3I0-012 ACI Dealing Certificate Questions and Answers

1.4323-26

1.4320-25

1.4315-20

1.4318-23

Prior management approval has been sought.

They are executed within six months.

They are extended for not more than one year.

All of the above.

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

The price at which the transaction on the underlying commodity 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

4.261%

2.202%

1.900%

1.592%

The dealers have good track records in their dealing both for the institution and for themselves.

There has been no previous conflicts of interest in the dealing room.

There is a clearly laFd down policy.

The dealers see no conflict of Interest in such dealing.

Margin maintenance

Re-pricing

Either of the above, but usually (a)

Either of the above, but usually (b)

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.

Immediately put the price “under reference” and check with the dealer to ascertain his original intention.

Cancel the order.

Continue with the order.

None of the above.

Ensure complaints are investigated by the senior management or a firm not involved in the disputed transaction.

Ensure complaints are rairly and independently investigated, in the first instance, by the ACIs Committee for Professionalism.

Ensure complaints are investigated by representatives of a broking firm not directly involved in the disputed transaction and selected by both parties to the dispute.

Ensure complaints are fairly and independently investigated, whenever practicable, by staff not directly involved in the disputed transaction.

At that price.

At that price in a marketable amount.

At that price in a marketable amount with an acceptable name.

At that price in a marketable amount with an acceptable name and provided the market price has not moved excessively.

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

When one of the principals confirms the deal

When the principals give a written undertaking for all deals done at the end of the day

When acknowledgement is received from the principals that the deal is done

When both back offices acknowledge the deal

Forward points

Full forward exchange rate

Depends on whether is interbank or to a customer

Depends on the currency pair and sometimes the term

You must have prior senior management approval.

You must have the authority to switch names.

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

All of the above.

Sold USD 5 million at 1.6075

Sold GBP 5 million at 1.6075

Bought GBP 5 million at 1.60B0

Bought USD 5 million at 1.6080

Is not considered good practice.

Is accepted in case of direct deal input into the bank’s system.

Is accepted for senior dealers.

Is accepted for hedging transactions.

uncertainty of valuation

high correlation with risky assets

listed on a developed and recognized exchange

readily marketable

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

MTn99

MT300

MT370

MT670/671

upward shift of the swap curve and rating downgrade of party A

downward shift of the swap curve and rating downgrade of party A

downward shift of the swap curve and rating downgrade of party B

downward shift of the swap curve only

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

staff in the back-office/operations who are independent of the trade

staff in the dealing room who are not dealing

any staff outside the dealing room

FRA

Futures

No difference

Too little information to decide

Loss Given Default

Liquidity Given Distress

Limit Given Default

Loss Given Distress

An increase in forward USD/CHF

Falling CI-IF interest rates

A decrease in forward USD/CHF

Rising CHF interest rates

A means by which to reduce a risk

An equal and opposite risk

A riskless transaction

A means of cancelling a deal

The tapes and other records should be kept until the transaction has been settled B. Firms should ensure that they comply with local privacy laws

Management should ensure that the installation and control of recording equipment complies with local legislation, including laws on data protection, privacy and human rights as well as the manufacturers minimum requirements

All front office personnel should have access to these tapes and records

0.9278-73

1.0784-78

1.0778-84

1,0773-78

A report describing operational risks, the most significant incidents and corrective plans of action should be established on a quarterly basis.

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

Every time a report describing operational risks is produced, it should be provided to senior management.

Whenever possible action plans should be put in place that mitigate operational risks that have been identified.

bilaterally cleared ABS trades only

exchange traded derivatives only

derivatives cleared via a CCP

bilaterally settled OTC derivatives trades

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

JPY 152,090

JPY 152,139

JPY 152,169

JPY 152,217

for a short length of time, usually 30 seconds

until the price has been taken “off” by the dealer

for a short length of time, typically a matter of seconds

for a minute or two

under reference

firm, but not necessarily in marketable amounts

firm, unless otherwise qualified

merely indicative

Amendments to customer standing data should be subject to 4 eyes control and only changed if the appropriately authorized documentation is provided.

The set up of settlement instructions and the confirmation method should be fixed when setting the first transaction.

No trading should be done without first identifying and setting up the counterparty.

Counterparty identification and setup of settlement instructions should be completed in less than 2 working days.

1.4242

1.4232

1.4246

1.4237

Gambling and betting amongst market participants should be strongly discouraged.

Gambling and betting amongst market participants may be permitted if management monitors it.

Gambling and betting amongst market participants should be prohibited.

Gambling and betting amongst market participants is only tolerated if it is previously reported to the CFP of the ACI.

+USD 373,599.00

+USD 186,099.00

-USD 1,400.99

Nil

Positive, steepening

Positive, flattening

Inverted, steepening

Inverted, flattening

the price differential between spot and forward gold prices

the rate at which dealers will lend gold against US dollars

the implied forward price of gold

the price of gold for forward delivery

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.

AnFRA

An option on an FRA

A collar

AnIRS

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

the swap curve is shifting downwards

the swap curve is shifting upwards

swaption volatilities are decreasing

time to expiry is becoming shorter

No deal is done and the broker should inform both counterparties accordingly.

The deal is done and the broker should inform both counterparties accordingly.

The matter should be resolved in consultation with senior management of the 3 institutions.

The ACI’s Committee for Professionalism will investigate and advise accordingly.

EUR

JPY

HKD

AUD

1.299971

1.309966

1.309971

1.310029

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.

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 broker must show the borrower’s name to the lender first and disclose the lender’s name only if the borrower is acceptable to the lender.

The broker must show the lender’s name to the borrower first and disclose the borrower’s name only if the lender is acceptable to the borrower.

The broker must show the borrower’s and lender’s names to each other at the same time.

For marketing reasons, the broker can show the lender’s name to the borrower at any time.

Be over-lent

Have a negative gap

Be exposed to higher interest rates

Be over-borrowed

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

Economic capital is calculated externally and is the amount of capital the firm should have to support its target credit rating

Economic capital is calculated on an expected shortfall basis with a specific time horizon and confidence level.

Economic capital is used for measuring and reporting risks across a financial organisation.

Economic capital is always lower than regulatory capital because of the more adequate modelling of correlation effects compared to the regulatory approach.

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.

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

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

To anticipate lower volatility in the price of the underlying commodity

To anticipate moderately high volatility in the price of the underlying commodity

To anticipate increasing volatility in the price of the underlying commodity

To anticipate very high volatility in the price of the underlying commodity

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 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

The following Monday

Saturday

Sunday

The previous Friday

positive

changes only when interest rates levels are high

negative

changes only when interest rates levels are low

33

42

27

40

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

That the Master FX Give-Up Agreement (FMLG - New York FED FXC) published by the Foreign Exchange Committee can be used for this purpose.

That this agreement need not specify the permitted transaction types, tenors or credit limits.

That this agreement must include instructions that the prime broker must advise the executing dealer promptly of trades for give-up.

That this agreement should not involve any requirement for the executing dealer to inform the prime broker of the material terms of the transaction once a trade has been executed.

0.9849

1.0154

1.9759

0.5061

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.

Credit risk

Market risk

Legal risk

Operational risk

123.44

123.65

123.86

123.90

The name of Banks A and B.

The name of Bank B only.

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

None of the above

the monetary authority in the country where the broker is located

the banking association in the country where the bank is located

the Committee for Professionalism of the ACI

the local foreign exchange market committee

EUR 27,947,276.43

EUR 27,946,077.08

EUR 27,950,071.43

EUR 27,948,871.97

You must tell the broker, who must qualify your quotes.

For credit reasons, you must tell the broker when he presents a name.

You cannot do this.

The Model Code does not make recommendations on this subject.

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.

21.5/21

210/215

215/210

21/21.5

overnight, tom-next and spot-next

maturities up to one week

maturity dates of less than one month

maturity dates of less than 10 days

Falls and rises with the price of the underlying commodity, but is always positive

Rises if the price of the underlying commodity falls and vice versa

Depends solely on the volatility of the price of the underlying commodity

Becomes negative if the market price of the underlying commodity falls below the strike price of the option

Eurocertificate of deposit

US Treasury bill

CP

All of the above

163.48-56

163.51-52

69.36-39

69.36-39

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.

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

Forward-forward loan

Forward-forward deposit

Negative gap

An over-lent position

CHY

CNR

CHR

CNY

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

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.

0.8963

1.1157

1.1159

1.1160

liquidity risk

business risk

operational risk

funding risk

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

Sell 3x6

Buy 3x6

Sell 4x7

Buy 4x7

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

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.

the strategy of holding more interest rate sensitive assets than interest rate sensitive liabilities

the strategy of holding fewer interest rate sensitive assets than interest rate sensitive liabilities

reducing the size of the balance sheet

structuring a bank’s portfolio so that its net interest revenue and/or the market value of its portfolio will not be adversely affected by changes in interest rates

XAU

XAG

XPT

XPD

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.

the last calendar day of the month

the last bank business day of the month

value last business day of the month against first business day of the next month

value first business day of the month against last business day of the same month

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.

the average maturity of liabilities on a balance sheet

the difference between the duration of assets and liabilities

the difference between the duration of the longest-held and shortest-held liabilities on the balance sheet

the average maturity of the portfolio on the asset side of a balance sheet

0.7961

1.0864

1.7860

1.2561

GBP 1,997,253.78

GBP 1,997,291.34

GBP 1,997,287.67

GBP 1,997,250.00

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

Hybex should become a payer of a fixed rate on a swap against receipt of LIBOR.

Hybex should become a receiver of a floating rate on a swap against payment of a fixed rate

Hybex should become a receiver of a fixed rate on a swap against payment of LIBOR D.

Hybex should become a receiver of a floating rate on a swap against payment of LIBOR

The face value of the CD

More than the face value

Less than the face value

Too little information to decide

Volume-weighted average overnight EUR deposit rate

Volume-weighted average overnight EUR LIBOR

Arithmetic average overnight EUR deposit rate

ECB overnight lending rate

> 2% of 6 months forward earnings

> 20% of regulatory capital

<10% of regulatory capital

< 5% of 12 months forward earnings

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

The buyer

The seller

Neither

Both

1.0352

1.0353

1.0347

1.0348

Sell interest rate caps

Sell futures

Sell FRAs

Buy futures

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.