Question 1

Which one of the following statements regarding the variance-covariance method for calculating value-at-risk is true?

Accepted Answer

A)  The volatilities of the underlying assets are normally distributed and the prices remain constant. 
B)  The risk factors are normally distributed and volatilities of risk factors and correlations between risk factors are constant. 
C)  The prices of underlying assets are normally distributed, the volatilities of risk factors follow a GARCH process and correlations between risk factors are constant. 
D)  The returns of underlying assets are normally distributed and volatilities of risk factors and correlations between risk factors are constant.

Question 2

The popularity of FX-trading via Internet platforms has serious implications for the applicability of traditional rules such as "Know Your Customer". Which of the following are correct?

Accepted Answer

A)  "Know Your Customer" rules cannot be applied online and banks will have to rely instead on new safeguards such as third-party authentication. 
B)  "Know Your Customer" rules apply only to retail customers and are therefore irrelevant to currency trading. 
C)  In practice, banks can avoid "Know Your Customer" rules by limiting online deal size to EUR 100,000.00 or equivalent. 
D)  No trading should be carried out without first identifying and setting up the counterparty; this includes "Know Your Customer" procedures.

Question 3

You quote a customer spot AUD/USD at 1.0350-55. The T/N swap is quoted to you at 3/2. The customer asks to buy USD for value tomorrow. What rate should you quote him to break-even against the other rates?

Accepted Answer

A)  1.0352 
B)  1.0353 
C)  1.0347 
D)  1.0348

Question 4

The process of confirming trades is a function that can be performed by:

Accepted Answer

A)  any dealer as long as he/she is not a party to the trade 
B)  staff in the back-office/operations who are independent of the trade 
C)  staff in the dealing room who are not dealing 
D)  any staff outside the dealing room

Question 5

For which country's currency is SEK the ISO code?

Accepted Answer

A)  South Korea 
B)  Sri Lanka 
C)  Slovakia 
D)  Sweden

Question 6

A bank expects interest rates to fall with a parallel downward shift in the yield curve. What action should the bank take, if it wants to benefit from this view?

Accepted Answer

A)  increase the maturity of its liabilities 
B)  reduce the maturity of its asset portfolio 
C)  runazerogap 
D)  lengthen the maturity of its asset portfolio

Question 7

You have made a price by a Japanese bank in (SD 2,000,000.00 against JPY. They made you 98.95-03 and you took the offer. USD/JPY is now quoted 98.78-81 and you square your position. What is your profit or loss?

Accepted Answer

A)  Profit of JPY 340.000 
B)  Profit of JPY 1.500,000 
C)  Loss of JPY 340.000 
D)  LossofJPV 500.000

Question 8

In trade confirmation, which one of the following statements about "matching" is correct?

Accepted Answer

A)  matching should be performed by no later than the day after trading day 
B)  matching processes are manual and may not be automated 
C)  matching should be performed as soon as possible upon receipt of the confirmation 
D)  confirmation matching should be a post-settlement workflow activity

Question 9

The seller of a floor:

Accepted Answer

A)  Receives compensation if a reference interest rate falls below an agreed level 
B)  Pays compensation if a reference interest rate falls below an agreed level 
C)  Receives compensation if a reference interest rate rises above an agreed level 
D)  Pays compensation if a reference interest rate rises above an agreed level

Question 10

The outright forward FX rate is not a function of which of the following?

Accepted Answer

A)  The interest rates of the two currencies 
B)  The spot exchange rate 
C)  Thedaycount 
D)  Market expectation

Question 11

What type of institution is the typical drawer of banker's acceptances?

Accepted Answer

A)  Credit institution 
B)  Investment bank 
C)  Corporate 
D)  Central Bank

Question 12

Responsibility for the activities of all personnel engaged in dealing (both dealers and support staff) for both principals and brokers lies with:

Accepted Answer

A)  the market supervisor 
B)  the national ACI association 
C)  the management of such organizations 
D)  the central bank

Question 13

What is the result of combining a 1-month buy and sell FX swap with a 2-month sell and buy FX swap?

Accepted Answer

A)  a 1x2 FRA short position 
B)  a 1- against 2-month buy and sell forward/forward FX swap 
C)  a 1- against 2-month sell and buy forward/forward FX swap 
D)  a 1- against 2-month forward/forward long position

Question 14

You are quoted the following market rates: Spot AUD/USD         1.0380-85 0/N AUD/USD swap         2.42/2.35 TIN AUD/USD swap         0.82/0.79 S/N AUD/USD swap         0.80/0.77 Where can you buy AUD against USD for value tomorrow?

Accepted Answer

A)  1.038579 
B)  1.038582 
C)  1.038418 
D)  1.038421

Question 15

What needs to be done in the event that a trade is amended by one or both parties?

Accepted Answer

A)  A new confirmation should be generated by both parties but there is no need to restart the confirmation cycle. 
B)  The amending party should verbally inform the other party. 
C)  A new confirmation should be generated and the confirmation cycle should restart and continue until the trade is completely matched by both parties. 
D)  A new confirmation need not be generated but the confirmation cycle must restart and continue until the trade is completely matched by both parties.

Question 16

If a broker refers to "the payer of 5-year euro at 4.12", what is this party doing?

Accepted Answer

A)  Paying a fixed rate of 4.12% per annum on a 30/360 basis over 5 years in euros through an interest rate swap in exchange for receiving a floating rate of 6-month Euribor on an actual/360 basis reset semi-annually and paid in arrears. 
B)  Paying a fixed rate of 4.12% per annum on an actual/actual basis over 5 years in euros through an interest rate swap in exchange for receiving a floating rate of 6-month Euribor on an actual/360 basis reset semi-annually and paid in arrears. 
C)  Paying a 5-year euro deposit and receiving a rate of interest of 4.12% on an actual/360 basis. Taking a 5-year euro deposit and paying a rate ol interest of 4.12% on an actual/360 basis.

Question 17

A US security yields 7% on an annually-compounded bond basis. What is the equivalent annually- compounded money market yield?

Accepted Answer

A)  7.09% 
B)  7.03% 
C)  6.90% 
D)  6.95%

Question 18

If the value of the collateral in a repo has fallen during the term of the transaction, who suffers the loss?

Accepted Answer

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

Question 19

Selling a FRA has the same interest rate exposure as:

Accepted Answer

A)  Opening a positive gap 
B)  Going over-borrowed 
C)  Making a forward-forward loan 
D)  Taking a forward-forward deposit

Question 20

Extended trading hours and off-premises dealing can involve additional hazards, the avoidance of which requires clear controls. The Model Code prescribes best market practice. Which of thefollowing is true?

Accepted Answer

A)  Off-premises dealing should be strictly prohibited. 
B)  After-hours trading should be prohibited. 
C)  Deals transacted after normal business hours or off-premises should only be undertaken on mobile phones approved by management. 
D)  Deals transacted after normal business hours or off-premises either by mobile phones or any other equipment should only be undertaken with the approval of management.

Exam 2: ACI Dealing Certificate-Part B