Question 1

Under Basel rules the risk weight for claims on unrated sovereigns and their cennl banks in the standardized approach is:
A) 75%
B) 100%
C) 150%
D) 350%

Accepted Answer

The answer of Under Basel rules the risk weight for...

Question 2

What happens if an instruction remains unmatched and/or unsettled through CLS Bank?
A) If there is more than one FX trade with a single counterparty to settle in the identical currencies, then both sides should bilaterally agree to settle the trades outside of CLS Bank on a net basis.
B) If there is only one FX trade with a single counterparty to settle in the identical currencies, then either side can unilaterally decide to settle the trade outside of CLS Bank on a net basis.
C) If there is more than one FX trade with a single counterparty to settle in the identical currencies, then both sides should bilaterally agree to settle the trade outside CLS Bank on a gross basis.
D) If there is more than one FX trade with a single counterparty to settle in the identical currencies, then either side can unilaterally instruct the CLS Bank to settle the trades.

Accepted Answer

If an instruction remains unmatched and/or unsettled through CLS Bank, both parties should bilaterally agree to settle the trades outside of CLS Bank on a gross basis when there is more than one FX trade with a single counterparty to settle in the identical currencies. This is because settling on a net basis could potentially create credit risks for both parties. Therefore, choice C is the best choice.

Question 3

Under Basel Rules, the Basic Indicator Approach is a regulatory framework for:
A) liquidity risk
B) business risk
C) operational risk
D) funding risk

Accepted Answer

The answer of Under Basel Rules, the Basic Indicator Approach...

Question 4

In interbank trading, if a dealer is calling "off" at the same time as the broker is hitting a price:
A) no transaction should be concluded and the broker should inform both counterparties accordingly
B) a transaction should be concluded and the broker should inform both counterparties accordingly
C) the dealer has the choice of either concluding the transaction or not
D) the broker decides whether the transaction should be concluded or not

Accepted Answer

The answer of In interbank trading, if a dealer is...

Question 5

What does the Model Code recommend regarding "entertainment and gifts"?
A) Management should monitor the form, frequency and cost of entertainment and gifts dealers receive, have a clearly articulated policy towards the giving/receipt of gifts and ensure the policy is enforced.
B) As gifts and entertainment may be offered in the normal course of business, employees can offer inducements to conduct business and solicit them from the personnel of other institutions.
C) Although management should not monitor the form, frequency or cost of entertainment/gifts dealers receive, they may have a policy towards the giving/receipt of gifts and ensure the policy is enforced.
D) Gifts or entertainment should never be offered in the normal course of business, and employees must never offer any inducements to conduct business, nor solicit them from other institutions.

Accepted Answer

The answer of What does the Model Code recommend regarding...

Question 6

Bank XYZ calls you for a quote in EUR/USD for EUR 50,000,000.00. If you decide to quote, which of the following is true?
A) You must be prepared to deal EUR 50,000,000.00.
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) You must be prepared to deal for more than EUR 50,000,000.00 in case Bank XYZ wishes to.

Accepted Answer

When quoting a price for a specific amount, you must be prepared to deal the full amount requested, in this case, EUR 50,000,000.00.

Question 7

In order to give a price in EUR/USD, the broker must:
A) know whether the European Central Bank or the Federal Reserve is in the market before quoting
B) be sure that the quoting bank's prices are not shared with other brokers
C) get the price from a bank or a bid and an offer from different banks in order to make a two-way price, because the broker cannot make prices on his own
D) make sure that the quoting banks have sufficient credit lines

Accepted Answer

In order to give a price in EUR/USD, the broker must get the price from a bank or a bid and an offer from different banks in order to make a two-way price, because the broker cannot make prices on his own. This is because the foreign exchange market is decentralized, and pricing is determined by the supply and demand of different banks and market participants. Therefore, the broker must rely on external sources to provide accurate pricing information. Choices A, B, and D are not relevant to the process of quoting a price in EUR/USD.

