Deck 1: ACI Dealing Certificate-Part A

Question 1

What is meant by "short dates"?

A) Maturities of less than one week.
B) Maturities of less than one month.
C) Maturities of less than one year.
D) Maturities in the same calendar month.

Answer 1

B

Question 2

Which of the following are transferable instruments?

A) Eurocertificate of deposit
B) US Treasury bill
C) CP
D) All of the above

Answer 2

D

Question 3

What is the Gold Offered Forward Rate?

A) The price differential between spot and forward go
B) The rate at which dealers will lend gold against U
C) The implied forward price of gold
D) The price of gold for forward delivery

Answer 3

B

Question 4

The forward points are calculated from:

A) The level of interest rates in the base currency
B) The level of interest rates in the quoted currency
C) The interest rates in the two currencies
D) Your expectations of the future spot rate

Question 5

A dealer does the following deals in EUR/USD: buys EUR 1 m at 1.1020 sells EUR 3 m at 1.1022 buys EUR 2 m at 1.1002 buys EUR 1.5 m at 1.1012 What position does the dealer now have?

A) Long EUR 1.5 m at 1.0984
B) Short EUR 1.5 m at 1.1036
C) Long EUR 1.5 m at 1.1012
D) Short EUR 3.0 m at 1.1025

Question 6

Brokers shall not reveal the identity of a counterparty unless:

A) They are forced to do so.
B) Explicitly authorised to do so by the counterparty
C) They know the counterparty very well.
D) They are asked by their senior management to do so

Question 7

You bought a USD 4,000,000 6x9 FRA at 6.75%. The settlement rate is 3-month (90-day) BBA LIBOR, which is fixed at 5.50%. What is the settlement amount at maturity?

A) You receive USD 12,330.46
B) You pay USD 12,330.46
C) You pay USD 12,163.81
D) You receive USD 12,163.81

Question 8

What is the probability of an at-the- money option being exercised?

A) Less than 50% probability
B) 50% probability
C) More than 50% probability
D) Zero probability

Question 9

You have a USD loan that is priced at 3-month LIBOR+50. LIBOR for the loan will be re- fixed in exactly one month. The market is quoting:

A) Sell a 1x3 FRA at 1.95%
B) Buy a 1x3 FRA at 1.98%
C) Buy a 1x4 FRA at 2.10%
D) Sell a 1x4 FRA at 2.10%

Question 10

How much is a big figure worth per million of base currency if EUR/GBP is 0.6990?

A) GBP 10,000
B) EUR 10,000
C) GBP 6,990
D) EUR 6,990

Question 11

What usually happens to the collateral in a tri-party repo?

A) It is put at the disposal of the buyer
B) It is held by the seller in the name of the buyer
C) It is held by the tri-party agent in the name of t
D) It is frozen in the sellers account with the tri-p

Question 12

Bank A pays for EURO 5 m at 1.1592. Bank B offers EURO 10 m at 1.1597. Broker XYZ quotes to the market EURO / USD 1.1592/97. Bank C takes the offer at 97. The broker is obliged to reveal:

A) The name of Banks A and B.
B) The name of Bank B only.
C) The amount that was bid but not the name of Bank A
D) None of the above

Question 13

In the international market, a FRA in USD is usually settled with reference to:

A) BBA LIBOR
B) Fed funds
C) ISDA LIBOR
D) EURIBOR

Question 14

Your are quoted the following rates: spot CHF/JPY 80.12-22 3M CHF/JPY 25.5/22.5 At what rate can you buy 3-month outright JPY against CHF?

A) 79.995
B) 79.965
C) 79.895
D) 79.865

Question 15

The Interest Rate Parity Theorem states that:

A) Interest rates in different currencies will tend t
B) Interest rates in different currencies differ due
C) Selling a low interest rate currency to invest a h
D) Selling a low interest rate currency to invest in

Question 16

Todays date is Thursday 12th December. What is the spot value date? Assume no bank holidays.

A) 14th December
B) 15th December
C) 16th December
D) 17th December

Question 17

What is the day count/annual basis convention for euroyen deposits?

A) Actual/365
B) Actual/360
C) Actual/actual
D) 30E/360

Question 18

Written confirmation is a function that can be done by:

A) Any dealer as long as he/she is not a party to the
B) Staff in the back-office.
C) Staff in the dealing room who are not dealing.
D) Any staff outside the dealing room.

Question 19

A forward-forward loan creates an exposure to the risk of:

A) Higher interest rates
B) Lower interest rates
C) Steepening yield curve
D) Parallel shift downwards in the yield curve

Question 20

Confirmations should be sent out by both counterparties through an efficient and secure means of communication, preferably electronic:

A) Within 24 hours of the deal.
B) Within two business days of the deal.
C) Before the value date.
D) As soon as possible.

Question 21

The major difference between futures and OTC instruments like FRAs and interest rate swaps is that futures are:

A) Exchange-traded
B) Guaranteed
C) Standardised
D) All of the above

Question 22

If GBP/USD is 1.5350-53 and USD/JPY is 106.50-53, what is GBP/JPY ?

A) 163.48-56
B) 163.51-52
C) 69.36-39
D) 69.38-39

Question 23

What is the purpose of an initial margin on a futures exchange?

A) To cover losses incurred between variation margin
B) To exclude retail investors
C) To pay reserve requirements
D) To cover fees due to the clearing house

Question 24

When you are accepting a stop loss order, you must:

A) Ensure that your counterparty understands the term
B) Ensure that your counterparty can be contacted in
C) Ensure that your counterparty understands that any
D) All of the above.

Question 25

To curb attempted fraud, banks should:

A) Require greater vigilance by the management and st
B) Take particular care when the beneficiary is a thi
C) Ensure that details of all telephone deals which d
D) All of the above.

Question 26

A customer gives you GBP 25 million at 6.625% same day for 7 days. Through a broker, you place the funds with a bank for the same period at 6.6875%. Brokerage is charged at 2 basis points per annum. What is the net profit or loss on the deal?

A) Profit of GBP 299.66
B) Profit of GBP 203.77
C) Loss of GBP 299.66
D) Loss of GBP 203.77

Question 27

In all dealing conversations, the Model Code strongly recommends:

A) Dealers stick to market terminology in order to av
B) Dealers clarify what is being proposed rather than
C) Dealers restrict themselves to terminology listed
D) Dealers define complex terminology in the confirma

Question 28

An option is:

A) The right to buy or sell a commodity at a fixed pr
B) The right to buy a commodity at a fixed price
C) The right but not the obligation to buy or sell a
D) The right but not the obligation to buy commodity

Question 29

What is an FX swap?

A) An exchange of two streams of interest payments in
B) A spot sale (purchase) and a forward purchase (sal
C) An exchange of currencies on a date beyond spot an
D) None of the above

Question 30

3-month EUR/USD FX swaps are quoted to you at 15/19. If the "points are in your favour", what have you done?

A) Bought and sold 3-month EUR/USD through the swap
B) Sold and bought 3-month EUR/USD through the swap
C) Made the quote
D) Cannot say

Question 31

Where the matter of dealing for personal account is concerned, the Model Code recommends that:

A) Subject to local legal requirements, this matter i
B) Bank management should encourage such activities b
C) Where this is allowed, bank management should have
D) Bank management should allow staff to deal for the

Question 32

You are quoted the following market rates: spot USD/JPY 123.65 1M (30-day) USD. 2.15% 1M (30-day) JPY 0.10% What is 1-month USD/JPY?

A) 123.44
B) 123.65
C) 123.86
D) 123.90

Question 33

A broker offers a dealer an incentive in the form of a reduction to the agreed schedule of brokerage between the firms.

A) This is a normal volume discount.
B) The offer requires approval in writing by both sen
C) The offer requires agreement in writing between th
D) This is illegal.

Question 34

You are paying 5% per annum paid semi-annually and receiving 6-month LIBOR on a USD 10 million interest rate swap with exactly two years to maturity. 6-month LIBOR for the next payment date is fixed today at 4.95%. You expect 6-month LIBOR in 6 months to fix at 5.25%, in 12 months at 5.35% and in 18 months at 5.40%. What do you expect the net settlement amounts to be over the next 2 years? Assume 30-day months.

A) pay 250, receive 1,250, receive 1,750, receive 2,0
B) receive 250, pay 1,250, pay 1,750, pay 2,000
C) pay 2,500, receive 12,500, receive 17,500, receive
D) receive 2,500, pay 12,500, pay 17,500, pay 20,000

Question 35

You deal over the phone with a counterparty. The subsequent confirmation differs from the terms agreed verbally. What is the result?

A) The confirmation takes precedence as it is a writt
B) The matter will have to be submitted to arbitratio
C) It depends on local law.
D) The verbal agreement is binding.

Question 36

If a dealer has any intention of assigning an interest rate swap to a third party soon after transacting that swap:

A) The dealer should not reveal his future dealing in
B) The dealer should make his intention to assign cle
C) The dealer should agree the method of assignment b
D) The counterparty should specify whether or not ass

Question 37

If EUR/USD is quoted to you as 1.1050-53, does this price represent?

A) The number of EUR per USD
B) The number of USD per EUR
C) Depends on whether the price is being quoted in Eu
D) Depends on whether the price is being quoted inter

Question 38

Gambling or betting amongst market participants has obvious dangers and:

A) Should be forbidden.
B) Should be strongly discouraged.
C) Should be monitored by management.
D) All of the above.

Question 39

The Model Code rules that deals at non-current rates:

A) Are forbidden.
B) Require prior regulatory approval.
C) Require the prior express permission of the senior
D) Should be marked to market daily.

Question 40

What is a Vostro account?

A) Your account at another bank
B) A foreign bank's account in your bank in your dome
C) An account in your bank used for internal transact
D) A customer's account at your bank

Question 41

Which of the following is always a secured instrument?

A) ECP
B) Repo
C) Interbank deposit
D) CD

Question 42

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

A) Delivery repo
B) HIC repo
C) Tri-party repo
D) There is no real difference

Question 43

If I say that I have "bought and sold" EUR/USD in an FX swap, what have I done?

A) Bought EUR and sold USD spot, and sold EUR and bou
B) Bought EUR/USD spot and sold EUR/USD forward
C) Taken a EUR loan in exchange for making a USD loan
D) All of the above

Question 44

An option contract that gives the buyer the right to exercise the option at several distinct points during its life is called:

A) European-style option
B) American-style option
C) Bermudan option
D) Asian option

Question 45

Which of the following rates represents the highest investment yield in the euromarket?

A) Semi-annual bond yield of 3.75 %
B) Annual bond yield of 3.75 %
C) Semi-annual money market yield of 3.75 %
D) Annual money market rate of 3.75 %

Question 46

Payment and settlement instructions should be passed:

A) As quickly as possible.
B) Within 24 hours of the transaction.
C) Before 10:00am on the value date.
D) Before close of business on the transaction date.

Question 47

Where answerphone equipment is used for reporting and recording of off-premises transactions, it should be:

A) On an special number known only to the chief deale
B) On a number located in the office of the internal
C) Secured so that reported transactions cannot be er
D) Secured by recordings that are stored for a suitab

Question 48

The intrinsic value of a long call option:

A) Falls and rises with the price of the underlying c
B) Rises if the price of the underlying commodity fal
C) Depends solely on the volatility of the price of t
D) Becomes negative if the market price of the underl

Question 49

If a broker refers to "the payer of 5- year euro at 4.12", what is this party doing?

A) Paying a fixed rate of 4.12% per annum on a 30/360
B) Paying a fixed rate of 4.12% per annum on an actua
C) Paying a 5-year euro deposit and receiving a rate
D) Taking a 5-year euro deposit and paying a rate of

Question 50

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
C) Ban their use in the dealing room or back office.
D) Restrict their use to senior management and author

Question 51

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 p
C) You are only committed to deal in a marketable amo
D) None of the above.

Question 52

Which of the following statements is correct?

A) An adjusted settlement amount is paid at the end o
B) An unadjusted settlement amount is paid at the end
C) An adjusted settlement amount is paid at the start
D) An unadjusted settlement amount is paid at the sta

Question 53

Which of the following is sometimes called two-name paper?

A) ECP
B) BA or bank bill
C) Treasury bill
D) CD

Question 54

What is settlement risk in FX?

A) The risk of failure of a payments or settlement sy
B) The risk that only one side of an exchange of curr
C) The risk of payments gridlock in a real-time gross
D) The risk that default by a counterparty before the

Question 55

Deliberately inputting incorrect big figures into an electronic dealing platform is:

A) Technically impossible on electronic platforms
B) Not an uncommon practice and something which profe
C) Not good practice.
D) A criminal offence.

Question 56

Borrowing USD for 12 months and lending them for 6 months (means that you are making):

A) Forward-forward loan
B) Forward-forward deposit
C) Negative gap
D) An over-lent position

Question 57

For which of the following reasons is the extension of forward contracts at non-current rates is discouraged: i.These could be used to conceal profit or losses. ii.These could be used to perpetrate fraud. iii.These could result in an unauthorised extension of credit. iv.These could result in confusing settlement instructions.

A) (i), (ii), (iii), & (iv).
B) (i), (ii) & (iii).
C) (i) & (iii).
D) none of the above.

Question 58

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 betwee
C) The progressive illiquidity of a futures contract
D) The risk of a divergence between the futures price

Question 59

A CD with a face value of USD50 million and a coupon of 4.50% was issued at par for 90 days and is now trading at 4.50% with 30 days remaining to maturity. What has been the capital gain or loss since issue?

A) +USD 373,599.00
B) +USD 186,099.00
C) -USD 1,400.99
D) Nil

Question 60

What is the effect of netting?

A) To reduce the number and size of payments and tran
B) To reduce exposure to credit risk
C) To reduce the size of the balance sheet
D) All of the above

Question 61

How can options be used to synthesise a short position in the underlying commodity?

A) A short put option + long call option at the same
B) A long put option + short call option at the same
C) A short put option + short call option at the same
D) A long put option + long call option at the same s

Question 62

You wish to sell a customer GBP/USD for value tomorrow. How can you hedge yourself?

A) Sell and buy GBP/USD T/N
B) Buy and sell GBP/USD T/N
C) Sell GBP/USD spot, and sell and buy GBP/USD T/N
D) Buy GBP/USD spot, and buy and sell GBP/USD T/N

Question 63

If EUR/USD is 1.1025-28 and the 6- month swap is 112.50/113, what is the 6-month outright price?

A) 1.1380-1.11405
B) 1.11375-1.1141
C) 1.09125-1.0915
D) None of these

Question 64

What is the primary function of GC repo, particularly very short -term transactions?

A) Financing long positions
B) Covering short positions
C) Interest rate positioning
D) Dividend tax arbitrage

Question 65

A 6-month (182-day) investment of CHF15.5 million yields a return of CHF100,000. What is the rate of return?

A) 1.32%
B) 1.29%
C) 1.28%
D) 0.65%

Question 66

The term "under reference" refers to:

A) An unavailability of credit limit for the counterp
B) The need to reconfirm a transaction.
C) The unacceptability of the counterparty's name.
D) The rate quoted is going to be revised.

Question 67

The organisational structure of market participants should ensure a strict segregation between front and back office of:

A) Duties and reporting lines.
B) Systems.
C) Career paths.
D) All of the above.

Question 68

In a dispute between the dealer and a broker, the Model Code recommends that this should be referred in the first instance to:

A) Central bank.
B) Senior management of the bank and the brokerage fi
C) Head of compliance.
D) ACI's Committee for Professionalism (CFP).

Question 69

What is the maximum maturity of a US Treasury bill?

A) One year
B) 270 days
C) 183 days
D) 5 years

Question 70

An option contract that gives the buyer the right to exercise the option at the average of the prices of the underlying during its life is called:

A) European-style option
B) American-style option
C) Bermudan option
D) Asian option

Question 71

You are paying 5% per annum paid semi-annually and receiving 6-month LIBOR on a USD 10 million interest rate swap with exactly two years to maturity. 6-month LIBOR for the next payment date is fixed today at 4.95%. How would you hedge the swap using FRAs? How to hedge an IRS with a strip of FRAs?

A) buy a strip of 0x6, 6x12, 12x18 and 18x24 FRAs
B) sell a strip of 0x6, 6x12, 12x18 and 18x24 FRAs
C) buy a strip of 6x12, 12x18 and 18x24 FRAs
D) sell a strip of 6x12, 12x18 and 18x24 FRAs

Question 72

A 6-month SEK/NOK Swap is quoted 140/150. Spot is 0.9445. Which of the following statements is correct?

A) SEK interest rates are higher than NOK interest ra
B) NOK interest rates are higher than SEK interest ra
C) NOK interest rates are higher than USD interest ra
D) SEK interest rates and NOK interest rates are conv

Question 73

You have quoted your customer the following eurodollar deposit rates: 1M 5.375-25% 2M 5.4375-3125% 3M 5.5-375% The customer says, "I give you USD 20 million in the two's". What have you done?

A) Borrowed USD 20million at 5.3125%
B) Lent USD 20 million at 5.4375%
C) Borrowed USD 20 million at 5.4375%
D) Lent USD 20 million at 5.3125%

Question 74

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
B) It is a purely matter for your two institutions.
C) Such arrangements are not in any way enforceable o
D) All of the above.

Question 75

If GBP/USD is quoted to you at 1.6120-30, how much GBP would you receive if you sold USD 2,000,000 ?

A) 1,239,925.60
B) 1,237,873.80
C) 1,240,694.79
D) 1,242,720.50

Question 76

Under which circumstances are banks allowed to park positions with a counterparty?:

A) It is forbidden to park positions.
B) In conditions of exceptional volatility.
C) If the two counterparties agree.
D) If approved by senior management.

Question 77

The one-month (31-day) GC repo rate for French government bonds is quoted to you at 3.75-80%. As collateral, you are offered EUR25 million nominal of the 5.5% OAT April 2006, which is worth EUR 28,137,500. If you impose an initial margin of 1%, the Repurchase Price is:

A) EUR 27,947,276.43
B) EUR 27,946,077.08
C) EUR 27,950,071.43
D) EUR 27,948,871.97

Question 78

Are the forward points materially affected by changes in the spot rate?

A) never
B) Only for very large movements and longer terms
C) always
D) spot is the principal influence

Question 79

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 l
D) All of the above.

Question 80

When quoting the exchange rate between the EUR and AUD, which is conventionally the base currency?

A) EUR
B) AUD
C) Depends on whether the price is being quoted in Eu
D) Depends on whether the price is being quoted inter