Question 1

You are the buyer of protection in a credit default swap. All other things being equal your counterparty credit risk is increasing if:

Accepted Answer

A)  the credit spread is decreasing 
B)  the credit spread is decreasing and recovery rate is increasing 
C)  the credit spread is increasing 
D)  the recovery rate is increasing

Question 2

A CD with a face value of USD 250,000,000.00 was issued at par with a coupon of 5% for 91 days. You buy it in the secondary market when it has 30 days remaining to maturity and is trading at 5.25%. How much do you pay?

Accepted Answer

A)  USD 252,056,972.97 
B)  USD 252,028,916.32 
C)  USD 250,000,000.00 
D)  USD 248,911,014.31

Question 3

In the unforeseen event that a particular maturity date is declared a public holiday, what is standard market practice for spot FX?

Accepted Answer

A)  to extend the contract to the next business day 
B)  to shorten the contract to the previous business day 
C)  The two parties involved agree to a new maturity date. 
D)  There is no standard market practice. ACIs Committee for Professionalism decides the issue on a case-by-case basis.

Question 4

You bought USD 5,000,000 against EUR at 1.1037 and 3,000,000 at 1.1052. If the EUR/USD rate is now quoted 1.1015/17, and it you deal at that rate, what profitwould you make?

Accepted Answer

A)  Nil 
B)  A profit of EUR 16,847.58 
C)  A loss 
D)  A profit of EUR 18,166.05

Question 5

On fixing date, the settlement payment of an NDF reflects the differential between the agreed forward rate and:

Accepted Answer

A)  the fixing spot rate 
B)  the daily high 
C)  the days' average rate 
D)  the average rate over the NDF period

Question 6

Clients of a voice-broker quote EUR/USD at 1.3556-61, 1.3559-62, 1.3557-63 and 1.3555-59. What will be the broker's price?

Accepted Answer

A)  1.3559 choice 
B)  1.3555-63 
C)  1.3559-62 
D)  1.3556-59

Question 7

Which of the following is required for institutions acting as prime brokers?

Accepted Answer

A)  They must remain neutral and stay out of disputes between their customers. 
B)  They must rely on the execution venue to resolve disputes. 
C)  They must delegate the resolution of broken trades downstream to their clients. 
D)  They must take responsibility for the swift resolution of any disputes.

Question 8

Under new Basel rules, what is the meaning of CVA?

Accepted Answer

A)  Credit Value Adaption 
B)  Call Value Adaption 
C)  Credit Value Adjustment 
D)  Counterpart Value Adjustment

Question 9

Prudential regulation of banking book liquidity risk is dealt with by the Basel Committee (Basel II / Basel III) in the context of:

Accepted Answer

A)  capital adequacy regulations in Pillar 1 
B)  market risk and Tier 3 capital elements 
C)  internal management procedures subject to supervisory review in Pillar 2 
D)  market discipline, disclosure and transparency in Pillar 3

Question 10

Which of the following correctly states the Model Code's recommendations regarding electronic trading and broking?

Accepted Answer

A)  Liquidity providers should be cognizant of reputational risks when supplying liquidity for onward third party consumption. 
B)  Market participants must not seek information as to the legal status of a potential counterparty before allocating credit or trading status. 
C)  Transactions should be handled in accordance with the regulator's dealing rule book. 
D)  Access to systems internally and at the client interface must be strictly controlled by the dealers.

Question 11

What is the amount of the principal plus interest due at maturity on a 1-month (32-day) deposit of USD 50,000,000.00 placed at 0.37%?

Accepted Answer

A)  EUR 50,015,416.67 
B)  EUR 50,016,219.18 
C)  EUR 50,016,444.44 
D)  EUR 50,016,958.33

Question 12

Which of the following is not the responsibility of the asset and liability committee (ALCO)?

Accepted Answer

A)  ensure that compliance is carried out efficiently 
B)  set limits on borrowing in the short-term markets to fund long-term lending 
C)  develop, evaluate, monitor and approve strategies related to risk due to imbalances in the asset and liability structure of the balance sheet 
D)  report to the board of directors

Question 13

What is the incentive for market-making?

Accepted Answer

A)  Bid/offer spread 
B)  Flow information 
C)  Relationships 
D)  All of the above

Question 14

When a broker needs to switch a name this should be done:

Accepted Answer

A)  only after consultation with the local regulator 
B)  only if the switching transaction is done at the current market rate 
C)  only provided that such transactions are identified as switching transactions 
D)  only after approval by the broker's senior management

Question 15

The delta of an option is:

Accepted Answer

A)  The sensitivity of the option value to changes in interest rates 
B)  The sensitivity of the option value to changes in volatility 
C)  The sensitivity of the option value to changes in the time to expiry 
D)  The sensitivity of the option value to changes in the price of the underlying

Question 16

In the unforeseen event that a particular maturity date is declared a public holiday, what is normal market practice for spot FX?:

Accepted Answer

A)  Extend the contract to the next business day 
B)  Shorten the contract to the previous business day 
C)  A new maturity date has to be agreed by the two parties involved 
D)  ACI's Committee for Professionalism decides on a case by case basis

Question 17

Which one of the following statements about claims is true?

Accepted Answer

A)  Claims are not expected to be submitted after 15 days from the actual settlement date. 
B)  Claims of less than USD 5,000.00 are not expected to be submitted. 
C)  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. 
D)  Acknowledgement of receipt of a claim should be confirmed within 48 hours by email or SWIFT.

Question 18

If several banks hit a broker simultaneously for an amount greater than the amount for which the price was shown:

Accepted Answer

A)  no transaction is done 
B)  the broker has to honor each and every amount hit 
C)  the broker has to split the amount among the banks on a pro rata basis 
D)  the broker may freely choose the bank(s) he will deal with

Question 19

All prices quoted by brokers should be taken to be:

Accepted Answer

A)  under reference 
B)  firm, but not necessarily in marketable amounts 
C)  firm, unless otherwise qualified 
D)  merely indicative

Question 20

You quote spot EUR/USD at 1.3023-26 in 5 to another bank. He says, "Take 5, could do 8". How much are you obliged to do?

Accepted Answer

A)  Nothing, as he changed the terms of the deal 
B)  EUR 5,000,000.00 
C)  More than EUR 5,000,000.00, but a maximum of EUR 8,000,000.00 
D)  EUR 8,000,000.00

Exam 2: ACI Dealing Certificate-Part B