does the Model Code give?
A) Unsubstantiated information which you suspect to be inaccurate and which could be damaging to a third party should not be passed on in any circumstances.
B) Unsubstantiated information which you suspect to be inaccurate and which could be damaging to a third party should be discussed only with great care.
C) Unsubstantiated information which you suspect to be inaccurate and which could be damaging to a third party should be reported to the regulator in order to provide warning of possible systemic problems.
D) You have a duty to warn counterparties but should make clear that the information is unsubstantiated.

Accepted Answer

The answer of You hear from a client of good...

Question 16

Which of the following is not in the Model Code?
A) Banks and brokers should record, by tapes or other such means, conversations between dealing counterparties.
B) There is no need to inform new counterparties and clients that conversations will be recorded.
C) On completion of recordings, tapes should be kept for a period sufficient to enable the details of any transaction contained therein to be confirmed.
D) The storage of recorded tapes should be strictly managed to prevent their contents from being tampered with.

Accepted Answer

The Model Code does not provide guidance on whether or not counterparties and clients should be informed of the recording of conversations. It is up to individual firms to have their own policies and procedures in place regarding this issue.

Question 17

One of your brokers asks you to buy and sell EUR/USD at the same price net of brokerage in order to allow him to clear a transaction.
A) You must have prior senior management approval.
B) You must have the authoritq to switch names.
C) You must execute such transactions as promptly as possible within policy guidelines
D) All of the above.

Accepted Answer

All of the options given are necessary to execute such transactions. Prior senior management approval is required to ensure that the transactions are in line with company policy and regulations. The authority to switch names is necessary to prevent any conflicts of interest or market manipulation. The transactions should also be executed promptly within policy guidelines to minimize any potential market risk or impact.

Question 18

What type of institution is the typical issuer of bank bills?
A) Credit institution
B) lnvestment bank
C) Corporate
D) All of the above

Accepted Answer

The answer of What type of institution is the typical...

Question 19

You have written a EUR/USD knock-in option for a bank counterparty. At 6pm New York time on Friday, the instrike point is breached. This is confirmed on screens. The counterparty contacts you to confirm that the option has been knocked in.
A) The deal is done. You should confirm with your counterparts.
B) If the knock-in is confirmed by a New York price source, the deal is done and you should confirm with your counterparty.
C) The recognised closing time for the currency markets is 6:00pm New York time in Friday, so the deal is done and you should confirm with your counterparty.
D) The recognised closing time for the currency markets is 5:00pm NewYork time in Friday, so no deal is done.

Accepted Answer

The answer of You have written a EUR/USD knock-in option...

Question 20

Where dealing through an intermediary with an unidentified principal, the Model Code recommends:
A) It is good practice for compliance, legal or credit functions to identity counterparties before the execution of a deal.
B) Management should have in place a clearwritten policy and procedures governing such transactions.
C) Management needs to be aware of the risks involved, particularly with respect to credit exposure and money laundering.
D) All of the above.

Accepted Answer

The Model Code recommends all of the above measures when dealing through an intermediary with an unidentified principal to mitigate the risks involved in such transactions. It is good practice to identify counterparties before executing a deal, management should have clear policies and procedures governing such transactions, and should be aware of the risks involved, particularly with respect to credit exposure and money laundering.

Exam 2: ACI Dealing Certificate-Part B

When dealing with customers, financial market professionals are advised by the Model Code to clarify that all transactions are entered into solely at each partys risk by explicitly agreeing in writing that:

Brokers should confirm all transactions:

If you sell USD 3-month forward to a client against EUR, what should you do to hedge your position?

If the value date of forward USD/JPY transactions is declared a holiday in either New York or Tokyo, the correct value date will be:

Making interest rate swap transactions subject to agreement on documentation:

When is a broker allowed to assume a deal is closed:

A 1-month (30-day) USCP with a race value of USD 5 million is quoted at a rate of discount of 2.31%. How much is the paper worth?

Which of the following would not constitute an event of market isruption under the Model Code?

How are Overnight Indexed Swaps settled?

Which of the following is true?

The Model Code strongly recommends that intra-day oral deal checks should:

A customer asks for a price in 3-month CHF/JPY. You quote 56/54. The customer deals at 54. What have you done?

An interest rate swap is:

Which of the following is not in the Model Code?

One of your brokers asks you to buy and sell EUR/USD at the same price net of brokerage in order to allow him to clear a transaction.

What type of institution is the typical issuer of bank bills?

You have written a EUR/USD knock-in option for a bank counterparty. At 6pm New York time on Friday, the instrike point is breached. This is confirmed on screens. The counterparty contacts you to confirm that the option has been knocked in.

Where dealing through an intermediary with an unidentified principal, the Model Code recommends: