ACI 3I0-012 ACI Dealing Certificate Exam Practice Test

Transaction exposure

Translation exposure

Economic exposure

None

Hedging a long bond position with payer’s swap involves basis risk

Hedging the credit risk of an asset swap package with a credit default swap has no basis risk

Basis risk is a result only of maturity mismatches

Basis risk is a result only of duration mismatches.

In their function as intermediaries, banks must necessarily accept some degree of interest rate risk.

Banks incur interest rate risk to increase income

Banks prefer c red it risk to market risk.

If banks failed to take on interest rate risk they would not be able to meet the needs of their deposit and loan customers.

There has to be an ultra long term maturity date

The risk taken by the bank must be taken or shared by provider of the capital

The funds must be in the form of pure equity

The funds must be re-invested only in cash

cock dates

broken dates

odd dates

weird dates

12-month AUD rates are higher than 12-month NZD rates

12-month AUD rates are lower than 12-month NZD rates

Spot AUD/NZD will be higher by approximately 50 points in 12 months

The AUD yield curve is positive, whilst the NZD curve is negative

Revaluing collateral versus cash

Revaluing collateral

Calculating net present value

Calculating the net replacement cost

should be adjusted to take account of the change in value date

cannot be adjusted if one of the counterparties wishes to adjust the rate but the other wishes to keep the original rate

must be adjusted if one of the counterparties wishes to adjust the rate but the other wishes to keep the original rate

should be adjusted if the adjustment is for two days or longer but not if it is for only one day

Assets are classified with an available stable funding factor (ASF).

Liabilities are classified with a required stable funding factor (RSF).

The ratio of available funding to required funding has to be higher than 50%n

Equity has an available stable funding factor of 100%.

The quoted currency

The base currency

The counter currency

The terms currency

Quarterly

At maturity

Semi-annually

After one year and at maturity

In the case of short date deposits, if the borrower is not prepared to repay the deposit prior to notice of receipt of the funds from the correspondent bank.

The borrower has no lending line for the placer of the funds and does not wish to be embarrassed by being unable to reciprocate.

If he secures a better rate elsewhere.

The borrower would be in breach of internal or regulatory depositor concentration limitations.

to mitigate market replacement risk across markets

to eliminate funding mismatches by establishing a minimum acceptable amount of stable funding

to ensure that banks have enough high-quality liquid assets to survive a 30-day period of acute market stress

to minimize duration risk on a bank’s assets over a one-year horizon

claims of less than USD 100.00

claims of less than USD 1,000.00

claims of less than EUR 100.00

claims of less than EUR 1,000.00

Receives compensation if a reference interest rate falls below an agreed level

Pays compensation if a reference interest rate falls below an agreed level

Receives compensation if a reference interest rate rises above an agreed level

Pays compensation if a reference interest rate rises above an agreed level

Between +0.5 and +1

+0.5

Between 0 and +0.5

Zero

Created an exposure to the CHF

Created an exposure to the USD

Switched a CI-IF asset temporarily into USD without taking currency risk

Switched a USD asset temporarily into CHF without taking currency risk

Selling a Money Market Future and/or selling a Forward Rate Agreement

Buying a Money Market Future and/or buying a Forward Rate Agreement

Selling a Money Market Future and/or buying a Forward Rate Agreement

Buying a Money Market Future and/or selling a Forward Rate Agreement

1.299971

1.309966

1.309971

1.310029

Be over-lent

Have a negative gap

Be exposed to higher interest rates

Be over-borrowed

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.

the credit spread is decreasing

the credit spread is decreasing and recovery rate is increasing

the credit spread is increasing

the recovery rate is increasing

A loss of at least EUR 5,000,000.00 can be expected in 99 out of the next 100 weeks.

A loss of at most EUR 5,000,000.00 can be expected in 1 out of the next 100 weeks.

A loss of at most EUR 5,000,000.00 can be expected in 1 out of the next 100 days.

A loss of at least EUR 5,000,000.00 can be expected in 1 out of the next 100 weeks.

Sell a 1x3 FRA at 0.42%

Buy a 1x3 FRA at 0.45%

Buy a 1x4 FRA at 0.58%

Sell a 1x4 FRA at 0.54%

...only at the discretion of the head of treasury.

