Question 1

Which of the following is always a secured instrument?
A) ECP
B) Repo
C) Interbank deposit
D) CD

Accepted Answer

Repo is a secured instrument because it involves the transfer of collateral from the borrower to the lender.

Question 2

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

Accepted Answer

The answer of Which type of repo is the least...

Question 3

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

Accepted Answer

The answer of If I say that I have "bought...

Question 4

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

Accepted Answer

A Bermudan option allows the holder to exercise the option at several set dates during its lifespan, whereas a European-style option can only be exercised at its expiration date and an American-style option allows the holder to exercise at any point up to its expiration date. An Asian option has its payoff determined by the average price of the underlying asset over a period of time.

Question 5

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 %

Accepted Answer

The answer of Which of the following rates represents the...

Question 6

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.

Accepted Answer

Payment and settlement instructions should be passed as quickly as possible to ensure timely processing and reduce the risk of delays or errors.

Question 7

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

Accepted Answer

Answerphone equipment used for reporting and recording of off-premises transactions should be secured so that reported transactions cannot be erased or tampered with. This ensures the integrity of the recorded transactions and helps to prevent fraud. Options A and B are not relevant to the security of the equipment, and option D only addresses the storage of recordings, not the security of the equipment itself.

Question 8

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

Accepted Answer

The intrinsic value of a long call option is the difference between the strike price and the current market price of the underlying asset. Therefore, as the price of the underlying asset rises, the intrinsic value of the option also rises. Conversely, if the price of the underlying asset falls, the intrinsic value of the option falls as well. The volatility of the underlying asset may affect the overall value of the option, but it does not determine the intrinsic value of the option. Additionally, the intrinsic value of a long call option cannot become negative.

Question 9

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

Accepted Answer

The wording "payer of 5-year euro" suggests that this party is paying a fixed rate, and the specified rate of 4.12% per annum is consistent with a fixed rate. The use of "30/360" indicates that the rate is calculated based on a 360-day year with 30-day months, which is a common convention in the euro money market. Option B is incorrect because "actual/360" is not mentioned. Option C is incorrect because the party is not receiving a rate, but rather paying it. Option D is incorrect because it reverses the roles of the party mentioned.

Question 10

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

Accepted Answer

Completely banning mobile devices may not be feasible or necessary, as long as appropriate measures are in place to ensure they do not disrupt trading or compromise sensitive information. Therefore, the management policy should clearly state whether mobile devices are allowed in the dealing room and under what conditions. This can include restrictions on their use during certain times or situations, such as during high-stress market conditions, as well as the use of monitoring tools to ensure compliance.

Question 11

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.

Accepted Answer

When quoting a price in the foreign exchange market, you must be prepared to deal the full amount requested, in this case, EUR 20 million.

Question 12

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

Accepted Answer

The answer of Which of the following statements is correct?
A)...

Question 13

Which of the following is sometimes called two-name paper?
A) ECP
B) BA or bank bill
C) Treasury bill
D) CD

Accepted Answer

BA or bank bill is sometimes called two-name paper because it involves both the bank and the borrower, with the bank being the holder of the bill and the borrower being the party liable to pay the amount on maturity. The other options, ECP (Euro commercial paper), Treasury bill, and CD (certificate of deposit), are not referred to as two-name paper.

Question 14

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

Accepted Answer

Settlement risk in FX refers to the risk that one party will deliver the currency it sold but not receive the currency it bought, leading to a loss.

Question 15

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.

Accepted Answer

Deliberately inputting incorrect big figures into an electronic dealing platform is not good practice. While it may be technically possible on some platforms, it is not a common or acceptable practice in the financial industry. However, it is generally not considered a criminal offense unless it is done with intent to defraud or manipulate the markets.

Question 16

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

Accepted Answer

The answer of Borrowing USD for 12 months and lending...

Question 17

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.

Accepted Answer

Extending forward contracts at non-current rates can conceal profits or losses, perpetrate fraud, and result in unauthorized credit extensions, but confusing settlement instructions are not a primary concern.

Question 18

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

Accepted Answer

The answer of Basis risk on a futures contract is:
A)...

Question 19

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

Accepted Answer

The CD was issued at par, so the initial investment was USD50 million. The coupon of 4.50% would provide a quarterly interest payment of USD562,500.

Since the CD is trading at 4.50% with 30 days remaining to maturity, there has been no change in the yield since issue. Therefore, there is no capital gain or loss to be realized.

At maturity, the investor will receive the face value of USD50 million plus the final interest payment of USD562,500, for a total return of USD50,562,500.

Question 20

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

Accepted Answer

Netting has the effect of reducing the number and size of payments and transfers, reducing exposure to credit risk, and reducing the size of the balance sheet. Therefore, option D is the correct answer.

Exam 1: ACI Dealing Certificate-Part A

Which of the following is always a secured instrument?

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

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

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

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

Payment and settlement instructions should be passed:

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

The intrinsic value of a long call option:

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

Management policy on the use of mobile devices by trading, sales and settlement staff should:

Bank XYZ calls you for a quote in EUR/USD for EURO 20 million. If you decide to quote to Bank XYZ:

Which of the following statements is correct?

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

What is settlement risk in FX?

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

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

Basis risk on a futures contract is:

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?

What is the effect of netting?