3I0-012 ACI Dealing Certificate Questions and Answers

Prices quoted by brokers should be taken to be firm in marketable amounts unless otherwise qualified

Prices quoted by brokers should be taken to be indicative in marketable amounts unless otherwise qualified

Prices quoted by brokers should be taken to be firm in amounts of 1,000,000.00 of the quoted currency unless otherwise qualified

Prices quoted by brokers should be taken to be indicative in amounts of 1,000,000.00 of the base currency unless otherwise qualified

1.0352

1.0353

1.0347

1.0348

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%

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

0.60%

0.949%

1.074%

0.933%

Be carried out at least three times a day.

Be agreed between the parties.

Be done at the end of each day.

Be decided by the broker.

it reduces operational risk

it splits differences arising from failed settlement between the two counterparties

it removes the need for sending out SWIFT confirmations

the use of SSI’s secures the trading on more secure platforms

1.3559 choice

1.3555-63

1.3559-62

1.3556-59

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.

EUR 10,000,500.00

EUR 10,000,486.11

EUR 11,260,563.00

EUR 11,260,547.36

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

Banks and brokers should record, by tapes or other such means, conversations between dealing counterparties.

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

On completion of recordings, tapes should be kept for a period sufficient to enable the details of any transaction contained therein to be confirmed.

The storage of recorded tapes should be strictly managed to prevent their contents from being tampered with.

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

a synthetic forward

a straddle

risk reversal

a strangle

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

Describe the parameters of a dealing relationship

Set out the rights and obligations of two parties

Apply to all transactions between two parties

All of the above

Maturities of less than one week.

Maturities of less than one month.

Maturities of less than one year.

Maturities in the same calendar month.

The credit risk on the collateral

The credit risk on the repo counterparty

The legal risk on the contract

The operational risk on margin maintenance

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

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

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

An exchange of currencies on a date beyond spot

1.2232

1.2233

1.2234

1.2267

Covenants are clauses in bank credit agreements and bond indentures designed to assure debt holders that the creditworthiness of the borrower(s)/issuer(s) will remain satisfactory

Covenants must be tailored to reflect the specific needs of the borrower/issuer and the specific risks perceived by the debt holders.

Covenants require the holder of the debt to refrain from doing certain specific things.

Three different types of covenants in credit agreements and bond indentures are affirmative, negative and financial.

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

Eurodollar deposits can only be dealt by banks in the USA

US withholding tax applies to Eurodollar deposits

Eurodollar deposits are free of US reserve requirements

Eurodollar deposits are subject to US exchange controls

as a EUR 25,000,000.00 6-month liability and a EUR 25,000,000.00 12-month asset

as a EUR 25,000,000.00 12-month liability and a EUR 25,000,000.00 6-month asset

as a EUR 12,500,000.00 6-month liability and a EUR 12,500,000.00 12-month asset

as a EUR 12,500,000.00 6-month asset and a EUR 12,500,000.00 12-month liability

Seller

Buyer

Issuer

It depends on the agreement between the buyer and seller

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.

Nostro reconciliations, the Cash Management Department and Operations

Front Office, the Cash Management Department and Operations

Front Office, Nostro reconciliations and Operations

Front Office, Nostro reconciliations and the Cash Management Department

EUR 27,947,276.43

EUR 27,946,077.08

EUR 27,950,071.43

EUR 27,948,871.97

quarterly tests I updates as needed

at least every second year

half-yearly tests / yearly updates

at least yearly

Paying a fixed rate of 4.12% per annum on a 30/360 basis over 5 years in euros through an interest rate swap in exchange for receiving a floating rate of 6-month Euribor on an actual/360 basis reset semi-annually and paid in arrears.

Paying a fixed rate of 4.12% per annum on an actual/actual basis over 5 years in euros through an interest rate swap in exchange for receiving a floating rate of 6-month Euribor on an actual/360 basis reset semi-annually and paid in arrears.

Paying a 5-year euro deposit and receiving a rate of interest of 4.12% on an actual/360 basis. Taking a 5-year euro deposit and paying a rate ol interest of 4.12% on an actual/360 basis.

It is recommended that ECNs have mechanisms that control price flashing

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

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

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

Internal Risk Based

Internal Ratings Based

Intrinsic Risk Based

Internal Rule Based

6.5825

6.5820

6.5815

6.5830

The original rate of the transaction

The original rate of the transaction adjusted by the relevant forward points

The affected parties should agree to adjust the exchange rate according to the prevailing relevant forward mid swap points at the time the bank holiday is announced

The rate is open to negotiation by the two parties

The bank.

The local bankers association.

The local regulator.

Negotiation between the bank and client.

Sell a 1x3 FRA at 1.95%

Buy a 1x3 FRA at 1.98%

Buy a 1x4 FRA at 2.10%

Sell a 1x4 FRA at 2.10%

an unavailability of a credit limit for the counterparty

a qualification stating that a transaction needs to be reconfirmed

the unacceptability of the counterparty’s name

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

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

The best strategy to treat and mitigate risk is avoiding the risk by avoiding the business

The best strategy to treat and mitigate risk is transferring the risk to another party, e. g. by transfer to an insurance company

The best strategy to treat and mitigate risk is to establish the appropriate processes for identifying, assessing, managing, monitoring and reporting risks

The best strategy to treat and mitigate risk is to reduce the negative effect of the risk, e. g. by hedging

unchanged

118/116

109/107

106/104

never

Only for very large movements and longer terms

always

spot is the principal influence

1.6035

1.6027

1.6030

1.6023

5.8342%

5.8561%

5.8425%

5.75%

standard settlement instructions

netting agreement

terms of engagement

master agreement

15

20

35

40

An increase in forward USD/CHF

Falling CI-IF interest rates

A decrease in forward USD/CHF

Rising CHF interest rates

The dealer is entitled to provide the name of the original counterparty to the assignee.

The dealer is entitled to provide the name of the assignee to the original counterparty.

The dealer should seek the permission of the assignee before releasing the name to the original counterparty.

The dealer should seek the permission of the original counterparty before releasing the name to the assignee.

GBP 47,875,000.00

GBP 49,462,847.22

GBP 49,470,205.48

GBP 49,475,760.27

It is put at the disposal of the buyer

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

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

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

the 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

You have a right to qualify your quotes in terms of amounts, if you do so when you make the price.

You have a right to qualify your quotes in terms of amounts, provided the amounts are marketable.

You have a right to qualify your quotes in terms of amounts, once you have discovered the name of the counterparty for credit reasons.

You have a right to qualify your quotes in terms of amounts.

in 1 out of 10 days, the portfolio value will decline by USD 5,000.00 or less.

in 1 out of 90 days, the portfolio value will decline by USD 5,000.00 or less.

in 1 out of 10 days, the portfolio value will decline by USD 5,000.00 or more.

in 1 out of 90 days, the portfolio value will decline by USD 5,000.00 or more.

a swap

a cap

a swaption

a collar

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.

Eurocertificate of deposit

US Treasury bill

CP

All of the above

GBP 10,000

EUR 10,000

GBP 6,990

EUR 6,990

USD 124,641,442.43

USD 124,636,476.94

USD 124,635,416.67

USD 123,915,737.30

Long a FRN + pay fixed on a swap = long a synthetic straight bond

Long a FRN + receive floating on a swap = long a synthetic straight bond

Long a FRN + pay floating on a swap = short a synthetic straight bond

Long a FRN + pay floating on a swap = long a synthetic straight bond.

