3I0-012 ACI Dealing Certificate Questions and Answers

USD

AUD

Depends on whether the price is being quoted in Australia or the US

Depends on whether the price is being quoted interbank or to a customer

greater, the higher the coupon and the longer the term

greater, the lower the coupon and the longer the term

lower, the lower the coupon and the shorter the term

lower, the higher the coupon and the longer the term

Substantial opportunity for gain and limited risk of loss

Substantial risk of loss and substantial opportunity for gain

Limited risk of loss and limited opportunity for gain

Substantial risk of loss and limited opportunity for gain

The following Monday

Saturday

Sunday

The previous Friday

Pay fixed and receive floating through swaps for the term of the portfolio

Pay floating and receive fixed through swaps for the term of the portfolio

You cannot: the maturity of the swaps would be longer than that of the deposits

You should not: there would be too much basis risk

Saudi Arabia

South Africa

Zimbabwe

Zambia

the bank would benefit from higher interest rates

the bank could hedge this interest rate risk with a 3x6 derivative

the bank will make mark-to-market losses if rates decrease

the bank could hedge this interest rate risk by selling a 6x9 derivative

Go short of the underlying commodity equal to 50% of the size of the option contract

Go long of the underlying commodity equal to 50% of the size of the option contract

Go long of the underlying commodity equal to the full size of the option contract

Go short of the underlying commodity equal to the full size of the option contract

The face value of the CD

More than the face value

Less than the face value

Too little information to decide

0.60%

0.949%

1.074%

0.933%

the trader acquires additional exposure in the hedged item.

the hedging instrument is sold, terminated or exercised.

the hedged item is sold or settled.

a hedge fails the effectiveness test.

Profiles for functions are encouraged and should be reviewed semi-annually by a manager.

Developers should have unrestricted access to production systems.

Access to production systems should be rigorously controlled.

Users should not have access to change system functionalities.

Credit institution

Investment bank

Corporate

Central Bank

Effective Expected Potential Exposure

Effective Expected Positive Exposure

Effective Expected Price Earning

Effective Expected Payment Exposure

> 2% of 6 months forward earnings

> 20% of regulatory capital

<10% of regulatory capital

< 5% of 12 months forward earnings

a potential buyer of EUR against RUB

speculating on an appreciation of the Russian Rouble

expecting rising EUR/RUB exchange rates

a seller of Russian Rouble

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

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

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

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

within 2 hours after deal agreed with counterparty

before the value date of the trade

by the end of the trade date

within 24 hours

Intrinsic value but no time value

Time value but no intrinsic value

Both time value and intrinsic value

Neither time value nor intrinsic value

liquidity risk

business risk

operational risk

funding risk

usually the current spot EUR/USD mid-market rate

commonly the prevailing 4-month forward EUR/USD mid-rate

always the forward EUR/USD bid rate of the first swap leg

generally the prevailing 2-month forward EUR/USD mid-rate

US Treasury bill

CD

Interbank deposit

USCP

never

Only for very large movements and longer terms

always

spot is the principal influence

Must be transacted regardless of where the market moved.

Must be transacted if a broker confirms that the rate specified was reached.

Cannot be taken as a fixed-price guarantee.

None of the above.

1.1030

1.1035

1.1028

1.1032

unchanged

118/116

109/107

106/104

4.19%

4.25%

4.30%

4.31%

The sensitivity of the option value to changes in interest rates

The sensitivity of the option value to changes in implied volatility

The sensitivity of the option value to changes in the time to expiry

The sensitivity of the option value to changes in the price of the underlying

EUR 11,035,336.41

EUR 11,035,351.74

EUR 11,039,752.32

EUR 11,039,767.65

4.05%

4.0%

3.891%

3.838%

buying futures contracts on 30-year German Government bonds

selling futures contracts on 30-year German Government bonds

buying put options on 30-year German Government bonds

buying a 3x6 forward rate agreement

EUR 3,297,004.19

EUR 3,297,005.86

EUR 3,297,025.09

EUR 3,296,985.23

You must be prepared to deal EUR 50,000,000.00.

You may quote without stating the amount you are prepared to deal.

You are only committed to deal in a marketable amount.

You must be prepared to deal for more than EUR 50,000,000.00 in case Bank XYZ wishes to.

