Question 1

Which of the following is a function of asset and liability management (ALM)?

Accepted Answer

A)  coordinated limit management of a financial institution's credit portfolio 
B)  running a matched trading book 
C)  monitoring credit quality of assets and establishing a early warning system 
D)  managing the financial risk of the bank by protecting it from the adverse effects of changing interest rates

Question 2

Under Basel rules, expected credit loss is a function of which of the following sets of parameters:

Accepted Answer

A)  1 minus recovery rate, probability of default and exposure at default 
B)  exposure at origination, exposure at default and loss given default 
C)  loss given default, 1 minus recovery rate and exposure at default 
D)  exposure at origination, recovery rates and probability of default

Question 3

Which one of the following formulae is correct?

Accepted Answer

A)  Long a straight bond + pay fixed on a swap = long a synthetic Floating Rate Note 
B)  Long a straight bond + pay floating on a swap = long a synthetic Floating Rate Note 
C)  Short a straight bond + receive fixed on a swap = long a synthetic Floating Rate Note 
D)  Short a straight bond + pay fixed on a swap = long a synthetic Floating Rate Note

Question 4

What is a long strangle option strategy?

Accepted Answer

A)  A short call option + short put option with a higher strike price than the call option 
B)  A long call option + long put option with a lower strike price than the call option 
C)  A short call option + short put option with a lower strike price than the call option 
D)  A long call option + short put option with higher strike price than the call option

Question 5

What should a broker do if his quoted price is hit simultaneously by several dealers for a total amount greater than that for which the price concerned was valid?

Accepted Answer

A)  allot the amount for which the price is valid pro rata amongst some principals in accordance with the amount proposed by each and inform the other dealers that "nothing was done" 
B)  decide which principals he will allot the amount for which the price is valid and inform the other dealers that "nothing was done" 
C)  evenly allocate the amount for which the price is valid amongst all the principals and inform all the relevant dealers 
D)  apportion the amount for which the price is valid pro rata amongst all the principals concerned in accordance with the amount proposed by each and inform all the relevant dealers

Question 6

In spite of having agreed to a deal, dealers are not bound to its terms if it is "subject to documentation". What position does the Model Code take with regard to this practice?

Accepted Answer

A)  The practice of making a transaction subject to documentation is not regarded as good practice. 
B)  It urges dealers to be bear in mind that this is a common practice for capital market deals. 
C)  The Model Code does not comment on the matter. 
D)  It recommends that national ACI Associations deal with this issue according to their local customs.

Question 7

To curb attempted fraud, banks should:

Accepted Answer

A)  Require greater vigilance by the management and staff. 
B)  Take particular care when the beneficiary is a third party to the deal. 
C)  Ensure that details of all telephone deals which do not include pre-agreed standard settlement instructions are confirmed by telex or similar means without delay. 
D)  All of the above.

Question 8

What is an FX swap from spot?

Accepted Answer

A)  An exchange of two streams of interest payments in different currencies and an exchange of the principal amounts of those currencies at maturity 
B)  A spot sale (purchase) and a forward purchase (sale) of two currencies agreed simultaneously between two parties 
C)  An exchange of currencies on a date beyond spot and at a price fixed today 
D)  An agreement to buy (sell) an amount of base currency value spot and simultaneously resell (buy back) the same amount to the same counterpart value today

Question 9

Today, you sold 10 December EURODOLLAR futures contracts at 99.50. The closing price is fixed by the exchange at 99.375. What variation margin will be due?

Accepted Answer

A)  You will have to pay USD 312.50 
B)  You will receive USD 312.50 
C)  You will have to pay USD 3,125.00 
D)  You will receive USD 3,125.00

Question 10

You are quoting forward FX prices to a broker subject to finding a counterparly for a matching transaction. The Model Code says:

Accepted Answer

A)  You must tell the broker, who must qualify your quotes. 
B)  For credit reasons, you must tell the broker when he presents a name. 
C)  You cannot do this. 
D)  The Model Code does not make recommendations on this subject.

