3I0-012 Practice Exam Questions with Answers ACI Dealing Certificate Certification

The practice of making a transaction subject to documentation is not regarded as good practice.

It urges dealers to be bear in mind that this is a common practice for capital market deals.

The Model Code does not comment on the matter.

It recommends that national ACI Associations deal with this issue according to their local customs.

Immediately after the deal is done.

As quickly as possible after the deal is done.

By electronic media only, e.g. fax, telex.

Not later than the value date of the first leg of the transaction.

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.

You receive USD 12,330.46

You pay USD 12,330.46

You pay USD 12,163.81

You receive USD 12,163.81

Delivery repo

HlC repo

Tri-party repo

There is no real difference

EUR 27,947,276.43

EUR 27,946,077.08

EUR 27,950,071.43

EUR 27,948,871.97

the fixing spot rate

the daily high

the days’ average rate

the average rate over the NDF period

0.008520

0.009510

0.009515

0.009518

This is a normal volume discount.

The offer requires approval in writing by both senior managements.

The offer requires agreement in writing between the broker and the dealer.

This is illegal.

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

as a given deposit with a term of one month and a taken deposit with a term of four months

as a taken deposit with a term of one month

as a taken deposit with a term of one month and a given deposit with a term of four months

as a given deposit with a term of four months

Central bank.

Senior management of the bank and the brokerage firm.

Head of compliance.

ACI’s Committee for Professionalism (CFP).

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 broker remains liable for the resulting difference for 3 full business days following the date of the transaction.

The broker remains liable until the error is discovered.

The broker is not liable at all.

The broker’s liability should be limited as he is not in a position to directly rectify the situation.

8th September next year

10th September next year

8th December next year

10th December next year

14th December

15th December

16th December

17th December

Duties and reporting lines.

Systems.

Career paths.

All of the above.

0.7291-94

0.7294-91

1.3710-15

None of these

USCP

ECP

Treasury bill

BA

Is recommended where the complications of the transaction warrant the practice.

Is strictly forbidden.

Is considered bad practice.

Must have senior management approval.

Maturities of less than one week.

Maturities of less than one month.

Maturities of less than one year.

Maturities in the same calendar month.

Borrowed USD 20 million at 5.3125%

Lent USD 20 million at 5.4375%

Borrowed USD 20 million at 5.4375%

Lent USD 20 million at 5.3125%

EUR 25,962,011.01

EUR 25,959,714.91

EUR 25,948,878.47

EUR 25,948,648.82

Costs more than an in-the-money call option

Costs less than an out-of-the-money call option

Costs more than an out-of-the-money call option

Costs the same as an at-the-money put option

Management should ensure dealers fully understand the systems they use and dealers should read the manuals.

Management, dealers and vendors share responsibility.

Dealers are required to pass the ACI Dealing Certificate before being allowed to access electronic dealing platforms.

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.

3,704,500

6,748,549

3,703,000

6,751,283

periodic exchange of fixed and floating payments up to and including maturity

at maturity by net payment

after maturity by exchange of fixed and floating payments

after maturity by net payment

Buy a 3-month EUR/USD outright forward

Buy USD spot, and sell and buy a 3-month EUR/USD FX swap

Sell EUR/USD in the spot market, lend EUR for 3 months and borrow USD for 3 months

Sell EUR/USD in the spot market, borrow EUR for 3 months and lend USD for 3 months

H-15 Index

Prime Rate

Overnight Fed funds

Fed funds effective rate

A short call option + long put option with a higher strike price than the call option

A long call option + long put option with a lower strike price than the call option

A short call option + short put option with a lower strike price than the call option

A long call option + long put option with higher strike price than the call option

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

no transaction should be concluded and the broker should inform both counterparties accordingly

a transaction should be concluded and the broker should inform both counterparties accordingly

the dealer has the choice of either concluding the transaction or not

the broker decides whether the transaction should be concluded or not

agree, since entertainment is a normal part of business

refer this to senior management

agree but insist on paying half the cost

agree, if the broker pays for the event but does not attend it

To cover losses incurred between variation margin payments

To exclude retail investors

To pay reserve requirements

To cover fees due to the clearing house

You pay JPY 440,694

You receive JPY 440,694

You pay JPY 438,882

You receive JPY 438,882

75%

100%

150%

350%

An adjusted settlement amount is paid at the end of the FRA contract period that includes reinvestment interest for late payment

An unadjusted settlement amount is paid at the end of the FRA contract period

An adjusted settlement amount is paid at the start of the FRA contract period that is discounted for early payment

An unadjusted settlement amount is paid at the start of the FRA contract period

liquidity risk

business risk

operational risk

funding risk

1.0759

0.9299

1.5909

0.9295

Currency Conversion Factor

Credit Conversion Factor

Credit Contribution Factor

Credit Collateralization Factor

Saudi Arabia

South Africa

Zimbabwe

Zambia

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.

+190

-193

-192

-190

Legal documentation must be put in place as soon as possible after transaction.

All market participants should use the Modified Previous Business Day Convention.

The exact maturity (end) dates for transactions must be agreed as soon as possible after a transaction.

All market participants should use the Modified Following Business Day Convention.

2.60%

2.75%

2.775%

2.813%

Borrowed CAD 20,000,000.00 at 1.06%

Lent CAD 20,000,000.00 at 1.11%

Borrowed CAD 20,000,000.00 at 1.11%

Lent CAD 20,000,000.00 at 1.06%

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.

Buyer

Seller

Issuer

It depends on the agreement between the buyer and seller

27th December

30th December

31st December

1st January

A manual “kill button” to disable the system’s ability to trade and cancel all resting orders.

An ‘inbound message rate” feature that monitors the number of confirmation messages that are sent from trading venues within a specific time period.

A “repeated automated execution throttle” monitoring the frequency of strategies that are filled and then re-entered into the market without human intervention through automated trading systems.

A “fat-finger quantity” feature limiting the size of orders that can be sent from the trading systems and preventing order quantities above the fat-finger limit from leaving the system.

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

The market value of bond collateral at the start 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

9.8141-9.8246

9.8108-9.8279

9.8098-9.8289

9.8151-9.8236

Credit Value Adaption

Call Value Adaption

Credit Value Adjustment

Counterpart Value Adjustment

149.66-74

149.69-71

63.52-53

63.51-54

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

the trade is within the specified tenor limits

the trade is within the tenor limits and is of an applicable trade type

the trade is within the tenor limits and credit limits

the trade is within the tenor limits, credit limits and is of an applicable trade type

claims should be made for the costs incurred by the injured party and include all administration costs

no party involved can be enforced to contribute to achieve an equitable resolution to the problem

no market participant should be unjustly enriched or injured by the action/error of another market participant

claims are calculated on the full principal amount of the failed payment with the interest rate imposed by the injured party

e-mail

fax or letter

MTn99 SWIFT message

MT670/671 SWIFT message

“Know Your Customer” rules cannot be applied online and banks will have to rely instead on new safeguards such as third-party authentication.

“Know Your Customer” rules apply only to retail customers and are therefore irrelevant to currency trading.

In practice, banks can avoid “Know Your Customer” rules by limiting online deal size to EUR 100,000.00 or equivalent.

No trading should be carried out without first identifying and setting up the counterparty; this includes “Know Your Customer” procedures.

An upward parallel shift of interest rates will cause a loss of income if the rate-sensitivity of a bank’s liabilities is higher than the rate-sensitivity of its assets.

A bank will lose income if it has more rate-sensitive liabilities than rate-sensitive assets.

Falling interest rates will always result in mark-to-market profits on short positions in fixed rate securities.

Rising interest rates can result in mark-to-market losses on fixed-rate assets.

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

EURIBOR

EONIA

EUREPO

EURONIA

The price of the underlying instrument at the time of the transaction

The price at which the transaction on the underlying instrument will be carried out if and when the option is exercised

The price the buyer of the option pays to the seller when entering into the options contract

The price at which the two counterparties can close-out their position

You pay CAD 20,000.00

You receive CAD 20,000.00

You pay CAD 19,952.61

You receive CAD 19,952.61

quarterly tests I updates as needed

at least every second year

half-yearly tests / yearly updates

at least yearly

1.0448

1.0402

1.0397

1.0392

prices increase during a systemic crisis

return on investment is relatively high

absence of active market makers

wide bid/offer spreads

This is considered as a normal discount for bulk business.

The offer should be agreed only by directors or senior management on each side and should be recorded in writing.

The offer should be expressly approved by both the individuals concerned and clearly recorded in writing.

The Model Code strongly discourages such practices.

has the option to fulfill the outright forward or not at maturity

may freely choose the maturity, given a 24-hour notice to the bank

can choose any maturity within a previously fixed period

may decide to deal at the regular maturity or on either the business day before or after

EUR 1,388,89

EUR 1,561.11

EUR 2,255.56

EUR 2,951.39

At that price

At that price in a marketable amount

At that price in a marketable amount, provided the counterparty’s name is acceptable

At that price in a marketable amount, provided the counterparty’s name is acceptable and the market price has not moved excessively

28th March

29th March

30th March

31st March

> 2% of 6 months forward earnings

> 20% of regulatory capital

<10% of regulatory capital

< 5% of 12 months forward earnings

There is no need to inform new counterparties and clients that conversations will be recorded.

