Question 1

Which of the following is true?
A) The 3-month EURODOLLAR futures contract has a basis point value of USD 50.00 and a face value of USD 1,000,000.00
B) The 3-month EURIBOR futures contract has a a basis point value of EUR 12.50 and a face value of EUR 500,000.00
C) The 3-month Sterling (SHORT STERLING) futures contract has a a basis point value of GBP 12.50 and a face value of GBP 500,000.00
D) The 3-month Euro Swiss Franc (EUROSWISS) futures contract has a a basis point value of CHF 50.00 and a face value of CHF 2,000,000.00

Accepted Answer

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

Question 2

A "time option" is an outright forward FX transaction where the customer:
A) has the option to fulfill the outright forward or not at maturity
B) may freely choose the maturity, given a 24-hour notice to the bank
C) can choose any maturity within a previously fixed period
D) may decide to deal at the regular maturity or on either the business day before or after

Accepted Answer

A time option is an outright forward transaction where the customer can choose any maturity within a previously fixed period. This fixed period could be days or weeks, depending on the agreement between the customer and the bank. The customer has the option to select a maturity date that suits their needs, giving them greater flexibility compared to a regular outright forward transaction where the maturity is fixed.

Question 3

A 12-month EUR/USD swap is quoted at 41/44. EUR interest rates are expected to fall, with USD interest rates remaining stable. Assuming no change in the spot rate what effect would you expect on the forward points?
A) Unchanged
B) Move towards 28/31
C) Move towards 5 7/60
D) Insufficient information

Accepted Answer

The answer of A 12-month EUR/USD swap is quoted at...

Question 4

You are quoted the following market rates: spot USD/SEK 6.3850 1M (30-day) USD 0.40% 1M (30-day) SEK 1.15% What is 1-month USD/SEK?
A) 6.4250
B) 6.3810
C) 6.7850
D) 6.3890

Accepted Answer

The forward rate can be calculated using the formula: Forward Rate = Spot Rate * (1 + Interest Rate of Base Currency * (Days/360)) / (1 + Interest Rate of Quote Currency * (Days/360)). Plugging in the given values, the forward rate is approximately 6.3890.

Question 5

You have a short position of 50 EURODOLLAR futures contracts. You can hedge your position by:
A) Selling a FRA for a similar notional amount
B) Buying a FRA for a similar notional amount
C) Selling a call option on the contract
D) Selling a put option on the contract

Accepted Answer

The answer of You have a short position of 50...

Question 6

Which of the following is true?
A) The 3-month Sterling (SHORT STERLING) futures contract has a basis point value of GBP 25.00 and a face value of GBP 1,000,000 .00
B) The EUROYEN TIBOR futures contract has a basis point value of JPY 25,000 and a face value of JPY 1,000,000,000
C) The CME EURODOLLAR futures contract has a minimum price interval of one-quarter basis point value (0.0025) for the nearest contract
D) The 3-month EURIBOR futures contract has a minimum price interval of half a basis point value (0.0050) for the nearest contract

Accepted Answer

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

Question 7

As far as fineness and weight are concerned, what are the London Bullion Market Association (LBMA) requirements for a "good delivery bar"?
A) at least 995/1000 pure gold; weight between 350 and 430 fine ounces
B) minimum 999.9/1000 pure gold; weight between 350 and 430 fine ounces
C) at least 995/1000 pure gold; weight of 400 fine ounces
D) minimum 995/1000 pure gold; weight of 400 fine ounces

Accepted Answer

The LBMA requires a "good delivery bar" to be at least 995/1000 pure gold and weigh between 350 and 430 fine ounces.

Question 8

The mid-rate for USD/CHF is 0.9300 and the mid-rate for NZD/USD is 0.8560. What is the mid rate for NZD/CHF?
A) 0.7961
B) 1.0864
C) 1.7860
D) 1.2561

Accepted Answer

To find the mid-rate for NZD/CHF, multiply the mid-rate for NZD/USD (0.8560) by the mid-rate for USD/CHF (0.9300): 0.8560 * 0.9300 = 0.7961.

Question 9

Assuming a flat yield curve in both currencies, when quoting a 1- to 2-month forward FX time option price in a currency pair trading at a discount to a customer:
A) you would take as bid rate the bid side of the 2-month forward and as offered rate the offered side of the 1-month forward
B) you would take as bid rate the offered side of the 2-month forward and as offered rate the bid side of the 1-month forward
C) you would take as bid rate the offered side of the 1-month forward and as offered rate the offered side of the 2-month forward
D) you would take as bid rate the bid side of the 1-month forward and as offered rate the bid side of the 2-month forward

Accepted Answer

In a flat yield curve scenario, when quoting a forward FX time option for a currency pair trading at a discount, you would use the bid side of the longer-term forward (2-month) and the offered side of the shorter-term forward (1-month) to ensure the customer gets the best possible rate.

Question 10

What is the Overnight Index for EUR?
A) EURIBOR
B) EONIA
C) EUREPO
D) EURONIA

Accepted Answer

The Overnight Index for EUR is EONIA (Euro OverNight Index Average). EONIA is the reference rate that measures the cost of overnight euro borrowing. EURIBOR (European Interbank Offered Rate) is a benchmark rate that indicates the average interest rate at which a panel of European banks can borrow funds from one another. EUREPO (Euro Repurchase Agreement) is a lending agreement between two parties involving the sale of securities with a commitment to repurchase them at a future date. EURONIA is not a recognized financial term.

Question 11

Which of the following is true about interest rate swaps (IRS):
A) Both parties know what their future payments will be at the outset of the swap
B) There is payment of principal at maturity
C) Payments are always made gross
D) The fixed rate payer knows what his future payments will be at the outset of the swap

Accepted Answer

In an interest rate swap, the fixed rate payer knows what their future payments will be at the outset of the swap. This is because the fixed rate is agreed upon at the time of the swap, while the floating rate payments will fluctuate based on market conditions. Therefore, option D is the correct answer. Option A is not entirely true because one party's payments may vary based on market conditions. Option B is incorrect because there is no payment of principal at maturity, only interest payments. Option C is incorrect because payments can be made net of each other to reduce transaction costs.

Question 12

If a dealer has a 6-month USD asset and a 3-month USD liability, how could he hedge his balance sheet exposure in the FRA market?
A) Buy 3x6
B) Sell 3x6
C) Buy 0x6
D) Sell 6x9

Accepted Answer

The dealer can buy a 3x6 FRA to hedge his balance sheet exposure. This will lock in the USD interest rate for the next 3 months, protecting the dealer from any adverse movements in the USD interest rate.

Question 13

EURODOLLAR futures are:
A) Traded on the Chicago Mercantile Exchange (CME Group) and have a face value of USD 500,000.00
B) Traded on the Intercontinental Exchange (ICE) and have a face value of USD 1,000,000.00
C) Traded on the Intercontinental Exchange (ICE) and have a face value of USD 500,000.00
D) Traded on the Chicago Mercantile Exchange (CME Group) and have a face value of USD 1,000,000.00

Accepted Answer

Eurodollar futures are traded on the Chicago Mercantile Exchange (CME Group) and have a face value of USD 1,000,000.00.

Question 14

If spot AUD/USD is quoted to you as 1.0420-25 and 1-month forward AUD/USD is quoted to you as 28/23, at what rate can you buy USD 1-month outright?
A) 1.0448
B) 1.0402
C) 1.0397
D) 1.0392

Accepted Answer

The answer of If spot AUD/USD is quoted to you...

Question 15

You bought a CAD 8,000,000.00 6x9 FRA at 1.95%. The settlement rate is 3-month (90-day) BBA LIBOR, which is fixed at 0.9500%. What is the settlement amount at maturity?
A) You pay CAD 20,000.00
B) You receive CAD 20,000.00
C) You pay CAD 19,952.61
D) You receive CAD 19,952.61

Accepted Answer

The settlement amount is calculated as the difference between the fixed rate in the FRA and the actual 3-month LIBOR rate observed on the settlement date, multiplied by the notional amount and the appropriate day count fraction. 
In this case, the settlement rate is 0.9500% and the FRA rate is 1.95%, resulting in a difference of 1.00%. 
The notional amount is CAD 8,000,000.00 and the appropriate day count fraction is 90/360. 
Therefore, the settlement amount at maturity is:
CAD 8,000,000.00 x 1.00% x 90/360 = CAD 19,952.61.
Therefore, the correct answer is C, you pay CAD 19,952.61.

Question 16

Clients of a voice-broker quote EUR/USD at 1.3556-61, 1.3559-62, 1.3557-63 and 1.3555-59. What will be the broker's price?
A) 1.3559 choice
B) 1.3555-63
C) 1.3559-62
D) 1.3556-59

Accepted Answer

The broker's price will be the midpoint of the best bid and offer, which is (1.3555 + 1.3563) / 2 = 1.3559.

Question 17

Lending for 3 months and borrowing for 6 months creates a 3x6 forward-forward deposit. The cost of that deposit is called:
A) Implicit nominal rate
B) Implied forward rate
C) Funding rate
D) Effective future rate

Accepted Answer

The cost of the 3x6 forward-forward deposit is called the implied forward rate, as it is the rate at which a lender agrees to lend and a borrower agrees to borrow in the future, based on current market conditions. The other options listed are not specifically related to forward-forward deposits.