+USD 373,599.00

÷USD 186,099.00

-USD 1,400.99

Nil

Margin maintenance

Re-pricing

Either of the above, but usually (a)

Either of the above, but usually (b)

Loss of GBP 17000

Profit of GBP 17,000

Loss of EUR 17,000

Profit of EUR of 17,000

3.625%

3.285%

3.965%

3.835%

Dealers stick to market terminology in order to avoid the impression that they are offering an advisory or fiduciary role.

Dealers clarity what is being proposed rather than using any terminology that could be misinterpreted.

Dealers restrict themselves to terminology listed and explained in Chapter 11 of the Model Code.

Dealers define complex terminology in the confirmation of a deal.

You pay EUR 20,000.00

You receive EUR 20,000.00

You pay EUR 19,826.52

You receive EUR 19,826.52

Dealers may seek a compensation payment in favor of the bank or an adjustment to brokerage bills from the broker for switching names.

If requested by a broker to clear a transaction through name switching, a dealer must ensure that such activities have the prior approval of senior management.

The practice of name switching/substitution is neither acceptable nor desirable.

Name switching/substitution transactions should be executed as promptly as possible not considering credit limits and policy guidelines.

Currency risk

Interest rate risk

Operational risk

Credit risk

Banks should not ask brokers to disclose details of third party transactions unless they are between overseas principals.

Banks should not ask brokers to disclose details of third party transactions unless these transactions are already settled.

Banks should not ask brokers to disclose transactions between third parties in any circumstances.

Banks should not ask brokers for details of third party transactions unless senior management has approved.

Long EUR 1.5 m at 1.0984

Short EUP 1.5 m at 1.1036

Long EUR 1.5 m at 1.1012

Short EUR 3.0 mat 1.1025

Credit risk

Market risk

Legal risk

Operational risk

It is put at the disposal of the buyer

It is held by the seller in the name of the buyer

It is held by the tn-party agent in the name of the buyer

It is frozen in the sellers account with the tri-panty agent

The number of EUP per USD

The number of USD per EUR

Depends on whether the price is being quoted in Europe or the US

Depends on whether the price is being quoted interbank or to a customer

both parties to the dispute are members of the ACI and agree to submit the dispute to the ACI

one of the counterparties requests the assistance of ACI’s Committee for Professionalism

the two counterparties are located in different financial centers

the amount in dispute is more than USD 100,000.00 or equivalent

an unavailability of a credit limit for the counterparty

a qualification stating that a transaction needs to be reconfirmed

the unacceptability of the counterparty’s name

a qualification stating that the rate quoted may no longer be valid and requires confirmation before any trades can be agreed

123.44

123.65

123.86

123.90

Exchange-traded

Guaranteed

Standardised

All of the above

Bid/offer spread

Flow information

Relationships

All of the above

The confirmation takes precedence as it is a written contract.

The matter will have to be submitted to arbitration in order to establish the mutual intent of the parties.

It depends on local law.

The verbal agreement is binding.

Technically impossible on electronic platforms

Not an uncommon practice and something which professional dealers should be able to guard against.

Not good practice.

A criminal offence.

Any dealer as long as he/she is not a party to the trade.

Staff in the back-office.

Staff in the dealing room who are not dealing.

Any staff outside the dealing room.

1.038579

1.038582

1.038418

1.038421

Daily fixing of EUR interbank deposit rates in the European market

Daily fixing of EUR interbank deposit rates in the London market

Another name for EUR LIBOR

The ECB’s official repo rate

If there is more than one FX trade with a single counterparty to settle in the identical currencies, then both sides should bilaterally agree to settle the trades outside of CLS Bank on a net basis.

If there is only one FX trade with a single counterparty to settle in the identical currencies, then either side can unilaterally decide to settle the trade outside of CLS Bank on a net basis.

If there is more than one FX trade with a single counterparty to settle in the identical currencies, then both sides should bilaterally agree to settle the trade outside CLS Bank on a gross basis.

If there is more than one FX trade with a single counterparty to settle in the identical currencies, then either side can unilaterally instruct the CLS Bank to settle the trades.

3,704,500.00

6,748,549.06

3,703,000.00

6,751,282.74

EUR 5,798,982

EUR 5,799,497

EUR 5,746,376

EUR 5,000,694

Liquidity providers should be cognizant of reputational risks when supplying liquidity for onward third party consumption.

Market participants must not seek information as to the legal status of a potential counterparty before allocating credit or trading status.

Transactions should be handled in accordance with the regulator’s dealing rule book.

Access to systems internally and at the client interface must be strictly controlled by the dealers.

bid side of the near leg swap points minus offered side of the far leg swap points

bid side of the far leg swap points minus offered side of the near leg swap points

offered side of the far leg swap points minus bid side of the near leg swap points

offered side of the near leg swap points minus bid side of the far leg swap points

They must remain neutral and stay out of disputes between their customers.

They must rely on the execution venue to resolve disputes.

They must delegate the resolution of broken trades downstream to their clients.

They must take responsibility for the swift resolution of any disputes.

1 minus recovery rate, probability of default and exposure at default

exposure at origination, exposure at default and loss given default

loss given default, 1 minus recovery rate and exposure at default

exposure at origination, recovery rates and probability of default

0.8345-53

0.8345-50

0.8349-50

0.8349-53

Short USD 1.50 million at 112.60

Short USD 3.50 million at 111.75

Long USD 1.50 million at 111.10

Long USD 3.50 million at 111.55

In volatile markets.

When dealing with emerging markets.

In an emergency.

When quoting for information only.

3.410%

3.977%

3.996%

3.997%

8th September next year

10th September next year

8th December next year

10th December next year

You must be prepared to deal up to EUR 20 million.

You may quote without stating the amount you are prepared to deal.

You are only committed to deal in a marketable amount.

None or the above.

Credit risk

Market risk

Both of the above

None of the above

The need to maintain confidentiality with respect to non-public price sensitive information

The maximum amounts or sizes of trades dealers are allowed to trade for their own account

The instruments/products dealers can trade for their own account

The pledge that no action is taken by employees that might adversely affect the interests of clients or counterparties

33

42

27

40

It is good practice to collect and disclose incidents and near-misses for the future benefit of the professional community.

It is good practice to collect and analyze incidents and near-misses so as to set up preventive action plans for the future.

A report describing operational risks should be made at the request of the front office.

A report describing operational risks should be made at least once a year and provided to the front office.

5.71%

5.69%

5.72%

5.62%

visit a broker’s dealing room to arrange or confirm deals

visit a broker’s dealing room with the permission of the management of both parties

deal from within a broker’s dealing room with the permission of the broker’s management

place an order with a broker from within the same broker’s office

9.5836

6.2834

0.1591

0.1043

8.30%

8.52%

8.54%

8.69%

Dealing should only be allowed during normal trading hours.

It is not recommended that an unofficial close of business be specified for each trading day.

There should be clear written guidelines regarding the limit and type of deals that are permitted after normal hours or off-premises.

All after-hours and off-premises transactions must be dealt exclusively with the dealer’s personal mobile phones

CLS settlement members may rescind instructions unilaterally provided that the rescind messages reach the CLS Bank before the 00:00 CET deadline.

CLS settlement members may rescind instructions unilaterally provided that the rescind messages reach the CLS Bank before the 06:30 CET deadline.

CLS settlement members may rescind instructions bilaterally only if the rescind messages reach the CLS Bank before the 00:00 CET deadline.

CLS settlement members may rescind instructions bilaterally only if the rescind messages reach the CLS Bank after the 06:30 CET deadline.

the expected loss on the portfolio in the worst 95% of cases

the expected loss in those cases where the loss exceeds the VaR at the 95% level

the maximum loss in those cases where the loss exceeds the VaR at the 95% level

the expected loss in those cases where the loss exceeds the VaR at the 5% level

if a principal refuses to honour the deal

no conditions are required; the broker is entitled to take positions

only if he can not find another counterparty for a name switching

brokers act only as intermediaries or arrangers of deals

EUR 337,874A0

EUR 342,947.58

EUR 337,739.24

EUR 342,810.40

Not under any circumstances, since the “parking” of deals or positions should be prohibited

in conditions of exceptional volatility

only if the two counterparties to the deal agree

only if “parking” of deals or positions has been approved by senior management

It is recommended that ECNs have mechanisms that control price flashing

A manual kill button that disables the system’s ability to trade and cancels all resting orders may not be established without Central Bank approval

The sudden withdrawal of a specific credit limit or limits in a tactical manipulation to mislead the market is unethical

Algorithms require appropriate supervision performed by staff with commensurate levels of experience

A spot sale (purchase) and a forward purchase (sale)

A spot sale (purchase) and a forward sale (purchase)

An exchange of currencies on a date beyond spot and at a price fixed today

An exchange of currencies on a date beyond spot

I buy the base currency at the bid rate.

I buy the base currency at the offer rate.

I buy the counter-currency at the offer rate.

I sell you the base currency at the bid rate,

Replacement risk

Settlement risk

Legal risk

Basis risk

Today

Tomorrow

After you make an irrevocable payment

On the spot value date

the name of Bank A and Bank B

the names of Bank B and Bank C

the amount that was bid but not the name of Bank A

the amount taken by Bank C as well as the amount that was bid

EUR 27,947,276.43

EUR 27,946,077.08

EUR 27,950,071.43

EUR 27,948,871.97

increase the maturity of its liabilities

reduce the maturity of its asset portfolio

runazerogap

lengthen the maturity of its asset portfolio

Margin maintenance

Re-pricing

Margin maintenance or re-pricing, but usually margin maintenance

Margin maintenance or re-pricing, but usually re-pricing

The same day they are dealt

Promptly

Within 24 hours of execution

Within an hour of execution

The expected appreciation or depreciation of the base currency

The expected appreciation or depreciation of the quoted currency

Largely, the interest rate differential between two currencies

Solely, the interest rate differential between two currencies

Buyer

Seller

Issuer

It depends on the agreement between the buyer and seller

0%

15%

20%

75%

a 1x2 FRA short position

a 1- against 2-month buy and sell forward/forward FX swap

a 1- against 2-month sell and buy forward/forward FX swap

a 1- against 2-month forward/forward long position

deduct points from the broker or adjust the brokerage bill accordingly

in some centres, ask either the central bank or some other neutral body to investigate and confidentially verify that there was support for the original price or rate

in some centres, ask the local ACI to investigate and confidentially verify that there was support for the original price or rate

insist that the broker discloses the name of the other counterparty

adding up expected vault cash outflows, ATMs and other cash points operated by the institution across all branches

establishing a forward cash flow plan that takes account of all contractual and behavioral cash flows related to assets and liabilities

the net cash flow from investment activities in the IFRS consolidated Statement of Cash Flows for prior periods

subtracting short-term liabilities from short-term assets

The LCR is a measure to ensure that the reserve of high quality liquid assets is sufficient to cover short term demand for liquidity in a stress situation.

the ratio (cash outflow in a 30-day stress period divided by high quality liquid assets) has to be greater than 100%.

Covered bonds are class 1 assets.

Obligations issued by central banks or government agencies are class 2 assets.

Reviewed Supervisory Factor

Required Stable Funding

Riskless Stable Funding

Riskless Supervised Funding

8th September next year

10th September next year

8thDecembernextyear

December next year

AnFRA

An option on an FRA

A collar

AnIRS

2nd March

1st March

2gth February

28th February

verbal agreements are considered binding

written confirmations always override terms verbally agreed to

deals agreed to verbally can be done subject to documentation

verbal agreements are never to be considered legally binding

buy a strip of 0x6, 6x12, 12x18 and 18x24 FRAs

sell a strip of 0x6, 6x12, 12x18 and 18x24 FRAs

buy a strip of 6x12, 12x18 and 18x24 FRAs

sell a strip of 6x12, 12x18 and 18x24 FRAs

The volatilities of the underlying assets are normally distributed and the prices remain constant.

The risk factors are normally distributed and volatilities of risk factors and correlations between risk factors are constant.

The prices of underlying assets are normally distributed, the volatilities of risk factors follow a GARCH process and correlations between risk factors are constant.

The returns of underlying assets are normally distributed and volatilities of risk factors and correlations between risk factors are constant.

when receiving THB in 1 month

when receiving HKD in 2 months

when receiving PHP in 2 bank business days

when receiving KRW in 3 months