It is normal practice that tapes and other records should be kept for at least twelve months.

The periods for which tapes and other records should be retained should reflect the way in which the terms and conditions of transactions have been agreed, and the duration of transactions.

Dealers and other staff are reminded that telephones and electronic text messaging systems in the firm are intended for business and private use and that conversations and exchanges of text messages should be conducted in a casual manner.

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

all legal disputes

disputes related to market practice or conduct as set out in the Model Code or in any other Code of Conduct

disputes between two market participants, at least one of them being a member of ACI

disputes related to over-the-counter financial instruments as detailed in appendix four of the Model Code

Claims are not expected to be submitted after 15 days from the actual settlement date.

Claims of less than USD 5,000.00 are not expected to be submitted.

Claims are calculated on the full principal amount of the failed transaction. Interest rates are imposed by the agent banks, unless a higher negotiated rate is to be applied.

Acknowledgement of receipt of a claim should be confirmed within 48 hours by email or SWIFT.

LIBID

LIBOR

EURIBOR

EURO LIBOR

Selling distressed assets and investing in bank liabilities trading at distressed levels.

Making sure that fixed assets are depreciated according to the applicable tax code.

Planning the maturity structure and net funding requirements arising from banking book and trading book transactions.

Planning the liability structure and net funding requirements arising from trading book assets carried at amortized cost.

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.

The following Monday

Saturday

Sunday

The previous Friday

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

4.261%

2.202%

1.900%

1.592%

the Asset Liability Management Committee (ALCO)

the Financial Resources and Compensation Committee

the Credit Committee

the Federal Open Market Committee

You will have to pay USD 5,925.00

You will receive USD 5,925.00

You will have to pay USD 3,675.00

You will receive USD 3,675.00

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.

Be over-lent

Have a negative gap

Be exposed to higher interest rates

Be over-borrowed

Financial institutions have to establish procedures for handling limit breaches that are in accordance with their decision-making hierarchy.

If a partial limit violation does not exceed the overall limit, no reaction is required.

The definition of escalation levels is not required in order to react appropriately to different sorts and intensities of limit breaches.

It is adequate and proper to define reactions only to standard cases of limit violations.

1.3042-1.30435

1.30405-1.3045

1.30095-1.3011

1.4575- 1.4728

Sell and buy USD in the FX swap market

Sell USD in the spot market

Buy USD in the spot market

Buy and sell USD in the FX swap market

an interest rate swap

a forward rate agreement

a short term interest rate future

an interest rate collar

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.

Revaluing collateral versus cash

Revaluing collateral

Calculating net present value

Calculating the net replacement cost

Sell and buy GBP/USD T/N

Buy and sell GBP/USD T/N

Sell GBP/USD spot, and sell and buy GBP/USD T/N

Buy GBP/USD spot, and buy and sell GBP/USD T/N

The same day they are dealt

Promptly

Within 24 hours of execution

Within an hour of execution

15

20

35

40

A means by which to reduce a risk

An equal and opposite risk

A riskless transaction

A means of cancelling a deal

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,

open and effective communication channels between all levels of staff and cross-functions should be maintained.

regular internal audits should be carried out together with trading and risk management to ensure early identification of internal control weaknesses

complete segregation of duties between the front, middle and back office activities

a separate system for independent monitoring to ensure compliance with the risk management framework should be in place

EUR 27,947,276.43

EUR 27,946,077.08

EUR 27,950,071.43

EUR 27,948,871.97

All investigation cases should be handled within the same day B. All investigation cases should be handled within 2 days

Investigation cases received before noon should be handled within the same day and those received after midday should be handled before noon the next day

Investigation cases received before noon should be handled within the same day and those received after midday within 24 hours

The maturity mismatch among assets and liabilities denominated in the home and reporting currencies.

The gap between variable and fixed rate assets and liabilities across all currencies.

The sum of all assets in one currency minus the sum of all liabilities in that same currency.

The sum of all off-balance sheet assets in one foreign currency minus the on-balance sheet equity in another currency.

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

Quarterly

At maturity

Semi-annually

After one year and at maturity

The quoted rate is subject to change at the risk of the price-taker

The quoting bank is reminding you of the market risk of your potential trade

This is a requirement of any market maker

The market maker needs to check your credit limit

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