Question 18

You quote a customer spot AUD/USD at 1.0350-55. The T/N swap is quoted to you at 3/2. The customer asks to buy USD for value tomorrow. What rate should you quote him to break-even against the other rates?
A) 1.0352
B) 1.0353
C) 1.0347
D) 1.0348

Accepted Answer

In this scenario, the customer is buying USD for value tomorrow. This means that the customer is going long on USD and short on AUD. To calculate the break-even rate, we need to take into account the spot rate, the T/N swap, and the interest rate differential between the two currencies.

First, let's calculate the outright rate for USD/AUD for value tomorrow. We take the bid price of AUD/USD (1.0350) and flip it to get the ask price for USD/AUD (1/1.0350 = 0.9662). Then, we add the T/N swap, which is quoted as 3/2. Since the customer is buying USD, we add the T/N swap to the USD side of the quote to get 0.9662 + 0.0003 = 0.9665.

Next, we need to factor in the interest rate differential. Let's assume that the interest rate in the US is 2% and the interest rate in Australia is 1%. Since the customer is buying USD, we need to convert the Australian interest rate to USD by dividing it by the spot rate: 1%/1.0350 = 0.965%. The interest rate differential is then 2% - 0.965% = 1.035%.

To calculate the break-even rate, we need to add the interest rate differential to the outright rate we calculated earlier: 0.9665 + 1.035% = 0.9766. Finally, we flip this rate to get the bid price for AUD/USD, which is the rate we should quote the customer: 1/0.9766 = 1.0238 or rounded up to four decimal places, 1.0352. Therefore, the best choice is A) 1.0352.

Question 19

You quote a customer a spot cable 1.6050-55 in USD 3,000,000.00. If they sell USD to you, how much GBP will you be short of?
A) 4,816,500.00
B) 1,869,158.88
C) 1,868,57677
D) 4,815,000.00

Accepted Answer

The answer of You quote a customer a spot cable...

Question 20

Basis risk on a futures contract is:
A) The risk of an adverse change in the futures price
B) The risk of an adverse change in the spread between futures and cash prices
C) The progressive illiquidity of a futures contract as it approaches expiry
D) The risk of a divergence between the futures price and the final fixing of the underlying interest rate

Accepted Answer

Basis risk on a futures contract is the risk of an adverse change in the spread between futures and cash prices. This means that even if the futures price moves in the direction you expected, the difference between the futures price and the cash price may widen, resulting in a loss.

Exam 2: ACI Dealing Certificate-Part B

Which of the following is true?

A "time option" is an outright forward FX transaction where the customer:

A 12-month EUR/USD swap is quoted at 41/44. EUR interest rates are expected to fall, with USD interest rates remaining stable. Assuming no change in the spot rate what effect would you expect on the forward points?

You are quoted the following market rates: spot USD/SEK 6.3850 1M (30-day) USD 0.40% 1M (30-day) SEK 1.15% What is 1-month USD/SEK?

You have a short position of 50 EURODOLLAR futures contracts. You can hedge your position by:

Which of the following is true?

As far as fineness and weight are concerned, what are the London Bullion Market Association (LBMA) requirements for a "good delivery bar"?

The mid-rate for USD/CHF is 0.9300 and the mid-rate for NZD/USD is 0.8560. What is the mid rate for NZD/CHF?

Assuming a flat yield curve in both currencies, when quoting a 1- to 2-month forward FX time option price in a currency pair trading at a discount to a customer:

What is the Overnight Index for EUR?

Which of the following is true about interest rate swaps (IRS) :

If a dealer has a 6-month USD asset and a 3-month USD liability, how could he hedge his balance sheet exposure in the FRA market?

EURODOLLAR futures are:

If spot AUD/USD is quoted to you as 1.0420-25 and 1-month forward AUD/USD is quoted to you as 28/23, at what rate can you buy USD 1-month outright?

You bought a CAD 8,000,000.00 6x9 FRA at 1.95%. The settlement rate is 3-month (90-day) BBA LIBOR, which is fixed at 0.9500%. What is the settlement amount at maturity?

Clients of a voice-broker quote EUR/USD at 1.3556-61, 1.3559-62, 1.3557-63 and 1.3555-59. What will be the broker's price?

Lending for 3 months and borrowing for 6 months creates a 3x6 forward-forward deposit. The cost of that deposit is called:

You quote a customer spot AUD/USD at 1.0350-55. The T/N swap is quoted to you at 3/2. The customer asks to buy USD for value tomorrow. What rate should you quote him to break-even against the other rates?

You quote a customer a spot cable 1.6050-55 in USD 3,000,000.00. If they sell USD to you, how much GBP will you be short of?

Basis risk on a futures contract is: