Practice Free 3I0-012 ACI Dealing Certificate Exam Questions Answers With Explanation

quarterly tests I updates as needed

at least every second year

half-yearly tests / yearly updates

at least yearly

7,291,286.91

7,293,946.02

13,710,000.00

13,715,000.00

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

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 swap curve is shifting downwards

the swap curve is shifting upwards

swaption volatilities are decreasing

time to expiry is becoming shorter

Wherever the parties agree

In London

In NewYork

In Frankfurt

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

“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.

GBP 2,507,161.46

GBP 2,507,063.36

GBP 2,507,006.85

GBP 2,507,106.16

The transaction is terminated and the collateral is returned to the seller

The transaction is rolled over until the coupon is paid or the issuer becomes insolvent, at which point the seller becomes an unsecured creditor of the issuer

The buyer is obliged to make a manufactured payment to the seller and becomes an unsecured creditor of the issuer

The buyer is not obliged to make a manufactured payment to the seller but the buyer is likely to ask for margin

the Canadian “Maple Leaf”

the South African “Krugerand”

the American “Gold Eagle”

the United Kingdom “Sovereign”

8th September next year

10th September next year

8thDecembernextyear

December next year

USD 252,056,972.97

USD 252,028,916.32

USD 250,000,000.00

USD 248,911,014.31

The right to buy or sell a commodity at a fixed price

The right to buy a commodity at a fixed price

The right but not the obligation to buy or sell a commodity at a fixed price

The right but not the obligation to buy a commodity at a fixed price

The 3-month Sterling (SHORT STERLING) futures contract has a basis point value of GBP 25.00 and a face value of GBP 1,000,000 .00

The EUROYEN TIBOR futures contract has a basis point value of JPY 25,000 and a face value of JPY 1,000,000,000

The CME EURODOLLAR futures contract has a minimum price interval of one-quarter basis point value (0.0025) for the nearest contract

The 3-month EURIBOR futures contract has a minimum price interval of half a basis point value (0.0050) for the nearest contract

-30

+29

-29

+30

When setting the rates for an FX swap to extend the maturity, the spot rate should be fixed immediately within the current spread

Where the use of non-current rates may be necessary, they should only be entered into with the prior explicit permission of the quoting party’s senior management

Dealing and rollovers at non-current rates are relatively common market practice and therefore should not be treated differently from any other transaction

Dealing and rollovers at non-current rates are forbidden as they can help perpetrate fraud and tax evasion

The number of EUR 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

Eliminated credit risk

Eliminated market risk

Taken a guarantee from the issuer of the collateral

Taken on market, legal and operational risks

that all telephone conversations (internal and external) be taped without informing counterparties

that only conversations undertaken by dealers and brokers should be recorded

that all conversations undertaken by dealers and brokers should be recorded, together with back office telephone lines used by those responsible for confirming deals or passing payments to other institutions

that only telephone conversations between dealers and brokers be recorded

Counterparty risk and operational risk

Counterparty risk and legal risk

Collateral illiquidity and counterparty risk

Collateral illiquidity and legal risk

Display the names of those users along their prices

Offer pre-trade anonymity to users quoting prices

Offer pre and post-trade anonymity to users quoting prices

Offer users the choice of whether to remain anonymous

1.4523

1.4526

1.4513

1.4516

You are, as it is your responsibility to check periodically that the price has not been dealt upon.

The broker is, as he must immediately tell you that your price has been dealt upon.

The other bank is, since it did not immediately seek confirmation.

All the parties, particularly you and the other bank.

SONIA

STINA

STONIA

EONIA

4.05%

3.891%

3.838%

1.946%

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.

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

2.338%

2.650%

2.927%

2.992%

ensure that compliance is carried out efficiently

set limits on borrowing in the short-term markets to fund long-term lending

develop, evaluate, monitor and approve strategies related to risk due to imbalances in the asset and liability structure of the balance sheet

report to the board of directors

A maturity analysis of a bank’s interest-bearing assets and interest-bearing liabilities.

A method used to measure how much each source of funding is contributing to overall profitability.

A calculation of the spread between the duration of the interest-bearing assets and the interestbearing liabilities.

The evaluation and management of the gap between a bank’s volume of loans and deposits.

interest rate risk

model risk

currency risk

specific risk

Between -0.5 and -1

-0.5

Between +0.5 and +1

+0.5

Investment funds

Credit institutions and central banks

Corporates

Retail and private customers

detail the rights of counterparties regarding the substitution of collateral

include named securities permitted to be traded

be bi-laterally signed by both dealers involved in any transaction

need not be in place before any deals are executed or finalized

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

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

Bought EUR and sold USD spot, and sold EUR and bought USD forward

Bought USD and sold EUR spot, and sold USD and bought EUR forward

Synthetically taken a USD loan in exchange for making a EUR loan with the same counterparty

Sold EUR/USD spot and bought back EUR/USD forward

the broker is not obligated to reveal any material connections provided Chinese Walls are in place.

the broker is not required to reveal any connections at all.

the broker is legally obliged to advise his clients of any material connections that exist.

is a matter which is not covered by the Model Code.

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.

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

Exchange-traded

Margined

Standardized

Dealtoverthe counter

greater, the higher the market swap rate and the shorter the term

lower, the lower the market swap rate and the shorter the term

lower, the lower the market swap rate and the longer the term

greater, the higher the market swap rate and the longer the term

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

The sensitivity of the option value to changes in interest rates

The sensitivity of the option value to changes in 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

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.

Treasury bill

CD

Interbank deposit

Classic repo

The risk of failure of a payments or settlement system

The risk that only one side of an exchange of currencies will be made

The risk of payments ‘gridlock’ in a real-time gross settlement system

The risk that default by a counterparty before the value date means you have to replace the defaulted deal at a worse rate

Bank dealers should, wherever possible, give brokers prior indication of counterparties with whom they would be unwilling to do business.

Brokers may divulge the names of principals prematurely to induce a counterparty to transact.

Dealers should never give brokers guidance on the extent of their price differentiation across broad categories of counterparties.

When a principal’s name proves unacceptable to another principal, the broker is bound to divulge who refused it.

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

GBP 1,997,253.78

GBP 1,997,291.34

GBP 1,997,287.67

GBP 1,997,250.00

+CAD 23,000

+CAD 13,000

+CAD 16,000

-CAD 13,000

Between +0.5 and +1

+0.5

Between 0 and +0.5

Zero

The Euronext.LIFFE short sterling futures contract has a tick value of GBP 12.50 and a face value of GBP 1,000,000

The Euronext.LIFFE JPY futures contract has a tick value of JPY 2,500 and a face value of JPY 1,000,000,000

The CME eurodollar futures contract has a minimum price interval of one-quarter tick

(0.0025) for the nearest contract

All of the above

The Model Code is published by ACI’s Committee for Professionalism.

The Model Code sets out the practicalities of dealing in those financial instruments listed in the Model Code.

The Model Code is an attempt to deal with the legal issues relating to every conceivable financial instrument.

The Model Code sets out the manner and spirit in which foreign exchange and money market business should be conducted in order that participants maintain high standards of professionalism, integrity and ethical conduct.

0.6675

0.6715

0.6717

0.6718

9.5836

6.2834

0.1591

0.1043

LIBID

LIBOR

EURIBOR

EURO LIBOR

In the case of trading transactions, counterparty limits are to be set by the front office and issuer limits are to be set by the back office

In the case of trading transactions, counterparty and issuer limits are to be set by the credit committee

In the case of trading transactions, counterparty limits are to be set by a front office vote and market risk limits are to be set by the back office

In the case of trading transactions, counterparty limits and issuer limits are to be set by the front office

5.71%

5.69%

5.72%

5.62%

Kosovo

Andorra

Albania

Montenegro

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

Opening a positive gap

Going over-borrowed

Making a forward-forward loan

Taking a forward-forward deposit

Delivery repo

HIC repo

To-party repo

“Double dipping” is never a risk in any type of repo

19/21

2.1/1.9

21/19

0.21/0.19

is a contract by which the maturity of a regular FX swap can be extended at an historic (noncurrent) rate

is a swap transaction where the near leg is traded either value today or value tomorrow and the far leg is traded spot

is a swap that does not start spot and where both the near and the far leg are traded forward

is a transaction by which a maturing outright forward FX is prolonged at an historic (non-current) rate

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

screen services, brokers and other third party providers can all be useful sources of data

For periods less than one month, the maturity date will be the first date that is a business day that is within one, seven, fourteen days from the value date, but when near the month end must never be a date in the next calendar month

Inter-dealer brokers or the automated trading system need not be notified when participants attempt to utilize odd settlement dates

It is not recommended that legal opinion should be obtained on the enforceability of the contract

A new confirmation should be generated by both parties but there is no need to restart the confirmation cycle.

The amending party should verbally inform the other party.

A new confirmation should be generated and the confirmation cycle should restart and continue until the trade is completely matched by both parties.

A new confirmation need not be generated but the confirmation cycle must restart and continue until the trade is completely matched by both parties.

anywhere, even away from their own dealing premises

after-hours, but only if listed as such by management

after-hours, but only from their private residence

away from their broker’s dealing premises

Forward-forward loan

Forward-forward deposit

Negative gap

An over-lent position

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.

Exchange-traded

Guaranteed

Standardised

All of the above

0.008520

0.009510

0.009515

0.009518

1.038579

1.038582

1.038418

1.038421

GBP 10,000

EUR 10,000

GBP 6,990

EUR 6,990

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

to maintain the professional level of competence and the ethical standards of loyalty

to develop sound reciprocal dealing relationships between institutions and to render unconditional mutual assistance

to demonstrate the best ethical behavior in strict accordance with the content and spirit of The Model Code

to maintain the highest possible standards in their profession by constantly setting an example of propriety in business

Buyer

Seller

Issuer

It depends on the agreement between the buyer and seller

EURIBOR

EONIA

LIBOR

SONIA

149.66-74

149.69-71

63.52-53

63.51-54

27th December

30th December

31st December

1st January

The other dealer is bound to reciprocate.

This is not in any way an enforceable or binding commitment.

The Model Code does not comment on dealing reciprocity.

It is common market practice to suspend reciprocity in periods of high volatility.

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.

0.7291-94

0.7294-91

1.3710-15

None of these

SGD

PLN

GBP

NZD

The face value of the CD

More than the face value

Less than the face value

Too little information to decide

coordinated limit management of a financial institution’s credit portfolio

running a matched trading book

monitoring credit quality of assets and establishing a early warning system

managing the financial risk of the bank by protecting it from the adverse effects of changing interest rates

prices increase during a systemic crisis

return on investment is relatively high

absence of active market makers

wide bid/offer spreads

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

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

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.

Treasury bill

CD

ECP

Classic repo

a five-year liability and a three-month asset

a five-year asset and a three-month liability

a five-year asset only

a three-month liability only

0.8345-53

0.8345-50

0.8349-50

0.8349-53

know whether the European Central Bank or the Federal Reserve is in the market before quoting

be sure that the quoting bank’s prices are not shared with other brokers

get the price from a bank or a bid and an offer from different banks in order to make a two-way price, because the broker cannot make prices on his own

make sure that the quoting banks have sufficient credit lines

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

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

You will have to pay USD 312.50

You will receive USD 312.50

You will have to pay USD 3,125.00

You will receive USD 3,125.00

EUR 5,798,982

EUR 5,799,497

EUR 5,746,376

EUR 5,000,694

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

entering into a pay fixed I receive variable standard interest rate swap

entering into a receive fixed I pay variable standard interest rate swap

entering into a pay fixed / receive variable amortizing interest rate swap

entering into a GBP/USD FX swap

The expense of settling an FRA

The reduced counterparty risk on a futures exchange

The reduced basis risk on futures

The superior interest rate risk on FRAs

US Treasury bill

CD

Interbank deposit

USCP

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

105.085

105.265

108.62

105.155

is a new rule that compares liquid asset levels in banks to their available equity capital

spells out a modernized system for calculating the required minimum reserve that banks must hold at the central bank

compares liquid and reliably liquidating assets to expected cash outflows from specified run-off rates for various liability classes under a short-term stress scenario

tied directly into the internal ratings-based approach for determining the liquidity of credit-counterparties

Higher interest rates

Lower interest rates

Flattening yield curve

Parallel shift downwards in the yield curve

2.37%

2.46%

2.55%

4.90%

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

A forward-forward rate of 0.685%

A forward-forward rate of 0.315%

Current 3-month LIBOR of 0.6850%

Current 3-month LIBOR of 0.3150%

A bank purchases credit protection on highly-rated tranches of US mortgage-backed securities from a US mortgage bank

A bank sells protection on the iTraxx main index at a level of 25 bps and shortly afterwards the index crosses the 200 bps level

A bank sells EUR put I USD call ATM options with an expiry date of 6 months and afterwards volatility moves up to substantially higher levels

A bank enters into a receiver’s swap while interest rates are increasing

The buyer

The seller

Neither

Both

4,816,500.00

1,869,158.88

1,868,57677

4,815,000.00

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.

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

Volume-weighted average overnight EUR deposit rate

Volume-weighted average overnight EUR LIBOR

Arithmetic average overnight EUR deposit rate

ECB overnight lending rate

Implicit nominal rate

Implied forward rate

Funding rate

Effective future rate

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

A 3-month deposit of USD 10,000,000.00 offered by a US bank in New York

A 3-month deposit of USD 10,000,000.00 offered by the US branch of a UK bank in New York

A 3-month deposit of USD 10,000,000.00 offered by a US bank in London

A 3-month deposit of GBP 10,000,000.00 offered by the UK branch of a US bank in London

Proprietary traders

Market-makers

Matched principals

Agents

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

AUD 25,962,011.00

AUD 25,959,714.91

AUD 25,948,878.47

AUD 25,948,648.82

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

0.7961

1.0864

1.7860

1.2561

Investors have less appetite for longer-term investments

Borrowers prefer to borrow long-term but lenders prefer to lend short-term

Different types of institution tend to specialize in different maturity ranges

The risk premium becomes significant only at longer maturities

28th March

29th March

30th March

31st March

CD

FRA

BA

ECP

front running

ex ante trading

insider dealing

forward-facing

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.

To reduce the number and size of payments and transfers

To reduce exposure to credit risk

To reduce the size of the balance sheet

All of the above

Sell

Sell and subsequently buy back

Sell and borrow

Sell, borrow and buy back simultaneously

The broker is not obligated to reveal the connection provided Chinese Walls are in place.

The broker is not obligated to reveal the connection in the professional market.

The broker should advise the other counterparty of the connection.

The matter is covered in the Model Code.

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.

pay 250, receive 1,250, receive 1,750, receive 2,000

receive 250, pay 1,250, pay 1,750, pay 2,000

pay 2,500, receive 12,500, receive 17,500, receive 20,000

receive 2,500, pay 12,500, pay 17,500, pay 20,000

Higher interest rates

Lower interest rates

Steepening yield curve

Parallel shift downwards in the yield curve

the practice of a dealer attempting to replace one customer by a new one in a previously dealt transaction

the practice of a broker having to show a new name to the dealer, although he was full on the first name presented to him

the practice of a broker attempting to substitute a third name between the two original counterparties to clear the transaction

the practice of a broker attempting to show a substitution name to get out of a situation in which he was stuffed by a dealer

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.

USTreasury bill

CD

Interbank deposit

ECP

entering into a pay fixed I receive variable standard interest rate swap

entering into a receive fixed I pay variable amortizing interest rate swap

entering into a EUR/USD FX swap

entering into a receive fixed I pay variable standard interest rate swap

Financing long positions

Covering short positions

Interest rate positioning

Dividend tax arbitrage

GBP 47,875,000.00

GBP 49,462,847.22

GBP 49,470,205.48

GBP 49,475,760.27

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

Inter-bank market participants have a duty to make absolutely clear whether the prices they are quoting are firm or merely indicative.

It is the duty of the dealer to periodically confirm with the broker the validity of his price.

It is the responsibility of the dealer to ensure that prices given to a broker are taken off if they have not been hit or were subject to a time limit.

No deal is done if one counterparty is unable to conclude a deal due to credit line problems and a name switch is not found within a reasonable period of time.

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.

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

Are forbidden.

Require prior regulatory approval.

Require the prior express permission of the senior management of both counterparties.

Should be marked to market daily.

EUR rates are higher than AUD rates in the 6-month

AUD rates are higher than EUR rates in the 6-month

There is a positive EUR yield curie

There is not enough information to decide

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

the fixing spot rate

the daily high

the days’ average rate

the average rate over the NDF period

Gambling and betting between market participants should be strongly discouraged.

Gambling and betting between market participants can be allowed if it is monitored by management.

Gambling and betting between market participants should be forbidden.

All of the above.

163.48-56

163.51-52

69.36-39

69.36-39

Gradual positive slope

Steep positive slope

Flat

Inverted

1.42%

1.39%

2.01%

4.21%

0.9278-73

1.0784-78

1.0778-84

1,0773-78

EUR rates are higher than AUD rates in the 6-month

AUD rates are higher than EUR rates in the 6-month

There is a positive EUR yield curve

There is not enough information to decide

1.3073-70

0.7651-49

0.7646-49

0.7649-51

Margin maintenance

Re-pricing

Margin maintenance or re-pricing, but usually margin maintenance

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

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

Raise USD interest rates

Lower USD interest rates

Lower reserve requirements

It could not squeeze you

Interest rates in different currencies will tend to move into line with each other over time

Interest rates in different currencies differ due to differences in expectations about inflation

Selling a low interest rate currency to invest a high interest rate currency will only be profitable if one hedges the currency risk

Selling a low interest rate currency to invest in a high interest rate currency should not be profitable if one hedges the currency risk

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

Between +0.5 and +1

+0.5

Between 0 and +0.5

Zero

You are committed to sell a marketable EUR amount unless the quote was for a specific amount.

You are committed to sell to the counterparty his full EUR amount subject to credit limits on the counterparty.

You are committed to sell EUR up to the amount permitted by your credit limits on the counterparty.

You are committed to sell a marketable USD amount unless the quote was for a specific amount.

cock dates

broken dates

odd dates

weird dates

A means by which to reduce a risk

An equal and opposite risk

A riskless transaction

A means of cancelling a deal

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.

A prerequisite for hedge accounting is that a hedging instrument is designated as an offset to changes in the fair value or cash flows of a hedged item.

Hedge accounting enables gains and losses on a hedging instrument to be recognised in the income statement in the same period as offsetting losses and gains on the hedged item.

If one of the criteria for hedge accounting is no longer met, there is an option to discontinue hedge accounting.

Strict criteria must be met at inception and throughout the term of the hedge relationship in order for hedge accounting to be applied.

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

Two days after maturity by net payment

increase the maturity of its liabilities

reduce the maturity of its asset portfolio

runazerogap

lengthen the maturity of its asset portfolio

Seller

Buyer

Issuer

It depends on the agreement between the buyer and seller

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

Loss Given Default

Liquidity Given Distress

Limit Given Default

Loss Given Distress

Credit risk

Market risk

Operational risk

Settlement risk

Risk Weighted Assets

Risk Weighted Average

Recovery Weighted Assets

Risk Weighted Adjustments

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

The quoted currency

The base currency

The counter currency

The terms currency

Revaluing collateral versus cash

Revaluing collateral

Calculating net present value

Calculating the net replacement cost

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.