You will pay a net settlement amount

You will receive a net settlement amount

There will be an exchange of gross interest payments in 2 business days

There will be an exchange of gross interest payments in 3 months

when a trade has been agreed to with dates (maturities) different from the standard dates

when one of the parties to the deal unilaterally decides to withdraw from the on-going transaction

when, due to a system break, one or both parties to the deal chooses to withdraw from the ongoing transaction

when, due to a system break, one or both parties to the deal are unclear as to whether the deal has been done

‘stuff’ the broker and insist on a replacement name at the original price

accept a bank transfer compensation payment in favour of the bank or adjustment to brokerage bills

refuse any sort of compensation from the broker for the amount concerned

acknowledge the excuses of the broker and accept his offer of entertainment in compensation for the failed transaction

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

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

1.534284

1.534316

1.534287

1.534313

ProfitofGBP 299.66

Profit of GBP 203.77

LossofGBP299.66

Loss ofGBP 203.77

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

should never reveal their future dealing intentions to their counterparties

should make clear their intention to do so when initially negotiating the deal

should agree upon the method of assignment before transacting

should only reveal any such intentions after the confirmations have been exchanged

Tier 3 capital requirements held against liquidity risk.

The nature and amount of high quality liquid assets a bank holds.

Central bank internal management processes regarding open market operations.

The transparent disclosure of illiquid on-balance sheet liabilities.

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.

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

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

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%

1.0448

1.0402

1.0397

1.0392

GBP 7,551.37

GBP 6,544.52

GBP 5,537.67

GBP 1,006.85

within 2 hours after deal agreed with counterparty

before the value date of the trade

by the end of the trade date

within 24 hours

prices increase during a systemic crisis

return on investment is relatively high

absence of active market makers

wide bid/offer spreads

Proprietary traders

Market-makers

Matched principals

Agents

105.085

105.265

108.62

105.155

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.

ACT/365

ACT/360

ACT/ACT

30E/360

SONIA

STINA

STONIA

EONIA

75%

100%

150%

350%

0.8345-53

0.8345-50

0.8349-50

0.8349-53

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

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

Currency Conversion Factor

Credit Conversion Factor

Credit Contribution Factor

Credit Collateralization Factor

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

To cover losses incurred between variation margin payments

To exclude retail investors

To pay reserve requirements

To cover fees due to the clearing house

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

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

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

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

lower correlation of underlying risk factors

a shorter time horizon

a lower confidence level

a higher confidence level

The Model Code emphasizes the importance of clear, concise documentation and on-going lines of communication.

Bank management must guarantee a fixed price execution to the counterparty.

The Model Code recommends that only experienced dealers should be allowed to take such orders.

Bank staff must secure the approval of the counterparty’s management to accept such orders.

BBA LIBOR

Fed funds

ISDALIBOR

EURIBOR

EUR 349,806

EUR 344,632

EUR 319,315

EUR 324,110

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

“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.

ACT/365

ACT/360

ACT/ACT

30E/360

GBP 2,507,161.46

GBP 2,507,063.36

GBP 2,507,006.85

GBP 2,507,106.16

e-mail

fax or letter

MTn99 SWIFT message

MT670/671 SWIFT message

USD 252,056,972.97

USD 252,028,916.32

USD 250,000,000.00

USD 248,911,014.31

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.

when the net spot position plus the forward position plus the delta equivalent of the foreign currency options book add up to zero

when the forward purchases of a foreign currency are equivalent to the equity position in that same currency

when the reverse repurchases of foreign currency are equal to the forward purchases of the functional currency

when the maturity structure of the assets in one currency is closely matched to the maturity structure of liabilities in another

currency risk

operational risk

liquidity risk

settlement risk

a given deposit with a term of six months

a taken deposit with a term of three months

a given deposit with a term of three months and a taken deposit with a term of six months

a taken deposit with a term of three months and a given deposit with a term of six months

9.8141-9.8246

9.8108-9.8279

9.8098-9.8289

9.8151-9.8236

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

Mark-to-model valuation is used for exchange-traded positions to ensure correct pricing.

Asset managers are not allowed to use mark-to-model valuation.

Mark-to-model valuation is used for complex financial instruments; it is always accurate and in line with potential tradable prices.

Mark-to-model valuation refers to prices determined by financial models, rather than actual market prices.

EURIBOR

EONIA

LIBOR

SONIA

CD

Interbank deposit

Classic repo

Treasury bill