Question 1

Which of the following is true regarding the consummation of a deal?
A) verbal agreements are considered binding
B) written confirmations always override terms verbally agreed to
C) deals agreed to verbally can be done subject to documentation
D) verbal agreements are never to be considered legally binding

Accepted Answer

Verbal agreements can be considered binding, but it is recommended to have written documentation. Therefore, deals agreed to verbally can be done subject to documentation. Written confirmations may also be important, but they do not always override verbally agreed terms. Option D is incorrect, as there are circumstances where verbal agreements may be legally binding.

Question 2

The columns below list short-term cash rates on 3rd April and 3rd F1ay 3rd April 3rd May  Describe the shape of the short-term segment of the yield curve on 3' April using market terminology. In addition, describe the change in the shape of the curve between 3rd April and 3rd May.
A) Positive, steepening
B) Positive, flattening
C) Inverted, steepening
D) Inverted, flattening

Accepted Answer

The answer of The columns below list short-term cash rates...

Question 3

The Model Code stipulates that you have a right to qualify your quotes in terms of amounts:
A) if you do so when you make the price
B) provided the amounts are marketable
C) once you have discovered the name of the counterparty for credit reasons
D) at anytime

Accepted Answer

The Model Code allows you to qualify your quotes in terms of amounts only at the time you make the price.

Question 4

A 3-month (90-day) NZD deposit is 2.75% and 6-month (180-day) NZD deposit is 3.00%. What is the 3x6 NZD deposit rate?
A) 3.2281%
B) 3.2278%
C) 3.00%
D) 2.875%

Accepted Answer

To calculate the 3x6 NZD deposit rate, we need to use the formula:
(1 + r)^6 = (1 + r1) x (1 + r2)
Where r is the 3x6 rate, r1 is the 3-month rate and r2 is the 6-month rate.

Plugging in the values we get:
(1 + r)^6 = (1 + 0.0275) x (1 + 0.03)
(1 + r)^6 = 1.057175
1 + r = (1.057175)^(1/6)
1 + r = 1.0054223
r = 0.0054223 or 0.54223%

Therefore, the 3x6 NZD deposit rate is 0.54223% or 3.2278% (rounded to four decimal places).

The best choice is B.

Question 5

When differences in payment arise because of errors in the payment of funds:
A) claims should be made for the costs incurred by the injured party and include all administration costs
B) no party involved can be enforced to contribute to achieve an equitable resolution to the problem
C) no market participant should be unjustly enriched or injured by the action/error of another market participant
D) claims are calculated on the full principal amount of the failed payment with the interest rate imposed by the injured party

Accepted Answer

When differences in payment arise because of errors, it is important to ensure that no market participant is unjustly enriched or injured by the action/error of another market participant. This means that an equitable resolution should be sought to compensate the injured party and ensure that they are not unfairly burdened with costs incurred due to the error. While claims may be made for costs incurred, these should be reasonable and not exceed the amount necessary to rectify the error. It may also be appropriate to seek interest on the amount owed, but this should be at a reasonable rate that reflects the actual costs incurred by the injured party.

Question 6

In trade confirmation, which one of the following statements about "matching" is correct?
A) matching should be performed by no later than the day after trading day
B) matching processes are manual and may not be automated
C) matching should be performed as soon as possible upon receipt of the confirmation
D) confirmation matching should be a post-settlement workflow activity

Accepted Answer

Matching should be performed as soon as possible upon receipt of the confirmation to ensure timely resolution of any discrepancies or errors. Delay in matching can lead to settlement delays and potential losses.

Question 7

As regards controls, which of the following best practices for counterparty identification is incorrect?
A) Amendments to customer standing data should be subject to 4 eyes control and only changed if the appropriately authorized documentation is provided.
B) The set up of settlement instructions and the confirmation method should be fixed when setting the first transaction.
C) No trading should be done without first identifying and setting up the counterparty.
D) Counterparty identification and setup of settlement instructions should be completed in less than 2 working days.

Accepted Answer

The answer of As regards controls, which of the following...

Question 8

What kind of information should dealers and brokers take care when relaying?
A) Information that could be damaging to a third party
B) Unsubstantiated rumours
C) Unsubstantiated information that they suspect may be inaccurate and damaging to a third party
D) Price-sensitive information

Accepted Answer

Dealers and brokers should be cautious about relaying unsubstantiated information that they suspect may be inaccurate and damaging to a third party, as it could lead to misinformation and potential legal or ethical issues.

Question 9

If several banks hit a broker simultaneously for an amount greater than the amount for which the price was shown:
A) no transaction is done
B) the broker has to honor each and every amount hit
C) the broker has to split the amount among the banks on a pro rata basis
D) the broker may freely choose the bank(s) he will deal with

Accepted Answer

The broker typically has to split the amount among the banks on a pro rata basis to ensure fairness and maintain market integrity.

Question 10

You borrow GBP 2,500,000.00 at 0.625% for 165 days. How much do you repay including interest?
A) GBP 2,507,161.46
B) GBP 2,507,063.36
C) GBP 2,507,006.85
D) GBP 2,507,106.16

Accepted Answer

The answer of You borrow GBP 2,500,000.00 at 0.625% for...

Question 11

What is the name of the reference against which most USD and JPY deposits and loans are fixed in London?
A) EURIBOR
B) EONIA
C) LIBOR
D) SONIA

Accepted Answer

Most USD and JPY deposits and loans in London are fixed against the LIBOR (London Interbank Offered Rate) reference. It is a benchmark rate that reflects the average interest rate at which banks can borrow unsecured funds from other banks in the London wholesale money market.

Question 12

You have quoted your customer the following CAD deposit rates: 1M 1.00-05% 2M 1.06-11% 3M 1.13-18% The customer says, "I give you CAD 20,000,000.00 in the two's". What have you done?
A) Borrowed CAD 20,000,000.00 at 1.06%
B) Lent CAD 20,000,000.00 at 1.11%
C) Borrowed CAD 20,000,000.00 at 1.11%
D) Lent CAD 20,000,000.00 at 1.06%

Accepted Answer

The answer of You have quoted your customer the following...

Question 13

Which of the following does the Model Code not recommend to prevent technical errors by etrading devices?
A) A manual "kill button" to disable the system's ability to trade and cancel all resting orders.
B) An 'inbound message rate" feature that monitors the number of confirmation messages that are sent from trading venues within a specific time period.
C) A "repeated automated execution throttle" monitoring the frequency of strategies that are filled and then re-entered into the market without human intervention through automated trading systems.
D) A "fat-finger quantity" feature limiting the size of orders that can be sent from the trading systems and preventing order quantities above the fat-finger limit from leaving the system.

Accepted Answer

The Model Code recommends implementing an "inbound message rate" feature that monitors the number of confirmation messages that are sent from trading venues within a specific time period. However, it does not recommend the other options listed. A manual "kill button" can be helpful but should not be relied upon as the primary means of preventing technical errors. The "repeated automated execution throttle" and "fat-finger quantity" features may limit trading flexibility and should be implemented cautiously.

Question 14

Which of the following may pay a return as a mix of income and capital/gain loss?
A) CD
B) Interbank deposit
C) Classic repo
D) Treasury bill

Accepted Answer

The answer of Which of the following may pay a...

Question 15

Which of the following risks is best mitigated by CLS?
A) currency risk
B) operational risk
C) liquidity risk
D) settlement risk

Accepted Answer

CLS (Continuous Linked Settlement) is a system that reduces settlement risk in foreign exchange transactions by ensuring that both sides of a trade are settled simultaneously. Therefore, the risk best mitigated by CLS is settlement risk.

Question 16

What should be done when a voice broker hits a dealer's price as "done" at the very instant the dealer calls "off"?
A) The deal should not be concluded and the broker should inform both counterparties accordingly.
B) The transaction should be concluded and the broker should inform both counterparties accordingly.
C) The broker should immediately inform both counterparties that the deal will have to be renegotiated.
D) The broker should decide whether the transaction is concluded or not and inform both counterparties accordingly.

Accepted Answer

The answer of What should be done when a voice...

Question 17

Which of the following dealing strategies involves the placing of orders with very short quote lives into a market?
A) frequency trading
B) high-incidence trading
C) flash trading
D) liquidity aggregators

Accepted Answer

Flash trading involves placing orders with very short quote lives, typically fractions of a second, into a market. This strategy is used by high-frequency traders to gain an advantage in the market by taking advantage of small price discrepancies. High-frequency trading and liquidity aggregators are related to flash trading but do not specifically involve the placement of orders with very short quote lives.

Question 18

7-day USCP is quoted at a rate of discount of 1.75%. What is its true yield?
A) 1.73%
B) 1.75%
C) 1.77%
D) 1.80%

Accepted Answer

The true yield of the USCP can be calculated by subtracting the discount rate from 365 (days in a year) and dividing the result by the number of days in the maturity period (7). 
True yield = (365 - 1.75) / 7 = 52.79
Therefore, the true yield is 1.75%. Choice B is the correct answer.

Question 19

What does the Model Code say concerning repos and stock-lending?
A) Legal documentation must be put in place as soon as possible after transaction.
B) All market participants should use the Modified Previous Business Day Convention.
C) The exact maturity (end) dates for transactions must be agreed as soon as possible after a transaction.
D) All market participants should use the Modified Following Business Day Convention.

Accepted Answer

The answer of What does the Model Code say concerning...

Question 20

According the Model Code, a principal, whose name has been rejected, feeling that the broker may have actually quoted a price or rate that it could not in fact substantiate, may:
A) deduct points from the broker or adjust the brokerage bill accordingly
B) in some centres, ask either the central bank or some other neutral body to investigate and confidentially verify that there was support for the original price or rate
C) in some centres, ask the local ACI to investigate and confidentially verify that there was support for the original price or rate
D) insist that the broker discloses the name of the other counterparty

Accepted Answer

Asking a neutral body to investigate and verify the original price or rate is the best choice as it ensures an impartial assessment without disclosing the counterparty's name or affecting the broker's reputation. Deducting points from the broker or adjusting the brokerage bill could be disputed, and insisting on disclosing the counterparty's name may not be appropriate or possible. Asking the local ACI to investigate may also create a conflict of interest.

Exam 2: ACI Dealing Certificate-Part B

Which of the following is true regarding the consummation of a deal?

The columns below list short-term cash rates on 3rd April and 3rd F1ay 3rd April 3rd May Describe the shape of the short-term segment of the yield curve on 3' April using market terminology. In addition, describe the change in the shape of the curve between 3rd April and 3rd May.

The Model Code stipulates that you have a right to qualify your quotes in terms of amounts:

A 3-month (90-day) NZD deposit is 2.75% and 6-month (180-day) NZD deposit is 3.00%. What is the 3x6 NZD deposit rate?

When differences in payment arise because of errors in the payment of funds:

In trade confirmation, which one of the following statements about "matching" is correct?

As regards controls, which of the following best practices for counterparty identification is incorrect?

What kind of information should dealers and brokers take care when relaying?

If several banks hit a broker simultaneously for an amount greater than the amount for which the price was shown:

You borrow GBP 2,500,000.00 at 0.625% for 165 days. How much do you repay including interest?

What is the name of the reference against which most USD and JPY deposits and loans are fixed in London?

You have quoted your customer the following CAD deposit rates: 1M 1.00-05% 2M 1.06-11% 3M 1.13-18% The customer says, "I give you CAD 20,000,000.00 in the two's". What have you done?

Which of the following does the Model Code not recommend to prevent technical errors by etrading devices?

Which of the following may pay a return as a mix of income and capital/gain loss?

Which of the following risks is best mitigated by CLS?

What should be done when a voice broker hits a dealer's price as "done" at the very instant the dealer calls "off"?

Which of the following dealing strategies involves the placing of orders with very short quote lives into a market?

7-day USCP is quoted at a rate of discount of 1.75%. What is its true yield?

What does the Model Code say concerning repos and stock-lending?

According the Model Code, a principal, whose name has been rejected, feeling that the broker may have actually quoted a price or rate that it could not in fact substantiate, may: