Question 1

A dealer in the spot foreign exchange market has to assume that a price given to a voice broker is only valid:

Accepted Answer

A)  for a short length of time, usually 30 seconds 
B)  until the price has been taken "off" by the dealer 
C)  for a short length of time, typically a matter of seconds 
D)  for a minute or two

Question 2

If spot AUD/USD is quoted to you as 1.0420-25 and 1-month forward AUD/USD is quoted to you as 28/23, at what rate can you buy USD 1-month outright?

Accepted Answer

A)  1.0448 
B)  1.0402 
C)  1.0397 
D)  1.0392

Question 3

What is the correct interpretation of a EUR 2,000,000.00 overnight VaR figure with a 97% confidence level?

Accepted Answer

A)  A loss of at least EUR 2,000,000.00 can be expected in 97 out of the next 100 days. 
B)  A loss of at most EUR 2,000,000.00 can be expected in 3 out of the next 100 days. 
C)  A loss of at least EUR 2,000,000.00 can be expected in 3 out of the next 100 days. 
D)  A loss of at most EUR 2,000,000.00 can be expected in 6 out of the next 100 days.

Question 4

The one-month (31-day) GC repo rate for French government bonds is quoted to you at 3.75- 80%. As collateral, you are offered EUR 25,000,000.00 nominal of the 5.5% OAT April 2012, which is worth EUR 28,137,500.00. The Repurchase Price is:

Accepted Answer

A)  EUR 28,228,360.69 
B)  EUR 28,229,572.15 
C)  EUR 25,080,729.18 
D)  EUR 25,081,805.55

Question 5

The use of off-market rates is discouraged and should be permitted only:

Accepted Answer

A)  When the bank's income is secured on the trade. 
B)  If the unsecured credit is taken into account. 
C)  It the bank knows the customer very well. 
D)  When there are written procedures and policies for such transactions.

Question 6

You are a sales person in a bank and are about to sell a structured note to a non-professional customer. Before finalizing the transaction you remember to double-check the customer's charter. You learn that the customer is not allowed to invest in structured products. The risk you have avoided is most likely to be classified as:

Accepted Answer

A)  credit risk 
B)  liquidity risk 
C)  legal risk 
D)  refinancing risk

Question 7

Today's spot value date is the 30th of June. What is the maturity date of a 2-month EUR deposit deal today? Assume no bank holidays.

Accepted Answer

A)  27th August 
B)  30th August 
C)  31st August 
D)  1 September

Question 8

Assuming a flat yield curve in both currencies, when quoting a 1- to 2-month forward FX time option price in a currency pair trading at a discount to a customer:

Accepted Answer

A)  you would take as bid rate the bid side of the 2-month forward and as offered rate the offered side of the 1-month forward 
B)  you would take as bid rate the offered side of the 2-month forward and as offered rate the bid side of the 1-month forward 
C)  you would take as bid rate the offered side of the 1-month forward and as offered rate the offered side of the 2-month forward 
D)  you would take as bid rate the bid side of the 1-month forward and as offered rate the bid side of the 2-month forward

Question 9

What is the purpose of the Liquidity Coverage Ratio?

Accepted Answer

A)  to mitigate market replacement risk across markets 
B)  to eliminate funding mismatches by establishing a minimum acceptable amount of stable funding 
C)  to ensure that banks have enough high-quality liquid assets to survive a 30-day period of acute market stress 
D)  to minimize duration risk on a bank's assets over a one-year horizon

Question 10

A bank borrowing USD for 12 months and lending them for 6 months creates:

Accepted Answer

A)  Forward-forward loan 
B)  Forward-forward deposit 
C)  Negative gap 
D)  An over-lent position

Question 11

Which of the following is true regarding the consummation of a deal?

Accepted Answer

A)  verbal agreements are considered binding 
B)  written confirmations always override terms verbally agreed to 
C)  deals agreed to verbally can be done subject to documentation 
D)  verbal agreements are never to be considered legally binding

Question 12

A dealer does the following deals in EUR/USD: buys EUR 1 m at 11020 sells EUR 3 m at 1.1022 buys EUR 2 m at 1.1002 buys EUR 1.5 m at 1.1012 What position does the dealer now have?

Accepted Answer

A)  Long EUR 1.5 m at 1.0984 
B)  Short EUP 1.5 m at 1.1036 
C)  Long EUR 1.5 m at 1.1012 
D)  Short EUR 3.0 mat 1.1025

Question 13

An FRA is:

Accepted Answer

A)  A cash instrument 
B)  An exchange traded derivative 
C)  An interest rate derivative 
D)  A balance sheet instrument

Question 14

As regards controls, which of the following best practices for counterparty identification is incorrect?

Accepted Answer

A)  Amendments to customer standing data should be subject to 4 eyes control and only changed if the appropriately authorized documentation is provided. 
B)  The set up of settlement instructions and the confirmation method should be fixed when setting the first transaction. 
C)  No trading should be done without first identifying and setting up the counterparty. 
D)  Counterparty identification and setup of settlement instructions should be completed in less than 2 working days.

Question 15

What are de minimis claims?

Accepted Answer

A)  claims of less than USD 100.00 
B)  claims of less than USD 1,000.00 
C)  claims of less than EUR 100.00 
D)  claims of less than EUR 1,000.00

Question 16

Which of the following statements is correct?

Accepted Answer

A)  With liquidity transfer pricing (LTP) banks attribute the costs, benefits and risks of liquidity to respective business units within a bank 
B)  With liquidity transfer pricing (LTP) banks are monitoring and diversifying their funding base 
C)  With liquidity transfer pricing (LTP) banks are agreeing with external liquidity providers on the fair market price of funds 
D)  Liquidity transfer pricing charges providers of funds for the cost of liquidity and users of funds for the benefit of liquidity

Question 17

In which type of repo is "double dipping" a risk?

Accepted Answer

A)  Delivery repo 
B)  HIC repo 
C)  To-party repo 
D)  "Double dipping" is never a risk in any type of repo

Question 18

Deliberately inputting incorrect big figures into an electronic dealing platform is:

Accepted Answer

A)  Technically impossible on electronic platforms 
B)  Not an uncommon practice and something which professional dealers should be able to guard against. 
C)  Not good practice. 
D)  A criminal offence.

Question 19

When a stop-loss/profit order is taken, the rate specified in the order:

Accepted Answer

A)  must be transacted regardless of where the market moved 
B)  must be transacted if a broker confirms that the specified rate was reached 
C)  cannot be taken as a fixed-price guarantee unless agreed in writing 
D)  will always be the stop loss rate, if the order is executed

Question 20

Issues relating to the bank's liquidity management are commonly discussed in:

Accepted Answer

A)  the Asset Liability Management Committee (ALCO) 
B)  the Financial Resources and Compensation Committee 
C)  the Credit Committee 
D)  the Federal Open Market Committee

Exam 2: ACI Dealing Certificate-Part B