Credit institution

Investment bank

Discount house

Corporate

MTn99

MT300

MT370

MT670/671

The parking of deals or positions with any counterparty is discouraged B. The parking of deals or positions with any counterparty should be forbidden

The parking of deals or positions should be subject to a clear policy laid down in writing by senior management

In jurisdictions where position parking is allowed, prior approval should be sought from the regulator

bilaterally cleared ABS trades only

exchange traded derivatives only

derivatives cleared via a CCP

bilaterally settled OTC derivatives trades

a synthetic forward

a straddle

risk reversal

a strangle

to keep enough highly liquid assets to cover its net liabilities for the next 10 days to guard against severe liquidity stress

to keep enough highly liquid assets to cover its net liabilities for the next 30 days to guard against severe liquidity stress

to keep enough highly liquid assets to cover its net liabilities for the next 60 days to guard against severe liquidity stress

to retain enough liquidity to cover its assets against severe default risk

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

no transaction is done

the broker has to honor each and every amount hit

the broker has to split the amount among the banks on a pro rata basis

the broker may freely choose the bank(s) he will deal with

8% of RWA plus conservation buffer

10.5% of RWA plus conservation buffer

8% of RWA plus countercyclical buffer

10.5% of RWA plus countercyclical buffer

The “big figure” should not be included in outright quotations.

In order to avoid misunderstandings, the “big figure” should not be mentioned when repeating the details (facts/rates) of the deal.

For the sake of brevity and efficiency, “big figures” should never be quoted at all in spot FX trading.

The Model Code recommends that the “big figure” be included in all outright and spot FX quotations.

South Korea

Sri Lanka

Slovakia

Sweden

frequency trading

high-incidence trading

flash trading

liquidity aggregators

1,239,925.60

1,237,873.80

1,240,694.79

1,242,720.50

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.

the details of the transaction involved, the number of days the payment was delayed and the resulting cost

the details of the transaction involved, the number of days the payment was delayed and the cost, together with Central Bank rate to be applied

the details of the transaction involved, the number of days the payment was delayed and the cost, together with reference rates to be applied

the details of the transaction involved, the number of days the payment was delayed and the cost, together with the calculation methodology being claimed

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

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.

Documentation should be in place beforehand.

Management should approve all transactions.

Copies of the underlying documentation should be lodged with regulators.

All of the above.

Market participants are strongly recommended to net bilateral transactions with counterparties where activity justifies it.

Market participants should establish payments netting agreements with cross-border counterparties where activity justifies it.

Market participants should establish legally viable bilateral netting agreements with counterparties where activity justifies it.

Market participants should establish legally viable multilateral netting agreements where activity justifies it.

Time to expiry

The volatility of the price of the underlying commodity

The moneyness of the option

All of the above

Only if they are dealing with brokers.

Only if they are dealing in a fast moving market.

Only if the amount is not marketable.

At all times.

8th September next year

10th September next year

8th December next year

10th December next year

3.625%

3.285%

3.965%

3.835%

1.6035

1.6027

1.6030

1.6023

Should be documented as soon as possible after a deal is done.

Should be clearly stated before a deal.

Can be agreed verbally.

Are not permissible.

27th December

30th December

31stDecember

1st January

Loss of GBP 17000

Profit of GBP 17,000

Loss of EUR 17,000

Profit of EUR of 17,000

Margin maintenance

Re-pricing

Either of the above, but usually (a)

Either of the above, but usually (b)

1.4323-26

1.4320-25

1.4315-20

1.4318-23

You will have to pay USD 612.50

You will receive USD 612.50

You will have to pay USD 3,675.00

You will receive USD 3,675.00

Will examine the complaint.

May consult with the local ACI.

Will bring the matter to the attention of the local regulator.

None of the above.

He is confident that the dealer will not back out of the deal.

Both parties have established credit lines for each other.

One party acknowledges interest.

He receives verbal acknowledgement from the dealer.

At least 2 months

One year

Up to one month

Until the maturity of the deal

A long call option + long put option with the same strike prices

A short call option + short put option with the same strike prices

A long call option + short put option with the same strike prices

A short call option + long put option with the same strike prices

+121

+120

-116

-119

1.1380-1.11405

1.11375-1.1141

1.09125-1.0915

None of these

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