Question 1

What is the maximum maturity of an unsecured USCP?

Accepted Answer

A)  One year 
B)  270 days 
C)  183 days 
D)  5 years

Question 2

What is the ISO code for palladium?

Accepted Answer

A)  XAU 
B)  XAG 
C)  XPT 
D)  XPD

Question 3

What criteria define a market-maker?

Accepted Answer

A)  He will only quote to brokers 
B)  He will quote choice prices on request 
C)  He will only quote two-way prices to brokers 
D)  He will quote two-way prices for marketable amounts on request

Question 4

What does the term "mine" mean when given in response to an FX spot quotation?

Accepted Answer

A)  I buy the base currency at the bid rate. 
B)  I buy the base currency at the offer rate. 
C)  I buy the counter-currency at the offer rate. 
D)  I sell you the base currency at the bid rate,

Question 5

One of your brokers asks you to buy and sell EUR/USD at the same price net of brokerage in order to allow him to clear a transaction.

Accepted Answer

A)  You must have prior senior management approval. 
B)  You must have the authoritq to switch names. 
C)  You must execute such transactions as promptly as possible within policy guidelines 
D)  All of the above.

Question 6

What recommendation does the Model Code make in cases of market disruption?

Accepted Answer

A)  Market participants should strictly adhere to the rules issued by local regulators, supervisors or central banks in order to maintain efficiency and avoid disputes. 
B)  Even if local provisions are in place, market participants should only adhere to the ACI best practices of the Model Code in order to maintain efficiency and avoid disputes. 
C)  Participants must at all times adhere to the rules issued by local regulators, supervisors or central banks even if these rules or procedures conflict with any provision of an existing written agreement. 
D)  Parties may unilaterally decide whether they wish to adhere to the terms of the agreement or to amend the terms of the transaction to follow the relevant procedure.

Question 7

Which of the following does not represent an operational risk as defined by Basel rules?

Accepted Answer

A)  theft of information 
B)  damage to an organization through loss of its reputation or standing 
C)  market manipulation 
D)  loss incurred from the use of incorrect documentation

Question 8

At the end of the day, you are short CHF 3,500,000.00 against SEK at 6.9275. You are asked to revalue your position at 6.9190. What is the resulting profit or loss?

Accepted Answer

A)  Profit of CHF 29,750.00 
B)  Profit of SEK 29,750.00 
C)  Loss of SEK 29,750.00 
D)  Loss of CHF 29,750.00

Question 9

What should a dealer say to express his commitment to putting an additional bid or offer at a current bid or offer price already quoted by his broker?

Accepted Answer

A)  same way" 
B)  me too" 
C)  "par", or "parity" 
D)  "join at", or "support at"

Question 10

An important reason for trading a futures contract rather than an FRA is:

Accepted Answer

A)  The expense of settling an FRA 
B)  The reduced counterparty risk on a futures exchange 
C)  The reduced basis risk on futures 
D)  The superior interest rate risk on FRAs

Question 11

A "time option" is an outright forward FX transaction where the customer:

Accepted Answer

A)  has the option to fulfill the outright forward or not at maturity 
B)  may freely choose the maturity, given a 24-hour notice to the bank 
C)  can choose any maturity within a previously fixed period 
D)  may decide to deal at the regular maturity or on either the business day before or after

Question 12

What recommendation does the Model Code make to banks accepting a stop-loss order?

Accepted Answer

A)  The Model Code emphasizes the importance of clear, concise documentation and on-going lines of communication. 
B)  Bank management must guarantee a fixed price execution to the counterparty. 
C)  The Model Code recommends that only experienced dealers should be allowed to take such orders. 
D)  Bank staff must secure the approval of the counterparty's management to accept such orders.

Question 13

Under Basel rules, what is the meaning of EEPE?

Accepted Answer

A)  Effective Expected Potential Exposure 
B)  Effective Expected Positive Exposure 
C)  Effective Expected Price Earning 
D)  Effective Expected Payment Exposure

Question 14

You are paying 5% per annum paid semi-annually and receiving 6-month LIBOR on a USD 10,000,000.00 interest rate swap with exactly two years to maturity. 6-month LIBOR for the next payment date is fixed today at 4.95%. You expect 6-month LIBOR in 6 months to fix at 5.25%, in 12 months at 5.35% and in 18 months at 5.40%. What do you expect the net settlement amounts to be over the next 2 years? Assume 30-day months.

Accepted Answer

A)  Pay 250.00, receive 1,250.00, receive 1,750.00, receive 2,000.00 
B)  Receive 250.00, pay 1,250.00, pay 1,750.00, pay 2,000.00 
C)  Pay 2,500.00, receive 12,500.00, receive 17,500.00, receive 20,000.00 
D)  Receive 2,500.00, pay 12,500.00, pay 17,500.00, pay 20,000.00

Question 15

What is the value date of a 1-month outright forward FX transaction dealt today, if today's spot date is Monday, 30th January? Assume there are no bank holidays and that the year is not a leap year.

Accepted Answer

A)  2nd March 
B)  1st March 
C)  2gth February 
D)  28th February

Question 16

Which of the following is typical of liquid assets held by banks under prudential requirements?

Accepted Answer

A)  prices increase during a systemic crisis 
B)  return on investment is relatively high 
C)  absence of active market makers 
D)  wide bid/offer spreads

Question 17

In dealing terminology, what does "my risk" refer to?

Accepted Answer

A)  the market amount for which the quote is valid 
B)  the acknowledgement by the broker that he may be stuffed 
C)  the acknowledgement by the dealer receiving the quote that the rate may have to be re-quoted 
D)  the quoting dealer cautions the receiver of the quote that the price may have to be re-quoted at the receiver's risk

Question 18

You are paying 1,00% per annum paid semi-annually and receiving 6-month LIBOR on a USD 10,000,000.00 interest rate swap with exactly two years to maturity. 6-month LIBOR for the next payment date is fixed today at 0.95%. How would you hedge the swap using FRAs? How to hedge an IRS with a strip of FRAs?

Accepted Answer

A)  buy a strip of 0x6, 6x12, 12x18 and 18x24 FRAs 
B)  sell a strip of 0x6, 6x12, 12x18 and 18x24 FRAs 
C)  buy a strip of 6x12, 12x18 and 18x24 FRAs 
D)  sell a strip of 6x12, 12x18 and 18x24 FRAs

Question 19

A bank that has quoted a firm price is obliged to deal:

Accepted Answer

A)  At that price 
B)  At that price in a marketable amount 
C)  At that price in a marketable amount, provided the counterparty's name is acceptable 
D)  At that price in a marketable amount, provided the counterparty's name is acceptable and the market price has not moved excessively

Question 20

For which one of the following disputes is the Chairman and members of the ACI's CFP ready to assist through the ACI's Expert Determination?

Accepted Answer

A)  all legal disputes 
B)  disputes related to market practice or conduct as set out in the Model Code or in any other Code of Conduct 
C)  disputes between two market participants, at least one of them being a member of ACI 
D)  disputes related to over-the-counter financial instruments as detailed in appendix four of the Model Code

Exam 2: ACI Dealing Certificate-Part B