3I0-012 ACI Dealing Certificate Question and Answers

Actual/365

Actual/360

Actual/actual

30E/360

Are forbidden.

Require prior regulatory approval.

Require the prior express permission of the senior management of both counterparties.

Should be marked to market daily.

You must tell the broker, who must qualify your quotes.

For credit reasons, you must tell the broker when he presents a name.

You cannot do this.

The Model Code does not make recommendations on this subject.

The original rate of the transaction

The original rate of the transaction adjusted by the relevant forward points

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

The rate is open to negotiation by the two parties

USTreasury bill

CD

Interbank deposit

ECP

Any dealer as long as he/she is not a party to the trade.

Staff in the back-office.

Staff in the dealing room who are not dealing.

Any staff outside the dealing room.

must be transacted regardless of where the market moved

must be transacted if a broker confirms that the specified rate was reached

cannot be taken as a fixed-price guarantee unless agreed in writing

will always be the stop loss rate, if the order is executed

as a given deposit with a term of one month and a taken deposit with a term of four months

as a taken deposit with a term of one month

as a taken deposit with a term of one month and a given deposit with a term of four months

as a given deposit with a term of four months

pay 250, receive 1,250, receive 1,750, receive 2,000

receive 250, pay 1,250, pay 1,750, pay 2,000

pay 2,500, receive 12,500, receive 17,500, receive 20,000

receive 2,500, pay 12,500, pay 17,500, pay 20,000

As quickly as possible.

Within 24 hours of the transaction.

Setore 10:00 am on the value date.

Betore close of business on the transaction date.

Bought EUR and sold USD spot, and sold FUR and bought USD forward

Bought EUR/USD spot and sold EUR/USD forward

Taken a EUR loan in exchange for making a USD loan with the same counterparly

All of the above

Initially by fax or other acceptable electronic means, then in writing.

Only if the deal is between overseas counterparties and for value today.

Only if the transaction is not for a marketable amount.

To both counterparties immediately by fax or other acceptable electronic means.

At least 2 months

One year

Up to one month

Until the maturity of the deal

14th December

15th December

16th December

17th December

An increase in forward USD/CHF

Falling CHF interest rates

A decrease in forward USD/CHF

Rising CHF interest rates

Clear written guidelines issued by management are in place.

They are in an approved brokers office.

There are on holiday.

None of the above.

4,816,500.00

1,868,809.57

1.868,576.77

4,815,900.00

The sensitivily of the option value to changes in interest rates

The sensitivity of the option value to changes in volatility

The sensitivity of the option value to changes in the time to expiry

The sensitivity of the option value to changes in the price of the underlying

At that price.

At that price in a marketable amount.

At that price in a marketable amount with an acceptable name.

At that price in a marketable amount with an acceptable name and provided the market price has not moved excessively.

4.261%

2.202%

1.900%

1.592%

Credit institution

lnvestment bank

Corporate

All of the above

Break-even rate

Implied rate

Forward-forward rate

All of the above

In volatile markets.

When dealing with emerging markets.

In an emergency.

When quoting for information only.

0.6675

0.6715

0.6717

0.6718

periodic exchange of fixed and floating payments up to and including maturity

at maturity by net payment

after maturity by exchange of fixed and floating payments

after maturity by net payment

Does not regard this as a good practice.

Urge dealers to be bear this in mind, as this is common practice for capital market deals.

Does not comment on this matter.

Recommends that national ACI Associations deal with this according to their local customs.

You will have to pay USD 612.50

You will receive USD 612.50

You will have to pay USD 3,675.00

You will receive USD 3,675.00

Dealers may seek a compensation payment in favor of the bank or an adjustment to brokerage bills from the broker for switching names.

If requested by a broker to clear a transaction through name switching, a dealer must ensure that such activities have the prior approval of senior management.

The practice of name switching/substitution is neither acceptable nor desirable.

Name switching/substitution transactions should be executed as promptly as possible not considering credit limits and policy guidelines.

Commission paid by both parties at rates agreed beforehand

A fee paid by the seller

Bid/offer spread

A share of the bid/offer spread

buying futures contracts on 30-year German Government bonds

selling futures contracts on 30-year German Government bonds

buying put options on 30-year German Government bonds

buying a 3x6 forward rate agreement

28th March

29th March

30th March

31st March

EUR 11,035,336.41

EUR 11,035,351.74

EUR 11,039,752.32

EUR 11,039,767.65

By agreement between the two counterparties, the trade must be cancelled as soon as practically possible since a rate amendment is prohibited.

By agreement between the two counterparts, the trade should, as soon as practically possible, either be cancelled or have its rate amended to an appropriate market rate.

The off-market rate should be adjusted as soon as possible to the appropriate current market rate and a new authenticated SWIFT confirmation sent immediately to the counterparty.

Nothing need be done, since once a trade is agreed to by the front office it is a binding agreement for both counterparties.

An upward parallel shift of interest rates will cause a loss of income if the rate-sensitivity of a bank’s liabilities is higher than the rate-sensitivity of its assets.

A bank will lose income if it has more rate-sensitive liabilities than rate-sensitive assets.

Falling interest rates will always result in mark-to-market profits on short positions in fixed rate securities.

Rising interest rates can result in mark-to-market losses on fixed-rate assets.

At that price

At that price in a marketable amount

At that price in a marketable amount, provided the counterparty’s name is acceptable

At that price in a marketable amount, provided the counterparty’s name is acceptable and the market price has not moved excessively

it reduces operational risk

it splits differences arising from failed settlement between the two counterparties

it removes the need for sending out SWIFT confirmations

the use of SSI’s secures the trading on more secure platforms

AUD 25,962,011.00

AUD 25,959,714.91

AUD 25,948,878.47

AUD 25,948,648.82

only if they are dealing with brokers

only if dealing on an e-trading platform

only if they are dealing in non-marketable amounts

always

GBP 7,551.37

GBP 6,544.52

GBP 5,537.67

GBP 1,006.85

Credit institution

Investment bank

Corporate

Central Bank

Proprietary traders

Market-makers

Matched principals

Agents

Implicit nominal rate

Implied forward rate

Funding rate

Effective future rate

6.4250

6.3810

6.7850

6.3890

4.19%

4.25%

4.30%

4.31%

Substantial opportunity for gain and limited risk of loss

Substantial risk of loss and substantial opportunity for gain

Limited risk of loss and limited opportunity for gain

Substantial risk of loss and limited opportunity for gain

1.73%

1.75%

1.77%

1.80%

claims should be made for the costs incurred by the injured party and include all administration costs

no party involved can be enforced to contribute to achieve an equitable resolution to the problem

no market participant should be unjustly enriched or injured by the action/error of another market participant

claims are calculated on the full principal amount of the failed payment with the interest rate imposed by the injured party

Credit Value Adaption

Call Value Adaption

Credit Value Adjustment

Counterpart Value Adjustment

No, it doesn’t, since the slope of the yield cure is unrelated to the spread between short-term and long-term interest rates.

No, it doesn’t. There isn’t any link at all between the slope of the interest yield curve and a bank’s net interest margin.

Yes it does. In banking, long-term rates usually apply to bank deposits and money market borrowings whereas short-term interest rates are attached to loans and securities.

Yes it does. Long-term rates usually apply to a bank’s assets (loans, securities, etc.) and the short term interest rates are generally attached to liabilities (deposits, money market borrowings, etc.).

It is a measure of the average price of a financial instrument.

It doesn’t take into account the timing and market value of cash flows.

It increases if the average coupon increases.

It decreases as maturity decreases

1,239,925.60

1,237,873.80

1,240,694.79

1,242,720.50

if you do so when you make the price

provided the amounts are marketable

once you have discovered the name of the counterparty for credit reasons

at anytime

interest rate, currency, equity and commodity risk

interest rate, currency, equity and default risk

interest rate, equity, liquidity and default risk

legal, reputation and regulatory risk

With liquidity transfer pricing (LTP) banks attribute the costs, benefits and risks of liquidity to respective business units within a bank

With liquidity transfer pricing (LTP) banks are monitoring and diversifying their funding base

With liquidity transfer pricing (LTP) banks are agreeing with external liquidity providers on the fair market price of funds

Liquidity transfer pricing charges providers of funds for the cost of liquidity and users of funds for the benefit of liquidity

the swap curve is shifting downwards

the swap curve is shifting upwards

swaption volatilities are decreasing

time to expiry is becoming shorter

e-mail

fax or letter

MTn99 SWIFT message

MT670/671 SWIFT message

frequency trading

high-incidence trading

flash trading

liquidity aggregators

EURIBOR

EONIA

LIBOR

SONIA

South Korea

Sri Lanka

Slovakia

Sweden

Profit of CHF 29,750.00

Profit of SEK 29,750.00

Loss of SEK 29,750.00

Loss of CHF 29,750.00

The volatilities of the underlying assets are normally distributed and the prices remain constant.

The risk factors are normally distributed and volatilities of risk factors and correlations between risk factors are constant.

The prices of underlying assets are normally distributed, the volatilities of risk factors follow a GARCH process and correlations between risk factors are constant.

The returns of underlying assets are normally distributed and volatilities of risk factors and correlations between risk factors are constant.

consult the local ACI national association

bring the matter to the appropriate court of justice

examine the complaint

bring the matter to the attention of the appropriate regulatory body

Display the names of those users along their prices

Offer pre-trade anonymity to users quoting prices

Offer pre and post-trade anonymity to users quoting prices

Offer users the choice of whether to remain anonymous

buying additional 30-year German Government bonds

selling futures contracts on 30-year German Government bonds

buying futures contracts on 10-year German Government bonds

exercising an early repayment option on a long-term senior borrowing

The sensitivity of the option value to changes in volatility

The sensitivity of the option value to changes in the time to expiry

The sensitivity of the delta to changes in the value of the underlying

The sensitivity of the option value to changes in the price of the underlying

The buyer

The to-party agent

A third-party guarantor

A central clearing counterparty

Buy a 3-month EUR/USD outright forward

Buy USD spot, and sell and buy a 3-month EUR/USD FX swap

Sell EUR/USD in the spot market, lend EUR for 3 months and borrow USD for 3 months

Sell EUR/USD in the spot market, borrow EUR for 3 months and lend USD for 3 months

1.3159

1.3158

1.3142

1.3230

it need not be confirmed between the counterparties as the broker confirms it immediately with both counterparties

it should also be confirmed directly between the two counterparties

it is important to note that broker confirmations are bilateral confirmations between the principals of the trade

the dealer should obtain acknowledgement that the deal has been agreed to but may assume agreement to the trade in the absence of such acknowledgement

bid side of the near leg swap points minus offered side of the far leg swap points

bid side of the far leg swap points minus offered side of the near leg swap points

offered side of the far leg swap points minus bid side of the near leg swap points

offered side of the near leg swap points minus bid side of the far leg swap points

lower correlation of underlying risk factors

a shorter time horizon

a lower confidence level

a higher confidence level

to promote globalization and deregulation of the financial markets

to maintain the professional level of competence and to disseminate a high level of ethical and professional behavior

to act as the official international market regulator in the absence of government regulation

to become the sole global corporation of wholesale financial market professionals

Thursday 27th June

Friday 28th June

Saturday 29th June

Monday 1st July

solely those of the electronic trading platforms vendors

exclusively ACI’s Model Code Best Practices

ACI’s Model Code Best Practices and ICMA’s Market Practice & Regulatory Policy

the electronic trading platforms vendors’ and the ACIs Model Code Best Practices guidelines

usually the current spot EUR/USD mid-market rate

commonly the prevailing 4-month forward EUR/USD mid-rate

always the forward EUR/USD bid rate of the first swap leg

generally the prevailing 2-month forward EUR/USD mid-rate

Substantial opportunity for gain and limited risk of loss

Substantial risk of loss and substantial opportunity for gain

Limited risk of loss and limited opportunity for gain

Substantial risk of loss and limited opportunity for gain

Bought and sold 3-month EUR/USD through the swap

Sold and bought 3-month EUR/USD through the swap

Made the quote

Cannot say

ensure that compliance is carried out efficiently

set limits on borrowing in the short-term markets to fund long-term lending

develop, evaluate, monitor and approve strategies related to risk due to imbalances in the asset and liability structure of the balance sheet

report to the board of directors

Exchange-traded

Margined

Standardized

Dealtoverthe counter

The sensitivity of the option value to changes in interest rates

The sensitivity of the option value to changes in volatility

The sensitivity of the option value to changes in the time to expiry

The sensitivity of the option value to changes in the price of the underlying

Off-premises dealing should be strictly prohibited.

After-hours trading should be prohibited.

Deals transacted after normal business hours or off-premises should only be undertaken on mobile phones approved by management.

Deals transacted after normal business hours or off-premises either by mobile phones or any other equipment should only be undertaken with the approval of management.

all legal disputes

disputes related to market practice or conduct as set out in the Model Code or in any other Code of Conduct

disputes between two market participants, at least one of them being a member of ACI

disputes related to over-the-counter financial instruments as detailed in appendix four of the Model Code

Be over-lent

Have a negative gap

Be exposed to higher interest rates

Be over-borrowed

Tier 3 capital requirements held against liquidity risk.

The nature and amount of high quality liquid assets a bank holds.

Central bank internal management processes regarding open market operations.

The transparent disclosure of illiquid on-balance sheet liabilities.

8.30%

8.52%

8.54%

8.69%

Claims are not expected to be submitted after 15 days from the actual settlement date.

Claims of less than USD 5,000.00 are not expected to be submitted.

Claims are calculated on the full principal amount of the failed transaction. Interest rates are imposed by the agent banks, unless a higher negotiated rate is to be applied.

Acknowledgement of receipt of a claim should be confirmed within 48 hours by email or SWIFT.

USD

AUD

Depends on whether the price is being quoted in Australia or the US

Depends on whether the price is being quoted interbank or to a customer

When trading in financial products described by the Model Code, dealers and voice brokers need not clarify whether they propose to use standard terms.

Standard terms and conditions should be signed bilaterally by senior management of both principals before any applicable market transactions are entered into.

When using legal agreements any proposed modifications or choices offered in the agreement must be clearly stated as soon as the trade is agreed.

For many instruments, standard master agreements issued by recognized authorities need not be signed by senior management of the principals intending to transact business.

the management board

the chief risk officer

the bank’s ALCO

the Risk and Capital Committee

9.5836

6.2834

0.1591

0.1043

CDS are used to recover funds from defaulted swap counterparties.

CDS provide protection against specified credit events to the party receiving the CDS premium payments.

CDS provide protection against the default of the trade counterparty that buys the CDS.

CDS provide compensation to the protection buyer, should a specified credit event occur to a third party entity.

anywhere, even away from their own dealing premises

after-hours, but only if listed as such by management

after-hours, but only from their private residence

away from their broker’s dealing premises

Treasury bill

CD

Interbank deposit

Classic repo

Not under any circumstances, since the “parking” of deals or positions should be prohibited

in conditions of exceptional volatility

only if the two counterparties to the deal agree

only if “parking” of deals or positions has been approved by senior management

Treasury bill

Repo against Treasury bill collateral

They have the same yield

Cannot say

The expected appreciation or depreciation of the base currency

The expected appreciation or depreciation of the quoted currency

Largely, the interest rate differential between two currencies

Solely, the interest rate differential between two currencies

Sell and buy GBP/USD T/N

Buy and sell GBP/USD T/N

Sell GBP/USD spot, and sell and buy GBP/USD T/N

Buy GBP/USD spot, and buy and sell GBP/USD T/N

All investigation cases should be handled within the same day B. All investigation cases should be handled within 2 days

Investigation cases received before noon should be handled within the same day and those received after midday should be handled before noon the next day

Investigation cases received before noon should be handled within the same day and those received after midday within 24 hours

the gold price fixed twice a day to balance supply and demand in the London bullion market

the gold price fixed at the end of the day in the London bullion market

the gold price fixed at 11:00 am. local time in the London bullion market from a panel of gold traders

the gold price fixed at 11:00 a.m. to settle gold contracts in the London bullion market

aFXswap

an in/out swap

a currency swap

a quanto swap

Revaluing collateral versus cash

Revaluing collateral

Calculating net present value

Calculating the net replacement cost

Receives compensation if a reference interest rate falls below an agreed level

Pays compensation if a reference interest rate falls below an agreed level

Receives compensation if a reference interest rate rises above an agreed level

Pays compensation if a reference interest rate rises above an agreed level

Hedging a long bond position with payer’s swap involves basis risk

Hedging the credit risk of an asset swap package with a credit default swap has no basis risk

Basis risk is a result only of maturity mismatches

Basis risk is a result only of duration mismatches.

Transaction exposure

Translation exposure

Economic exposure

None

A means by which to reduce a risk

An equal and opposite risk

A riskless transaction

A means of cancelling a deal

A purchase of a cap and a sale of a floor

A purchase of a floor and a sale of a cap

A purchase of a cap and a purchase of a floor

A sale of a cap and a sale of a floor

Margin maintenance

Re-pricing

Margin maintenance or re-pricing, but usually margin maintenance

Margin maintenance or re-pricing, but usually re-pricing

the name of Bank A and Bank B

the names of Bank B and Bank C

the amount that was bid but not the name of Bank A

the amount taken by Bank C as well as the amount that was bid