Question 11

You have bought a 93-day US Treasury bill at 5.63%. What is the true yield?

Accepted Answer

A)  5.71% 
B)  5.69% 
C)  5.72% 
D)  5.62%

Question 12

Hybex Electrics is a highly rated company with a considerable amount of fixed rate liabilities and would like to increase the percentage of floating rate debt. Which of the following is the best course of action?

Accepted Answer

A)  Hybex should become a payer of a fixed rate on a swap against receipt of LIBOR. 
B)  Hybex should become a receiver of a floating rate on a swap against payment of a fixed rate 
C)  Hybex should become a receiver of a fixed rate on a swap against payment of LIBOR D. 
D)  Hybex should become a receiver of a floating rate on a swap against payment of LIBOR

Question 13

What type of institution is the typical issuer of bank bills?

Accepted Answer

A)  Credit institution 
B)  lnvestment bank 
C)  Corporate 
D)  All of the above

Question 14

What are the secondary market proceeds of a CD with a face value of EUR 5,000,000.00 and a coupon of 3% that was issued at par for 182 days and is now trading at 3% but with only 7 days remaining to maturity?

Accepted Answer

A)  EUR 4,997,085.03 
B)  EUR 5,000,000.00 
C)  EUR 5,071,086.45 
D)  EUR 5,072,874.16

Question 15

Which one of the following statements about "CLS rescinds" is correct?

Accepted Answer

A)  CLS settlement members may rescind instructions unilaterally provided that the rescind messages reach the CLS Bank before the 00:00 CET deadline. 
B)  CLS settlement members may rescind instructions unilaterally provided that the rescind messages reach the CLS Bank before the 06:30 CET deadline. 
C)  CLS settlement members may rescind instructions bilaterally only if the rescind messages reach the CLS Bank before the 00:00 CET deadline. 
D)  CLS settlement members may rescind instructions bilaterally only if the rescind messages reach the CLS Bank after the 06:30 CET deadline.

Question 16

It is up to the vendors of electronic dealing platforms to ensure that dealers are trained to use their systems.

Accepted Answer

A)  Management should ensure dealers fully understand the systems they use and dealers should read the manuals. 
B)  Management, dealers and vendors share responsibility. 
C)  Dealers are required to pass the ACI Dealing Certificate before being allowed to access electronic dealing platforms. 
D)  Given the wide range of electronic dealing platforms used by banks, it is the responsibility of the vendors to ensure individual users are adequately trained.

Question 17

The gamma of an option is:

Accepted Answer

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

Question 18

Which of the following statements is correct?

Accepted Answer

A)  An adjusted settlement amount is paid at the end of the FRA contract period that includes reinvestment interest for late payment 
B)  An unadjusted settlement amount is paid at the end of the FRA contract period 
C)  An adjusted settlement amount is paid at the start of the FRA contract period that is discounted for early payment 
D)  An unadjusted settlement amount is paid at the start of the FRA contract period

Question 19

You have taken 3-month (92 days) deposits of CAD 12,000,000.00 at 1.10% and CAD 6,000,000.00 at 1.04%. Minutes later, you quote 3-month CAD 1.09-14% to another bank. The other dealer takes the CAD 18,000,000.00 at your quoted price. What is your profit or loss on this deal?

Accepted Answer

A)  CAD 2,722.19 
B)  CAD 460.00 
C)  CAD 3,220.00 
D)  CAD 2,760.00

Question 20

The Model Code is clear on "position parking". What does it say?

Accepted Answer

A)  The parking of deals or positions with any counterparty is discouraged 
B)  The parking of deals or positions with any counterparty should be forbidden 
C)  The parking of deals or positions should be subject to a clear policy laid down in writing by senior management 
D)  In jurisdictions where position parking is allowed, prior approval should be sought from the regulator

Exam 2: ACI Dealing Certificate-Part B

Which of the following is a function of asset and liability management (ALM) ?