Question 1

What is the Overnight Index for USD?

Accepted Answer

A)  H-15 Index 
B)  Prime Rate 
C)  Overnight Fed funds 
D)  Fed funds effective rate

Question 2

A transaction that entails market price risks may be entered into in the absence of a market price risk limit...

Accepted Answer

A)  ...only at the discretion of the head of treasury. 
B)  ...only at the discretion of the head of trading. 
C)  ...as long a counterparty and issuer limit is in place. 
D)  ... is not permitted.

Question 3

If the issuer of the collateral used in a repo defaults during the term of the transaction, who suffers the loss?

Accepted Answer

A)  Buyer 
B)  Seller 
C)  Issuer 
D)  It depends on the agreement between the buyer and seller

Question 4

When a deal is done via a broker:

Accepted Answer

A)  it need not be confirmed between the counterparties as the broker confirms it immediately with both counterparties 
B)  it should also be confirmed directly between the two counterparties 
C)  it is important to note that broker confirmations are bilateral confirmations between the principals of the trade 
D)  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

Question 5

In FX trading a "third party beneficiary" is best described as:

Accepted Answer

A)  the issuer of a payment for the relevant trade distinct from the counterparty 
B)  the issuer of a payment for the relevant trade identical to the counterparty 
C)  the recipient of a payment for the relevant trade distinct from the counterparty 
D)  the recipient of a payment for the relevant trade identical to the counterparty

Question 6

What is interest rate immunization in the context of bank gap management?

Accepted Answer

A)  the strategy of holding more interest rate sensitive assets than interest rate sensitive liabilities 
B)  the strategy of holding fewer interest rate sensitive assets than interest rate sensitive liabilities 
C)  reducing the size of the balance sheet 
D)  structuring a bank's portfolio so that its net interest revenue and/or the market value of its portfolio will not be adversely affected by changes in interest rates

Question 7

What is the principal risk identified by gap management reporting?

Accepted Answer

A)  Currency risk 
B)  Interest rate risk 
C)  Operational risk 
D)  Credit risk

Question 8

The tom/next GC repo rate for German government bonds is quoted to you at 1.75-80%. As collateral, you sell EUR 10,000,000.00 nominal of the 5.25% Bund July 2012, which is worth EUR 11,260,000.00, with no initial margin. The Repurchase Price is:

Accepted Answer

A)  EUR 10,000,500.00 
B)  EUR 10,000,486.11 
C)  EUR 11,260,563.00 
D)  EUR 11,260,547.36

Question 9

The forward points are calculated using:

Accepted Answer

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

Question 10

When constructing a gap report, how would a EUR 25,000,000.00 long position in 6x12 FRA be categorized?

Accepted Answer

A)  as a EUR 25,000,000.00 6-month liability and a EUR 25,000,000.00 12-month asset 
B)  as a EUR 25,000,000.00 12-month liability and a EUR 25,000,000.00 6-month asset 
C)  as a EUR 12,500,000.00 6-month liability and a EUR 12,500,000.00 12-month asset 
D)  as a EUR 12,500,000.00 6-month asset and a EUR 12,500,000.00 12-month liability

Question 11

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

Accepted Answer

A)  a swap 
B)  a cap 
C)  a swaption 
D)  a collar

Question 12

Under Basel rules the meaning of CCF is:

Accepted Answer

A)  Currency Conversion Factor 
B)  Credit Conversion Factor 
C)  Credit Contribution Factor 
D)  Credit Collateralization Factor

Question 13

The use of standard settlement instructions (SSI's) is strongly encouraged because:

Accepted Answer

A)  It reduces operational risk. 
B)  It splits differences arising from failed settlement between the two counterparties. 
C)  It removes the need for sending out SWIFT payment authorisations. 
D)  All of the above.

Question 14

Where repos or securities lending transactions are entered into, the Model Code recommends:

Accepted Answer

A)  Documentation should be in place beforehand. 
B)  Management should approve all transactions. 
C)  Copies of the underlying documentation should be lodged with regulators. 
D)  All of the above.

Question 15

The Liquidity Coverage Ratio imposed by Basel III requires a bank:

Accepted Answer

A)  to keep enough highly liquid assets to cover its net liabilities for the next 10 days to guard against severe liquidity stress 
B)  to keep enough highly liquid assets to cover its net liabilities for the next 30 days to guard against severe liquidity stress 
C)  to keep enough highly liquid assets to cover its net liabilities for the next 60 days to guard against severe liquidity stress 
D)  to retain enough liquidity to cover its assets against severe default risk

Question 16

When an employee executes a personal trade in advance of a client's or institution's order to benefit from the anticipated movement in the market price following the execution of a large trade, it is called:

Accepted Answer

A)  front running 
B)  ex ante trading 
C)  insider dealing 
D)  forward-facing

Question 17

As to general risk management principles, the Model Code mentions that the organizationalstructure should ensure independent risk management and controls. Which one of the following is not among those controls?

Accepted Answer

A)  open and effective communication channels between all levels of staff and cross-functions should be maintained. 
B)  regular internal audits should be carried out together with trading and risk management to ensure early identification of internal control weaknesses 
C)  complete segregation of duties between the front, middle and back office activities 
D)  a separate system for independent monitoring to ensure compliance with the risk management framework should be in place

Question 18

You buy a 30-day 4% CD with a face value of GBP 20,000,000.00 at par when it is issued. You sell it in the secondary market after 10 days at 4.05%. What is your holding period yield?

Accepted Answer

A)  4.05% 
B)  3.891% 
C)  3.838% 
D)  1.946%

Question 19

Are the forward points significantly affected by changes in the spot rate?

Accepted Answer

A)  Never 
B)  For very large movements and longer terms 
C)  Always 
D)  Spot is the principal influence

Question 20

What is Funds Transfer Pricing in the ALM process?

Accepted Answer

A)  A maturity analysis of a bank's interest-bearing assets and interest-bearing liabilities. 
B)  A method used to measure how much each source of funding is contributing to overall profitability. 
C)  A calculation of the spread between the duration of the interest-bearing assets and the interestbearing liabilities. 
D)  The evaluation and management of the gap between a bank's volume of loans and deposits.

Exam 2: ACI Dealing Certificate-Part B