Question 1

The Market Segmentation hypothesis suggests that the yield curve bends at some point along its length because:
A) Investors have less appetite for longer-term investments
B) Borrowers prefer to borrow long-term but lenders prefer to lend short-term
C) Different types of institution tend to specialize in different maturity ranges
D) The risk premium becomes significant only at longer maturities

Accepted Answer

The Market Segmentation hypothesis posits that the yield curve bends because different types of institutions specialize in different maturity ranges, leading to segmented markets for different maturities.

Question 2

A 3-month (91-day) US Treasury bill is quoted at a rate of discount of 4.25%. What is its true yield?
A) 4.19%
B) 4.25%
C) 4.30%
D) 4.31%

Accepted Answer

The answer of A 3-month (91-day) US Treasury bill is...

Question 3

How would you compute the bid side of the forward/forward FX swap points?
A) bid side of the near leg swap points minus offered side of the far leg swap points
B) bid side of the far leg swap points minus offered side of the near leg swap points
C) offered side of the far leg swap points minus bid side of the near leg swap points
D) offered side of the near leg swap points minus bid side of the far leg swap points

Accepted Answer

The bid side of the forward/forward FX swap points is computed by taking the bid side of the far leg swap points and subtracting the offered side of the near leg swap points.

Question 4

What type of institution is the typical drawer of banker's acceptances?
A) Credit institution
B) Investment bank
C) Corporate
D) Central Bank

Accepted Answer

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

Question 5

A bank that has quoted a firm price is obliged to deal:
A) At that price
B) At that price in a marketable amount
C) At that price in a marketable amount, provided the counterparty's name is acceptable
D) At that price in a marketable amount, provided the counterparty's name is acceptable and the market price has not moved excessively

Accepted Answer

A bank that has quoted a firm price is obliged to deal at that price in a marketable amount, provided the counterparty's name is acceptable. This ensures that the bank is protected against dealing with parties that may pose a credit risk.

Question 6

The spot/week repo rate for the 4.25% OAT 2015 is quoted to you at 2.35-38%. You buy bonds with a market value of EUR 3,295,500.00 through a sell/buy-back. The Repurchase Price is:
A) EUR 3,297,004.19
B) EUR 3,297,005.86
C) EUR 3,297,025.09
D) EUR 3,296,985.23

Accepted Answer

To calculate the repurchase price, we need to use the following formula:

Repurchase Price = Market Value / (1 + (Spot/week rate * Days/360))

Market Value = EUR 3,295,500.00
Spot/week rate = 2.35-38% (we'll use the mid-point of 2.36%)
Days = 7

Repurchase Price = 3,295,500.00 / (1 + (2.36% * 7/360)) 
Repurchase Price = EUR 3,297,005.86

Therefore, the correct answer is B.

Question 7

Which type of repo is the most risky for the buyer?
A) Delivery repo
B) HIC repo
C) TO-party repo
D) There is no real difference

Accepted Answer

In a TO-party repo, the buyer does not receive the securities directly, increasing counterparty risk.

Question 8

You have taken 3-month deposits of EUR 10,000,000.00 at 0.60%, EUR 5,000,000.00 at 0.40% and EUR 5,000,000.00 at 0.50%. What is the average rate of your long position?
A) 0.525%
B) 0.45%
C) 0.75%
D) 0.375%

Accepted Answer

To calculate the average rate of a long position, we need to find the weighted average of the interest rates. The formula for weighted average is (amount_1 x rate_1 + amount_2 x rate_2 + amount_3 x rate_3)/(total amount). Using this formula, we get:

(10,000,000 x 0.60% + 5,000,000 x 0.40% + 5,000,000 x 0.50%) / 20,000,000 = 0.525%

Therefore, the average rate of the long position is 0.525%. Option A is the correct answer.

Question 9

Which of the following statements is true concerning dealing and rollovers at non-current rates?
A) When setting the rates for an FX swap to extend the maturity, the spot rate should be fixed immediately within the current spread
B) Where the use of non-current rates may be necessary, they should only be entered into with the prior explicit permission of the quoting party's senior management
C) Dealing and rollovers at non-current rates are relatively common market practice and therefore should not be treated differently from any other transaction
D) Dealing and rollovers at non-current rates are forbidden as they can help perpetrate fraud and tax evasion

Accepted Answer

The answer of Which of the following statements is true...

Question 10

Your agent bank accepts your back-valuation request for 1 day on an amount of EUR 50,000,000.00. EONIA is 0.375% and the ECB marginal lending facility rate is 1.50%. Applying conventional administration fees, how much will this be charged?
A) EUR 620.83
B) EUR 868.06
C) EUR 968.06
D) EUR 2,183.33

Accepted Answer

The answer of Your agent bank accepts your back-valuation request...

Question 11

What is the ISO code for palladium?
A) XAU
B) XAG
C) XPT
D) XPD

Accepted Answer

The ISO code for palladium is XPD. A is the ISO code for gold (XAU), B is the ISO code for silver (XAG), and C is the ISO code for platinum (XPT). Therefore, the best choice is D.

Question 12

A 30-day 4% CD with a face value of GBP 20,000,000.00 is trading in the secondary market with 20 days remaining to maturity at 4.05%. What would be your holding period yield if you bought the CD now and held it to maturity?
A) 4.05%
B) 4.0%
C) 3.891%
D) 3.838%

Accepted Answer

The answer of A 30-day 4% CD with a face...

Question 13

Clients of a voice-broker quote EUR/GBP at 0.8345-50, 0.8346-51, 0.8348-53 and 0.8349-53. What will be the broker's price?
A) 0.8345-53
B) 0.8345-50
C) 0.8349-50
D) 0.8349-53

Accepted Answer

The answer of Clients of a voice-broker quote EUR/GBP at...

Question 14

Automated trading systems for interbank spot FX display the best prices entered into the systems by users and:
A) Display the names of those users along their prices
B) Offer pre-trade anonymity to users quoting prices
C) Offer pre and post-trade anonymity to users quoting prices
D) Offer users the choice of whether to remain anonymous

Accepted Answer

Automated trading systems for interbank spot FX offer pre-trade anonymity to users quoting prices. This is to maintain confidentiality and prevent any bias or favoritism towards certain users.

Question 15

A 3-month (91-day) deposit of AUD 25,000,000.00 is made at 3.25%. At maturity, it is rolled over three times at 3.55% for 90 days, 4.15% for 91 days and 4.19% for 89 days. At the end of 12 months, how much is repaid (principal plus interest)?
A) AUD 25,962,011.00
B) AUD 25,959,714.91
C) AUD 25,948,878.47
D) AUD 25,948,648.82

Accepted Answer

The correct answer is A because the total interest earned over the 12-month period is AUD 962,011.00, which is added to the principal amount of AUD 25,000,000.00 to give a total repayment of AUD 25,962,011.00.

Question 16

What is the ISO code for silver?
A) XAU
B) XAG
C) XPT
D) XPD

Accepted Answer

The ISO code for silver is XAG. XAU is the ISO code for gold, XPT is the ISO code for platinum, and XPD is the ISO code for palladium.

Question 17

What is the ISO code for the Argentine peso?
A) ARP
B) ARS
C) ARA
D) AED

Accepted Answer

The ISO code for the Argentine peso is ARS, not ARP or ARA. AED is the ISO code for the United Arab Emirates dirham, which is a completely different currency.

Question 18

Confirmations of non-prime brokerage deals using CLS should be exchanged:
A) within 2 hours after deal agreed with counterparty
B) before the value date of the trade
C) by the end of the trade date
D) within 24 hours

Accepted Answer

The answer of Confirmations of non-prime brokerage deals using CLS...

Question 19

Today's spot value date is Friday 27th February. What is normally the 1-month maturity date? Assume no bank holidays.
A) 28th March
B) 29th March
C) 30th March
D) 31st March

Accepted Answer

The answer of Today's spot value date is Friday 27th...

Question 20

Spot EUR/USD is 1.3050-53 and EUR interest rates are lower than USD interest rates. Would you expect the forward points for EUR/USD to be:
A) added to spot
B) subtracted from spot
C) a negative value
D) Insufficient information to decide

Accepted Answer

If EUR interest rates are lower than USD interest rates, then the forward points for EUR/USD will be added to spot. This is because the forward rate will be higher than the spot rate in order to compensate for the difference in interest rates.

Exam 2: ACI Dealing Certificate-Part B

The Market Segmentation hypothesis suggests that the yield curve bends at some point along its length because:

A 3-month (91-day) US Treasury bill is quoted at a rate of discount of 4.25%. What is its true yield?

How would you compute the bid side of the forward/forward FX swap points?

What type of institution is the typical drawer of banker's acceptances?

A bank that has quoted a firm price is obliged to deal:

The spot/week repo rate for the 4.25% OAT 2015 is quoted to you at 2.35-38%. You buy bonds with a market value of EUR 3,295,500.00 through a sell/buy-back. The Repurchase Price is:

Which type of repo is the most risky for the buyer?

You have taken 3-month deposits of EUR 10,000,000.00 at 0.60%, EUR 5,000,000.00 at 0.40% and EUR 5,000,000.00 at 0.50%. What is the average rate of your long position?

Which of the following statements is true concerning dealing and rollovers at non-current rates?

Your agent bank accepts your back-valuation request for 1 day on an amount of EUR 50,000,000.00. EONIA is 0.375% and the ECB marginal lending facility rate is 1.50%. Applying conventional administration fees, how much will this be charged?

What is the ISO code for palladium?

A 30-day 4% CD with a face value of GBP 20,000,000.00 is trading in the secondary market with 20 days remaining to maturity at 4.05%. What would be your holding period yield if you bought the CD now and held it to maturity?

Clients of a voice-broker quote EUR/GBP at 0.8345-50, 0.8346-51, 0.8348-53 and 0.8349-53. What will be the broker's price?

Automated trading systems for interbank spot FX display the best prices entered into the systems by users and:

A 3-month (91-day) deposit of AUD 25,000,000.00 is made at 3.25%. At maturity, it is rolled over three times at 3.55% for 90 days, 4.15% for 91 days and 4.19% for 89 days. At the end of 12 months, how much is repaid (principal plus interest) ?

What is the ISO code for silver?

What is the ISO code for the Argentine peso?

Confirmations of non-prime brokerage deals using CLS should be exchanged:

Today's spot value date is Friday 27th February. What is normally the 1-month maturity date? Assume no bank holidays.

Spot EUR/USD is 1.3050-53 and EUR interest rates are lower than USD interest rates. Would you expect the forward points for EUR/USD to be: