Question 1

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

Accepted Answer

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. 
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.

Question 2

Which one of the formulae below is correct?

Accepted Answer

A)  Long a FRN + pay fixed on a swap = long a synthetic straight bond 
B)  Long a FRN + receive floating on a swap = long a synthetic straight bond 
C)  Long a FRN + pay floating on a swap = short a synthetic straight bond 
D)  Long a FRN + pay floating on a swap = long a synthetic straight bond. 
A)  Long a FRN + pay fixed on a swap = long a synthetic straight bond 
B)  Long a FRN + receive floating on a swap = long a synthetic straight bond 
C)  Long a FRN + pay floating on a swap = short a synthetic straight bond 
D)  Long a FRN + pay floating on a swap = long a synthetic straight bond.

Question 3

Complete the following sentence. If a bank has an asset repricing in 6 months funded by a liability repriced in 3 months:

Accepted Answer

A)  the bank would benefit from higher interest rates 
B)  the bank could hedge this interest rate risk with a 3x6 derivative 
C)  the bank will make mark-to-market losses if rates decrease 
D)  the bank could hedge this interest rate risk by selling a 6x9 derivative 
A)  the bank would benefit from higher interest rates 
B)  the bank could hedge this interest rate risk with a 3x6 derivative 
C)  the bank will make mark-to-market losses if rates decrease 
D)  the bank could hedge this interest rate risk by selling a 6x9 derivative

Question 4

Your broker quotes you EUR/USD at 1.3425-28. You respond by saying "yours". Which one of the following statements is true?

Accepted Answer

A)  You are committed to sell a marketable EUR amount unless the quote was for a specific amount. 
B)  You are committed to sell to the counterparty his full EUR amount subject to credit limits on the counterparty. 
C)  You are committed to sell EUR up to the amount permitted by your credit limits on the counterparty. 
D)  You are committed to sell a marketable USD amount unless the quote was for a specific amount. 
A)  You are committed to sell a marketable EUR amount unless the quote was for a specific amount. 
B)  You are committed to sell to the counterparty his full EUR amount subject to credit limits on the counterparty. 
C)  You are committed to sell EUR up to the amount permitted by your credit limits on the counterparty. 
D)  You are committed to sell a marketable USD amount unless the quote was for a specific amount.

Question 5

An 'at-the-money' call option:

Accepted Answer

A)  Costs more than an 'in-the-money' call option 
B)  Costs less than an 'out-of-the-money' call option 
C)  Costs more than an 'out-of-the-money' call option 
D)  Costs the same as an 'in-the-money' put option 
A)  Costs more than an 'in-the-money' call option 
B)  Costs less than an 'out-of-the-money' call option 
C)  Costs more than an 'out-of-the-money' call option 
D)  Costs the same as an 'in-the-money' put option

Question 6

Voice-brokers in spot FX are remunerated with:

Accepted Answer

A)  Commission paid by both parties at rates agreed beforehand 
B)  A fee paid by the seller 
C)  Bid/offer spread 
D)  A share of the bid/offer spread 
A)  Commission paid by both parties at rates agreed beforehand 
B)  A fee paid by the seller 
C)  Bid/offer spread 
D)  A share of the bid/offer spread

Question 7

Which of the following market participants would least likely be a user of repo?

Accepted Answer

A)  Investment funds 
B)  Credit institutions and central banks 
C)  Corporates 
D)  Retail and private customers 
A)  Investment funds 
B)  Credit institutions and central banks 
C)  Corporates 
D)  Retail and private customers

Question 8

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

Accepted Answer

A)  You must be prepared to deal up to EUR 20 million. 
B)  You may quote without stating the amount you are prepared to deal. 
C)  You are only committed to deal in a marketable amount. 
D)  None or the above. 
A)  You must be prepared to deal up to EUR 20 million. 
B)  You may quote without stating the amount you are prepared to deal. 
C)  You are only committed to deal in a marketable amount. 
D)  None or the above.