...only at the discretion of the head of trading.

...as long a counterparty and issuer limit is in place.

... is not permitted.

Nothing

A margin call is triggered on the seller

A manufactured payment is made to the seller

The equivalent value plus reinvestment income is deducted from the repurchase price

1.3042-1.30435

1.30405-1.3045

1.30095-1.3011

1.4575- 1.4728

mis-stroke

slip-bid

mis-hit

broken trade

The Head of Operations has the sole responsibility of ensuring the correctness and validity of the SSI set up.

SSIs should be stored and maintained in the bank’s general static data system.

Each institution should have a separate SSI team to prevent I minimise the potential risk of fraud.

SSI staff should be fully integrated within Operations to insure consistent and reliable settlement guidelines.

Between -0.5 and -1

-0.5

Between +0.5 and +1

+0.5

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

only after consultation with the local regulator

only if the switching transaction is done at the current market rate

only provided that such transactions are identified as switching transactions

only after approval by the broker’s senior management

The leverage ratio is the ratio of the bank’s Tier 1 Capital to total assets of the bank, excluding its off- balance sheet exposures and derivatives.

The purpose of introducing a leverage ratio is to avoid the build-up of excess leverage that could potentially lead to a “credit crunch” in stressed conditions.

The leverage ratio under Basel III must be higher than 4%.

The leverage ratio is the ratio of the bank’s Tier 1 and Tier 2 Capital to total assets of the bank, including its off-balance sheet exposures and derivatives.

Management should monitor the form, frequency and cost of entertainment and gifts dealers receive, have a clearly articulated policy towards the giving/receipt of gifts and ensure the policy is enforced.

As gifts and entertainment may be offered in the normal course of business, employees can offer inducements to conduct business and solicit them from the personnel of other institutions.

Although management should not monitor the form, frequency or cost of entertainment/gifts dealers receive, they may have a policy towards the giving/receipt of gifts and ensure the policy is enforced.

Gifts or entertainment should never be offered in the normal course of business, and employees must never offer any inducements to conduct business, nor solicit them from other institutions.

An exchange of two streams of interest payments in different currencies and an exchange of the principal amounts of those currencies at maturity

A spot sale (purchase) and a forward purchase (sale) of two currencies agreed simultaneously between two parties

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

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

A written legal agreement between the parties

The oversight of the transaction by the custodian of the collateral

The creditworthiness of the collateral

The right of close-out and set-off in an event of default

SEK interest rates are higher than NOK interest rates

NOK interest rates are higher than SEK interest rates

NOK interest rates are higher than USD interest rates

SEK interest rates and NOK interest rates are converging

0.8963

1.1157

1.1159

1.1160

Pay 250.00, receive 1,250.00, receive 1,750.00, receive 2,000.00

Receive 250.00, pay 1,250.00, pay 1,750.00, pay 2,000.00

Pay 2,500.00, receive 12,500.00, receive 17,500.00, receive 20,000.00

Receive 2,500.00, pay 12,500.00, pay 17,500.00, pay 20,000.00

an exposure in Latvian Lats (LVL)

an exposure in Russian Rouble (RUB)

an exposure in Romanian Leu (RON)

an exposure in Bulgarian Lev (BGN)

A contract to exchange one stream of interest payments for another

A temporary exchange of one deposit for another of a longer maturity in the same currency

A forward-forward contract

A contract to exchange an interest rate stream in one currency for another one in a different currency

The buyer to each seller and the seller to each buyer

A clearing agent only

The self-regulatory organization for the futures exchange

The owner of the futures exchange

1.4523

1.4526

1.4513

1.4516

Bought and sold 3-month EUR/USD through the swap

Sold and bought 3-month EUR/USD through the swap

Made the quote

Cannot say

1.0759

0.9299

1.5909

0.9295

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

2.37%

2.46%

2.55%

4.90%

The level of interest rates in the base currency

The level of interest rates in the quoted currency

The interest rates in the two currencies

Your expectations of the future spot rate

the 6-month bucket

the 2.5-year bucket

the 5-year bucket

It should be weighted and apportioned in each of the time buckets in accord with the periodic coupon payments.

163.48-56

163.51-52

69.36-39

69.36-39

123.44

123.65

123.86

123.90

Ensure that your counterparty understands the terms under which your bank accepts the order.

Ensure that your counterpart can be contacted in the event of unusual situations or events or extremely volatile market conditions.

Ensure that your counterparty understands that any guarantee or fixed price execution requires agreement in writing.

All of the above.

Sell

Sell and subsequently buy back

Sell and borrow

Sell, borrow and buy back simultaneously

79.995

79.965

79.895

79.865

21.5/21

210/215

215/210

21/21.5

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.

Require greater vigilance by the management and staff.

Take particular care when the beneficiary is a third party to the deal.

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.

All of the above.

Every 6 months

Yearly

Whenever the BCP procedures are changed

Every 3 months

EUR 27,947,276.43

EUR 27,946,077.08

EUR 27,950,071.43

EUR 27,948,871.97

Your account at another bank

A foreign bank’s account in your bank in your domestic currency

An account in your bank used for internal transactions

A customer’s account at your bank

are invalid

must be approved by senior management before confirmation

cannot be entered into without the approval of the local regulator

are not considered to have been done in normal conditions or normal market hours

0.9849

1.0154

1.9759

0.5061

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

Commission paid by both parties at rates agreed beforehand

A fee paid by the seller

Bid/offer spread

A share of the bid/offer spread

Wherever the parties agree

In London

In NewYork

In Frankfurt

matching should be performed by no later than the day after trading day

matching processes are manual and may not be automated

matching should be performed as soon as possible upon receipt of the confirmation

confirmation matching should be a post-settlement workflow activity

currency risk

operational risk

liquidity risk

settlement risk

under reference

firm, but not necessarily in marketable amounts

firm, unless otherwise qualified

merely indicative

The market value of bond collateral at the end of the repo at the clean price of the bond

The market value of bond collateral at the end of the repo at the dirty price of the bond

The amount of cash actually paid for collateral at the start of the repo

The amount of cash actually paid for collateral at the start of the repo plus repo interest

interest rate, currency, equity and commodity risk

interest rate, currency, equity and default risk

interest rate, equity, liquidity and default risk

legal, reputation and regulatory risk

e-mail

fax or letter

MTn99 SWIFT message

MT670/671 SWIFT message

Collateralized Clearing Process

Central Clearing Counterparty

Collateralized Counterparty Protection

Collateralized Credit Protection

The cost of hedging is given by the forward points, which are equal to the interest rate differential between the two currencies

The high interest rate currency will depreciate

The profit from the appreciation of the high interest rate currency has been hedged away

Interest rates are mean reverting, which means the low interest rate will tend to rise and the high interest rate will tend to fall

EUR

JPY

HKD

AUD

They must be posted with a clear intent to be tradable.

They must be identified as indicative rates only.

They must be posted subject to later credit line approval.

They need not be posted in an appropriate trading style.

theft of information

damage to an organization through loss of its reputation or standing

market manipulation

loss incurred from the use of incorrect documentation

Reviewed Supervisory Factor

Required Stable Funding

Riskless Stable Funding

Riskless Supervised Funding

With liquidity transfer pricing (LTP) banks attribute the costs, benefits and risks of liquidity to respective business units within a bank

With liquidity transfer pricing (LTP) banks are monitoring and diversifying their funding base

With liquidity transfer pricing (LTP) banks are agreeing with external liquidity providers on the fair market price of funds

Liquidity transfer pricing charges providers of funds for the cost of liquidity and users of funds for the benefit of liquidity

149.66-74

149.69-71

63.52-53

63.51-54

Instruments qualifying for recognition as Tier 1 or Tier 2 capital will be substantially restricted.

Basel III does not include Tier 3 capital

There is a distinction between upper Tier 2 and lower Tier 2 capital

New non-common equity Tier 1 and Tier 2 instruments are more loss-absorbing than previously

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

Nothing

A margin call is triggered on the seller

A manufactured payment is made to the seller

Equivalent value plus reinvestment income is deducted from the repurchase price

He buys CHF 5,000,000.00 at 0.9423

He buys CHF 5,000,000.00 at 0.9426

He buys USD 5,000,000.00 at 0.9423

He buys USD 5,000,000.00 at 0.9426

Brokers should only show the names of banks to counterparties who have prime credit ratings.

