Question 1

With reference to dealing periods, what does the term "short dates" refer to?
A) overnight, tom-next and spot-next
B) maturities up to one week
C) maturity dates of less than one month
D) maturity dates of less than 10 days

Accepted Answer

"Short dates" typically refer to maturity dates of less than one month.

Question 2

The torward 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

Accepted Answer

Forward points are calculated based on the interest rate differential between the two currencies involved in the transaction.

Question 3

An option granted by the seller that gives the buyer the right to enter into an underlying interest rate swap transaction is ca lied:
A) a swap
B) a cap
C) a swaption
D) a collar

Accepted Answer

A swaption is an option contract that gives the buyer the right, but not the obligation, to enter into an underlying interest rate swap transaction. A cap is an agreement that puts a limit on the interest rate of a floating-rate financial instrument or loans. A swap is a financial contract in which two parties agree to exchange one stream of cash flows for another. A collar is a strategy in which an investor holds a long position on an asset and simultaneously buys protective put options while selling call options on that same asset to offset some of the cost of the puts.

Question 4

The mid-rate for USD/CHF is 1.3950 and the mid-rate for AUD/USD is 0.7060. What is the midrate for CHF/AUD?
A) 0.9849
B) 1.0154
C) 1.9759
D) 0.5061

Accepted Answer

1.3950 * 0.7060 = 0.9849

Question 5

What is an FX swap?
A) An exchange ot two streams of interest payments in different currencies and an exchange of the principal amounts of those currencies at maturity
B) A spot sale (purchase) and a forward purchase (sale) of two currencies agreed simultaneously between two parties
C) An exchange of currencies on a date beyond spot and at a price fixed today
D) None of the above

Accepted Answer

An FX swap involves a spot sale (or purchase) of a currency and a simultaneous forward purchase (or sale) of the same currency, effectively exchanging two currencies for a set period and reversing the transaction at a future date.

Question 6

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: 1x3 USD FRA. 1.95-98% 1x4 USD FRA. 2.07-10% 1x6 USD FRA 2.25-28% To hedge the next LIBOR fixing, you should:
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%

Accepted Answer

The answer of You have a USD loan that is...

Question 7

How many USD would you have to invest at 3.5% to be repaid USD125 million (principal plus interest) in 30 days?      
A) USD 124,641,442.43
B) USD 124,636,476.94
C) USD 124,635,416.67
D) USD 123,915,737.30

Accepted Answer

The answer of How many USD would you have to...

Question 8

If EUR/USD is quoted to you as 1.1050-53, does this price represent?
A) The number of EUP per USD
B) The number of USD per EUR
C) Depends on whether the price is being quoted in Europe or the US
D) Depends on whether the price is being quoted interbank or to a customer

Accepted Answer

The first number in the quote, 1.1050, represents the number of USD one can buy with one EUR (how many USD per EUR). The second number in the quote, 1.1053, represents the price at which one can sell one USD to buy one EUR. Therefore, the price quote represents the number of USD per EUR.

Question 9

Which position below is NOT a component of common equity Tier 1 capital?
A) innovative hybrid capital instruments with incentives to redeem
B) common shares issued by bank
C) retained earnings
D) stock surplus (share premium)

Accepted Answer

Innovative hybrid capital instruments with incentives to redeem are not components of common equity Tier 1 capital. The other choices listed (common shares, retained earnings, and stock surplus) are all components of common equity Tier 1 capital.

Question 10

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 FUR and bought USD forward
B) Bought EUR/USD spot and sold EUR/USD forward
C) Taken a EUR loan in exchange for making a USD loan with the same counterparly
D) All of the above

Accepted Answer

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

Question 11

How much is a big figure worth per million of base currency it EUR/GBP is 0.6990?
A) GBP 10,000
B) EUR 10,000
C) GBP 6,990
D) EUR 6,990

Accepted Answer

A big figure in forex refers to a change in the first two digits of a currency pair. For EUR/GBP at 0.6990, a big figure is worth GBP 10,000 per million EUR because it represents a 0.01 change in the exchange rate, which is equivalent to GBP 10,000 when dealing with a million EUR.

Question 12

If the daily 90% confidence level VaR of a portfolio is correctly estimated to be USD 5,000.00, one would expect that:
A) in 1 out of 10 days, the portfolio value will decline by USD 5,000.00 or less.
B) in 1 out of 90 days, the portfolio value will decline by USD 5,000.00 or less.
C) in 1 out of 10 days, the portfolio value will decline by USD 5,000.00 or more.
D) in 1 out of 90 days, the portfolio value will decline by USD 5,000.00 or more.

Accepted Answer

A 90% confidence level VaR of USD 5,000.00 means that there is a 10% chance (1 out of 10 days) that the portfolio will decline by USD 5,000.00 or more.

Question 13

What is the incentive for market-making?
A) Bid/offer spread
B) Flow information
C) Relationships
D) All of the above

Accepted Answer

- Bid/offer spread: Market makers earn their profits by taking advantage of the bid-ask spread. The bid-ask spread is the difference between the highest price a buyer is willing to pay for an asset and the lowest price at which a seller is willing to sell that asset. The market maker earns a profit by buying at the bid price and selling at the ask price.
- Flow information: Market makers are in a unique position to gain access to flow information. Flow information is the information about the buying and selling activity of investors. Market makers can use this information to predict which direction the market is going to move and adjust their positions accordingly.
- Relationships: Market makers rely heavily on their relationships with other market participants. They build relationships with clients based on trust, communication, and transparency. These relationships help market makers to attract new clients and maintain long-term relationships with existing clients.

Question 14

If 6-month EUR/AUD is quoted at 29/32, which of the following statements is correct?
A) EUR rates are higher than AUD rates in the 6-month
B) AUD rates are higher than EUR rates in the 6-month
C) There is a positive EUR yield curie
D) There is not enough information to decide

Accepted Answer

The quote 29/32 indicates that the forward points are positive, meaning the AUD interest rates are higher than the EUR interest rates for the 6-month period.

Question 15

Which type of repo is the least risky for the buyer?
A) Delivery repo
B) HlC repo
C) Tri-party repo
D) There is no real difference

Accepted Answer

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

Question 16

Under Basel rules, what is the meaning of IRB?
A) Internal Risk Based
B) Internal Ratings Based
C) Intrinsic Risk Based
D) Internal Rule Based

Accepted Answer

IRB stands for Internal Ratings Based, which is a method used by banks to calculate their credit risk capital requirement. This approach uses banks' internal models to assess the risk associated with each borrower or counterparty.

Question 17

Which of the following definitions of a nostro account is correct?
A) A nostro account is an account held by a bank in a foreign country in the banks domestic currency.
B) A nostro account is an account held by a bank in a foreign country for cash collateralising OTC derivative positions with banks in that country.
C) A nostro account is an account held by a bank in a foreign country in the currency of that country.
D) A nostro account is an account held by a bank in its home country in a foreign currency.

Accepted Answer

A nostro account is an account held by a bank in a foreign country in the currency of that country, allowing the bank to make and receive payments in that currency. Option A is incorrect because the account is held in the foreign currency, not the bank's domestic currency. Option B is incorrect because it describes a different type of account, a securities account. Option D is incorrect because it describes a different type of account, a vostro account.

Question 18

What rate should be used if the settlement date in a foreign exchange transaction is no longer a "good" date?
A) The original rate of the transaction
B) The original rate of the transaction adjusted by the relevant forward points
C) The affected parties should agree to adjust the exchange rate according to the prevailing relevant forward mid swap points at the time the bank holiday is announced
D) The rate is open to negotiation by the two parties

Accepted Answer

When the settlement date in a foreign exchange transaction is no longer a "good" date due to a bank holiday or similar event, the affected parties should agree to adjust the exchange rate according to the prevailing relevant forward mid swap points at the time the bank holiday is announced. This ensures that both parties are treated fairly and that the exchange rate reflects the current market conditions. Option A is incorrect because it does not take into account any changes in the market since the original transaction took place. Option B is incorrect because it assumes that forward points are the only relevant factor in determining the new exchange rate. Option D is incorrect because it leaves the rate open to negotiation without any guidance or benchmarks.

Question 19

Which of the following statements is false? The repo legal agreement between the two parties concerned should:
A) enable the parties to comply with any capital adequacy requirements
B) provide for the absolute transfer of title to securities
C) provide for the calculation of initial consideration of the repo transaction
D) detail the course of action in the case of defaults, for example the rights and obligations of the counterparties and the full set-off of claims between the parties

Accepted Answer

The answer of Which of the following statements is false?...

Question 20

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 tn-party agent in the name of the buyer
D) It is frozen in the sellers account with the tri-panty agent

Accepted Answer

In a tri-party repo, the collateral is held by the third-party agent in the name of the buyer. This allows for efficient transfer of ownership and management of the collateral throughout the life of the repo agreement, as well as providing an additional layer of security for both the buyer and seller.

Exam 2: ACI Dealing Certificate-Part B

With reference to dealing periods, what does the term "short dates" refer to?

The torward points are calculated from:

An option granted by the seller that gives the buyer the right to enter into an underlying interest rate swap transaction is ca lied:

The mid-rate for USD/CHF is 1.3950 and the mid-rate for AUD/USD is 0.7060. What is the midrate for CHF/AUD?

What is an FX swap?

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: 1x3 USD FRA. 1.95-98% 1x4 USD FRA. 2.07-10% 1x6 USD FRA 2.25-28% To hedge the next LIBOR fixing, you should:

How many USD would you have to invest at 3.5% to be repaid USD125 million (principal plus interest) in 30 days?

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

Which position below is NOT a component of common equity Tier 1 capital?

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

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

If the daily 90% confidence level VaR of a portfolio is correctly estimated to be USD 5,000.00, one would expect that:

What is the incentive for market-making?

If 6-month EUR/AUD is quoted at 29/32, which of the following statements is correct?

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

Under Basel rules, what is the meaning of IRB?

Which of the following definitions of a nostro account is correct?

What rate should be used if the settlement date in a foreign exchange transaction is no longer a "good" date?

Which of the following statements is false? The repo legal agreement between the two parties concerned should:

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