Question 9

The Interest Rate Parity Theorem should work because, when one sells a low interest rate currency to invest in a high interest rate currency and hedges the currency risk:

Accepted Answer

A)  The cost of hedging is given by the forward points, which are equal to the interest rate differential between the two currencies 
B)  The high interest rate currency will depreciate 
C)  The profit from the appreciation of the high interest rate currency has been hedged away 
D)  Interest rates are mean reverting, which means the low interest rate will tend to rise and the high interest rate will tend to fall 
A)  The cost of hedging is given by the forward points, which are equal to the interest rate differential between the two currencies 
B)  The high interest rate currency will depreciate 
C)  The profit from the appreciation of the high interest rate currency has been hedged away 
D)  Interest rates are mean reverting, which means the low interest rate will tend to rise and the high interest rate will tend to fall

Question 10

You hear from several counterparties that a major market participant has taken major losses on long USD/JPY positions. You know the reports are untrue, as you have in fact bought large amounts of USD/JPY from that very firm, which means that the impact of the reports on the market would be helpful to your position.

Accepted Answer

A)  As you have heard the reports from other parties, you are entitled to pass them on to market news services. 
B)  As you have heard the reports from other parties, you are entitled to pass them on to other market participants. 
C)  You should not pass any information you know to be false. 
D)  You should contradict the reports. 
A)  As you have heard the reports from other parties, you are entitled to pass them on to market news services. 
B)  As you have heard the reports from other parties, you are entitled to pass them on to other market participants. 
C)  You should not pass any information you know to be false. 
D)  You should contradict the reports.

Question 11

What does the Model Code recommend with regard to any give-up agreement between a prime broker and an executing dealer?

Accepted Answer

A)  That the Master FX Give-Up Agreement (FMLG - New York FED FX
C)  published by the Foreign Exchange Committee can be used for this purpose. 
B)  That this agreement need not specify the permitted transaction types, tenors or credit limits. 
C)  That this agreement must include instructions that the prime broker must advise the executing dealer promptly of trades for give-up. 
D)  That this agreement should not involve any requirement for the executing dealer to inform the prime broker of the material terms of the transaction once a trade has been executed. 
A)  That the Master FX Give-Up Agreement (FMLG - New York FED FX
C)  published by the Foreign Exchange Committee can be used for this purpose. 
B)  That this agreement need not specify the permitted transaction types, tenors or credit limits. 
C)  That this agreement must include instructions that the prime broker must advise the executing dealer promptly of trades for give-up. 
D)  That this agreement should not involve any requirement for the executing dealer to inform the prime broker of the material terms of the transaction once a trade has been executed.

Question 12

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

Accepted Answer

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. 
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.

Question 13

Which of the following statements does not explain why banks accept some amount of interest rate risk?

Accepted Answer

A)  In their function as intermediaries, banks must necessarily accept some degree of interest rate risk. 
B)  Banks incur interest rate risk to increase income 
C)  Banks prefer c red it risk to market risk. 
D)  If banks failed to take on interest rate risk they would not be able to meet the needs of their deposit and loan customers. 
A)  In their function as intermediaries, banks must necessarily accept some degree of interest rate risk. 
B)  Banks incur interest rate risk to increase income 
C)  Banks prefer c red it risk to market risk. 
D)  If banks failed to take on interest rate risk they would not be able to meet the needs of their deposit and loan customers.

Question 14

If the value date of forward USD/JPY transactions is declared a holiday in either New York or Tokyo, the correct value date will be:

Accepted Answer

A)  The value date of the centre which is open. 
B)  The next business day of the centre which is closed. 
C)  The next business day when both NewYork and Tokyo are open. 
D)  None of the above. 
A)  The value date of the centre which is open. 
B)  The next business day of the centre which is closed. 
C)  The next business day when both NewYork and Tokyo are open. 
D)  None of the above.

Question 15

Which of the following will tend to have the higher yield?

Accepted Answer

A)  Treasury bill 
B)  Repo against Treasury bill collateral 
C)  They have the same yield 
D)  Cannot say 
A)  Treasury bill 
B)  Repo against Treasury bill collateral 
C)  They have the same yield 
D)  Cannot say

Question 16

The term "under reference" refers to:

Accepted Answer

A)  an unavailability of a credit limit for the counterparty 
B)  a qualification stating that a transaction needs to be reconfirmed 
C)  the unacceptability of the counterparty's name 
D)  a qualification stating that the rate quoted may no longer be valid and requires confirmation before any trades can be agreed 
A)  an unavailability of a credit limit for the counterparty 
B)  a qualification stating that a transaction needs to be reconfirmed 
C)  the unacceptability of the counterparty's name 
D)  a qualification stating that the rate quoted may no longer be valid and requires confirmation before any trades can be agreed

Question 17

A 7% CD was issued at par, which you now purchase at 6.75%. You would expect to pay:

Accepted Answer

A)  The face value of the CD 
B)  More than the face value 
C)  Less than the face value 
D)  Too little information to decide 
A)  The face value of the CD 
B)  More than the face value 
C)  Less than the face value 
D)  Too little information to decide

Question 18

When should confirmations be sent out?