Question 8

The weighted average duration of liabilities can be increased by:
A) buying additional 30-year German Government bonds
B) selling futures contracts on 30-year German Government bonds
C) buying futures contracts on 10-year German Government bonds
D) exercising an early repayment option on a long-term senior borrowing

Accepted Answer

The answer of The weighted average duration of liabilities can...

Question 9

Where sale and repurchase agreements or stock borrowing or lending transactions are entered into:
A) screen services, brokers and other third party providers can all be useful sources of data
B) For periods less than one month, the maturity date will be the first date that is a business day that is within one, seven, fourteen days from the value date, but when near the month end must never be a date in the next calendar month
C) Inter-dealer brokers or the automated trading system need not be notified when participants attempt to utilize odd settlement dates
D) It is not recommended that legal opinion should be obtained on the enforceability of the contract

Accepted Answer

Screen services, brokers and other third party providers can provide useful data when sale and repurchase agreements or stock borrowing or lending transactions are being entered into.

Question 10

A dealer has been invited by a broker to go to an exclusive club for the third time in a week. He should:
A) agree, since entertainment is a normal part of business
B) refer this to senior management
C) agree but insist on paying half the cost
D) agree, if the broker pays for the event but does not attend it

Accepted Answer

The dealer should refer this invitation to senior management to make sure that going to an exclusive club multiple times in a week is in line with company policies and regulations regarding gifts and entertainment. It's important to avoid any appearance of impropriety and ensure that all actions are ethical and legal.

Question 11

Under Basel rules the meaning of CCF is:
A) Currency Conversion Factor
B) Credit Conversion Factor
C) Credit Contribution Factor
D) Credit Collateralization Factor

Accepted Answer

CCF stands for Credit Conversion Factor, which is a parameter used in the calculation of credit risk under Basel regulations. It measures the degree of credit risk associated with a particular exposure, such as a loan or a derivative contract.

Question 12

Under Basel rules, expected credit loss is a function of which of the following sets of parameters:
A) 1 minus recovery rate, probability of default and exposure at default
B) exposure at origination, exposure at default and loss given default
C) loss given default, 1 minus recovery rate and exposure at default
D) exposure at origination, recovery rates and probability of default

Accepted Answer

The expected credit loss under Basel rules is a function of exposure at origination, exposure at default, and loss given default. The choice A includes the 1 minus recovery rate, which is not explicitly used in this calculation. The choice C includes the loss given default and 1 minus recovery rate, but not exposure at origination, which is an important factor in determining expected credit loss. The choice D includes exposure at origination and probability of default, but not exposure at default or loss given default, which are also important factors in determining expected credit loss. Therefore, only choice B is the correct answer.

Question 13

Whose compliance rules, regulations and best practices should be followed in FX electronic trading?
A) solely those of the electronic trading platforms vendors
B) exclusively ACI's Model Code Best Practices
C) ACI's Model Code Best Practices and ICMA's Market Practice & Regulatory Policy
D) the electronic trading platforms vendors' and the ACIs Model Code Best Practices guidelines

Accepted Answer

The answer of Whose compliance rules, regulations and best practices...

Question 14

Prudential regulation of banking book liquidity risk is dealt with by the Basel Committee (Basel II / Basel III) in the context of:
A) capital adequacy regulations in Pillar 1
B) market risk and Tier 3 capital elements
C) internal management procedures subject to supervisory review in Pillar 2
D) market discipline, disclosure and transparency in Pillar 3

Accepted Answer

The answer of Prudential regulation of banking book liquidity risk...

Question 15

VaR increases with:
A) lower correlation of underlying risk factors
B) a shorter time horizon
C) a lower confidence level
D) a higher confidence level

Accepted Answer

The answer of VaR increases with:
A) lower correlation of underlying...

Question 16

Which one of the following is a major objective of ACI-The Financial Markets Association?
A) to promote globalization and deregulation of the financial markets
B) to maintain the professional level of competence and to disseminate a high level of ethical and professional behavior
C) to act as the official international market regulator in the absence of government regulation
D) to become the sole global corporation of wholesale financial market professionals

Accepted Answer

ACI-The Financial Markets Association's major objective is to maintain the professional level of competence and to disseminate a high level of ethical and professional behavior among its members. The organization focuses on promoting a fair and transparent financial market globally while ensuring its members adhere to the highest standards of professional conduct. ACI-The Financial Markets Association does not seek to promote globalization and deregulation, act as the official international market regulator, or become the sole global corporation of wholesale financial market professionals.

Question 17

When a deal is done via a broker:
A) it need not be confirmed between the counterparties as the broker confirms it immediately with both counterparties
B) it should also be confirmed directly between the two counterparties
C) it is important to note that broker confirmations are bilateral confirmations between the principals of the trade
D) the dealer should obtain acknowledgement that the deal has been agreed to but may assume agreement to the trade in the absence of such acknowledgement

Accepted Answer

While the broker confirms the deal with both counterparties, it is also important for the counterparties to confirm the deal directly with each other to ensure accuracy and avoid any misunderstandings.

Question 18

What is meant by "turn of the month"?
A) the last calendar day of the month
B) the last bank business day of the month
C) value last business day of the month against first business day of the next month
D) value first business day of the month against last business day of the same month

Accepted Answer

"Turn of the month" refers to the comparison of the value on the last business day of the month with the value on the first business day of the next month, which is relevant in financial and investment contexts.

Question 19

Which of the following is required for institutions acting as prime brokers?
A) They must remain neutral and stay out of disputes between their customers.
B) They must rely on the execution venue to resolve disputes.
C) They must delegate the resolution of broken trades downstream to their clients.
D) They must take responsibility for the swift resolution of any disputes.

Accepted Answer

Institutions acting as prime brokers are responsible for providing various services to their clients, including trade execution, financing, and custodial services. As a result, they must take responsibility for the swift resolution of any disputes that arise between their clients, as they are the primary point of contact for their clients in these matters. It is not sufficient for prime brokers to remain neutral or delegate the resolution of disputes downstream, as this would not fulfill their obligations to their clients. Additionally, relying on the execution venue to resolve disputes is not a requirement for prime brokers, as they must be able to handle such issues internally.

Question 20

What recommendation does the Model Code make to banks accepting a stop-loss order?
A) The Model Code emphasizes the importance of clear, concise documentation and on-going lines of communication.
B) Bank management must guarantee a fixed price execution to the counterparty.
C) The Model Code recommends that only experienced dealers should be allowed to take such orders.
D) Bank staff must secure the approval of the counterparty's management to accept such orders.

Accepted Answer

The Model Code emphasizes the importance of clear, concise documentation and ongoing lines of communication to ensure that all parties understand the terms and conditions of the stop-loss order.

Exam 2: ACI Dealing Certificate-Part B

Under Basel rules the risk weight for claims on unrated sovereigns and their cennl banks in the standardized approach is:

What happens if an instruction remains unmatched and/or unsettled through CLS Bank?

Under Basel Rules, the Basic Indicator Approach is a regulatory framework for:

In interbank trading, if a dealer is calling "off" at the same time as the broker is hitting a price:

What does the Model Code recommend regarding "entertainment and gifts"?

Bank XYZ calls you for a quote in EUR/USD for EUR 50,000,000.00. If you decide to quote, which of the following is true?

In order to give a price in EUR/USD, the broker must:

The weighted average duration of liabilities can be increased by:

Where sale and repurchase agreements or stock borrowing or lending transactions are entered into:

A dealer has been invited by a broker to go to an exclusive club for the third time in a week. He should:

Under Basel rules the meaning of CCF is:

Under Basel rules, expected credit loss is a function of which of the following sets of parameters:

Whose compliance rules, regulations and best practices should be followed in FX electronic trading?

Prudential regulation of banking book liquidity risk is dealt with by the Basel Committee (Basel II / Basel III) in the context of:

VaR increases with:

Which one of the following is a major objective of ACI-The Financial Markets Association?

When a deal is done via a broker:

What is meant by "turn of the month"?

Which of the following is required for institutions acting as prime brokers?

What recommendation does the Model Code make to banks accepting a stop-loss order?