Brokers should only show the names of banks to counterparties who provide good liquidity to the brokered market.

Brokers should only show the names of banks to counterparties whom they know well.

Brokers should only show the names of bank counterparties if both sides display a serious intention to transact

The 3-month EURODOLLAR futures contract has a basis point value of USD 50.00 and a face value of USD 1,000,000.00

The 3-month EURIBOR futures contract has a a basis point value of EUR 12.50 and a face value of EUR 500,000.00

The 3-month Sterling (SHORT STERLING) futures contract has a a basis point value of GBP 12.50 and a face value of GBP 500,000.00

The 3-month Euro Swiss Franc (EUROSWISS) futures contract has a a basis point value of CHF 50.00 and a face value of CHF 2,000,000.00

4,816,500.00

1,869,158.88

1,868,57677

4,815,000.00

minimum tier 1 capital of 4.5% and minimum total capital plus a conservation buffer of 10.5%

minimum tier 1 capital of 6% and minimum total capital including conservation buffer of 8%

minimum tier 1 capital of 4% and minimum total capital including conservation buffer of 10.5%

minimum tier 1 capital of 6% and minimum total capital including conservation buffer of 10.5%

27th August

30th August

31st August

1 September

By agreement between the two counterparties, the trade must be cancelled as soon as practically possible since a rate amendment is prohibited.

By agreement between the two counterparts, the trade should, as soon as practically possible, either be cancelled or have its rate amended to an appropriate market rate.

The off-market rate should be adjusted as soon as possible to the appropriate current market rate and a new authenticated SWIFT confirmation sent immediately to the counterparty.

Nothing need be done, since once a trade is agreed to by the front office it is a binding agreement for both counterparties.

Never

For very large movements and longer terms

Always

Spot is the principal influence

CD

FRA

BA

ECP

EUR 620.83

EUR 868.06

EUR 968.06

EUR 2,183.33

the market supervisor

the national ACI association

the management of such organizations

the central bank

One year

270 days

183 days

5 years

> 2% of 6 months forward earnings

> 20% of regulatory capital

<10% of regulatory capital

< 5% of 12 months forward earnings

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.

Initially by fax or other acceptable electronic means, then in writing.

Only if the deal is between overseas counterparties and for value today.

Only if the transaction is not for a marketable amount.

To both counterparties immediately by fax or other acceptable electronic means.

3.625%

3.285%

3.965%

3.835%

Loss of GBP 17000

Profit of GBP 17,000

Loss of EUR 17,000

Profit of EUR of 17,000

Credit institution

lnvestment bank

Corporate

All of the above

It reduces operational risk.

It splits differences arising from failed settlement between the two counterparties.

It removes the need for sending out SWIFT payment authorisations.

All of the above.

1.1030

1.1035

1.1028

1.1032

EUR 25,962,011.01

EUR 25,959,714.91

EUR 25,948,878.47

EUR 25,948,648.82

You must have prior senior management approval.

You must have the authoritq to switch names.

You must execute such transactions as promptly as possible within policy guidelines

All of the above.

4,816,500.00

1,868,809.57

1.868,576.77

4,815,900.00

Will encourage clients to do more business.

Will help prevent potential litigation.

Will help banks sell sophisticated risk management solutions.

Is required by all regulators.

The deal is done. You should confirm with your counterparts.

If the knock-in is confirmed by a New York price source, the deal is done and you should confirm with your counterparty.

The recognised closing time for the currency markets is 6:00pm New York time in Friday, so the deal is done and you should confirm with your counterparty.

The recognised closing time for the currency markets is 5:00pm NewYork time in Friday, so no deal is done.

Treasury bill

CD

BA

USCP

Bought CHF against JPY spot and sold JPY against CHF 3-month forward

Sold CHF against JPY spot and bought CHF against JPY 3-month forward

Bought CHF against JPY spot and sold CHF against JPY 3-month forward

Bought JPY against CHF 3-month outright

unchanged

118/116

109/107

106/104

+206

+197

-195

-204