Accepted Answer

A)  one day after the deal is done 
B)  within two hours of the trade being booked and as soon as technologically possible 
C)  immediately after having received the confirmation of the counterparty 
D)  no later than the value date of the first leg of the transaction 
A)  one day after the deal is done 
B)  within two hours of the trade being booked and as soon as technologically possible 
C)  immediately after having received the confirmation of the counterparty 
D)  no later than the value date of the first leg of the transaction

Question 19

In interbank trading, if a dealer is calling "off" at the same time as the broker is hitting a price:

Accepted Answer

A)  no transaction should be concluded and the broker should inform both counterparties accordingly 
B)  a transaction should be concluded and the broker should inform both counterparties accordingly 
C)  the dealer has the choice of either concluding the transaction or not 
D)  the broker decides whether the transaction should be concluded or not 
A)  no transaction should be concluded and the broker should inform both counterparties accordingly 
B)  a transaction should be concluded and the broker should inform both counterparties accordingly 
C)  the dealer has the choice of either concluding the transaction or not 
D)  the broker decides whether the transaction should be concluded or not

Question 20

If you took a short position in USD/JPY, how could the Fed "squeeze" you?

Accepted Answer

A)  Raise USD interest rates 
B)  Lower USD interest rates 
C)  Lower reserve requirements 
D)  It could not squeeze you 
A)  Raise USD interest rates 
B)  Lower USD interest rates 
C)  Lower reserve requirements 
D)  It could not squeeze you

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

Which one of the formulae below is correct?

Complete the following sentence. If a bank has an asset repricing in 6 months funded by a liability repriced in 3 months:

Your broker quotes you EUR/USD at 1.3425-28. You respond by saying "yours". Which one of the following statements is true?

An 'at-the-money' call option:

Voice-brokers in spot FX are remunerated with:

Which of the following market participants would least likely be a user of repo?

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

The Interest Rate Parity Theorem should work because, when one sells a low interest rate currency to invest in a high interest rate currency and hedges the currency risk:

What does the Model Code recommend with regard to any give-up agreement between a prime broker and an executing dealer?

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

Which of the following statements does not explain why banks accept some amount of interest rate risk?

If the value date of forward USD/JPY transactions is declared a holiday in either New York or Tokyo, the correct value date will be:

Which of the following will tend to have the higher yield?

The term "under reference" refers to:

A 7% CD was issued at par, which you now purchase at 6.75%. You would expect to pay:

When should confirmations be sent out?

In interbank trading, if a dealer is calling "off" at the same time as the broker is hitting a price:

If you took a short position in USD/JPY, how could the Fed "squeeze" you?

ACI Dealing Certificate-Part A

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Exam 2: ACI Dealing Certificate-Part B

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

Which one of the formulae below is correct?

Complete the following sentence. If a bank has an asset repricing in 6 months funded by a liability repriced in 3 months:

Your broker quotes you EUR/USD at 1.3425-28. You respond by saying "yours". Which one of the following statements is true?

An 'at-the-money' call option:

Voice-brokers in spot FX are remunerated with:

Which of the following market participants would least likely be a user of repo?

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

The Interest Rate Parity Theorem should work because, when one sells a low interest rate currency to invest in a high interest rate currency and hedges the currency risk:

What does the Model Code recommend with regard to any give-up agreement between a prime broker and an executing dealer?

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

Which of the following statements does not explain why banks accept some amount of interest rate risk?

If the value date of forward USD/JPY transactions is declared a holiday in either New York or Tokyo, the correct value date will be:

Which of the following will tend to have the higher yield?

The term "under reference" refers to:

A 7% CD was issued at par, which you now purchase at 6.75%. You would expect to pay:

When should confirmations be sent out?

In interbank trading, if a dealer is calling "off" at the same time as the broker is hitting a price:

If you took a short position in USD/JPY, how could the Fed "squeeze" you?

ACI Dealing Certificate-Part A

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