ACI Dealing Certificate Session Assessment Questions and Solutions June 2021

ACI DEALING CERTIFICATE
DISTANCE LEARNING
SESSION ASSESSMENT
QUESTIONS
AND
MEMORANDUM
2021
1
ACI Dealing Certificate Session 1 Basic Interest Rate Calculations Assessment
questions
1. From the following GBP deposit rates:

1M (31 day) GBP deposits 3.15%
calculate the 3x4 forward-forward rate.

A. 3.410%
B. 3.977%
C. 3.485%
D. 3.996%
2. From the following AUD rates:
3M AUD (91-day) deposit 2.35%

3x6 AUD (90-day) FRA 2.55%
Calculate the 6-month implied rate.

A. 2.37%
B. 2.46%
C. 2.55%
D. 4.90%
3. Which is the day/count/annual basis convention for SGD money market

deposits?
A. ACT/365
B. ACT/360
C. ACT/ACT
D. 30E/360
4. A 6-month(182-day) investment of CAD 15,500,000.00 yields a return of CAD

100,000.00. What is the rate of return?
A. 1.32%
B. 1.29%
C. 1.28%
D. 0.65%
5. According to some textbooks on investment what is the shape of ‘normal’

yield curve?
A. Gently upwards sloping

B. Steeply upwards sloping
C. Negative
D. Flat
2
6. A rate of 3.50% p.a. is quoted on an annual basis, what is the equivalent
semi-annual rate?
A. 3.548%
B. 3.470%
C. 3.452%
D. 3.530%
7. Which of the following gives you the best return?
A. An annual bond market of 4.00%

B. A semi-annual bond market rate of 4.00%
C. A semi-annual money market rate of 4.00%
D. An annual money market rate of 4.00%
8. A financial instrument has an annual bond yield of 4.20%. What is the

equivalent annual money market yield?
A. 4.168%
B. 4.142%
C. 4.175%
D. 4.213%
9. If the 30-day USD interest rate is 0.75% p.a. and the 60-day USD interest rate
is 0.65% p.a., what is the 45-day interest rate using straight line interpolation?
A. 0.60%
B. 0.80%
C. 1.40%
D. 0.70%
10. You borrow GBP 2,500,000.00 at 0.625% for 165 days. How much do you
repay including interest?
A. GBP 2,507,161.46
B. GBP 2,507,063.36
C. GBP 2,507,006.85
D. GBP 2,507,106.16
3
ACI Dealing Certificate Session 2 Money Market Assessment questions
1. You have quoted your customer the following Eurodollar deposit rates:
1M 5.25/5.37%
2M 5.3125/5.4375%
3M 5.375/5.50%
The customer says,” I give you USD 20 million in the two’s”

What have you done?
A. Borrowed USD 20 million at 5.3125%

B. Lent USD 20 million at 5.4375%
C. Borrowed USD 20 million at 5.4375%
D. Lent USD 20 million at 5.3125%
2. A 7% CD was issued at par, which you now purchase. You would expect to pay:
A. The face value of the CD
B. More than the face value
C. Less than the face value
D. Too little information to decide
3. Which of the following statements about Eurodollar deposits is correct?

A. Eurodollar deposits can only be dealt by banks in the USA
B. US withholding tax applies to Eurodollar deposits
C. Eurodollar deposits are free of US reserve requirements
D. Eurodollar deposits are subject to US exchange controls
4. A 7-day piece of USCP is quoted at a rate of discount of 1.75%. What is its true yield?
A. 1.73%
B. 1.75%
C. 1.77%
D. 1.80%
5. Today’s spot value date is the 29th of February. What is the maturity date of a 4-
month USD deposit deal today? Assume no bank holidays.
A. Thursday 27th June
B. Friday 28th June
C. Saturday 29th June
D. Monday 1st July
6. Which of the following cannot produce a capital gain?

A. Treasury bill
B. CD
C. ECP
D. Classic repo
4
7. You have taken 6-month (183 days) deposits of GBP 10,000,000.00 at 0.60% and
GBP 15,000,000.00 at 0.55%. The same day, you quote 6-month GBP 0.57-62% to
another bank. The other dealer takes GBP 25,000,000.00 at your quoted price. What
is the resulting profit or loss?
A. Nil
B. Profit of GBP 6,267.12
C. Profit of GBP 6,354.17
D. Loss of GBP 6,354.17
8. A CD with a face value of USD 50,000,000.00 and a coupon of 4.50% was issued
at par for 90 days and is now trading at 4.50% with 30 days remaining to maturity.
What has been the capital gain or loss since issue?
A. +USD 373,599.00
B. +USD 186,099.00
C. -USD 1,401
D. Nil
9. You buy a 181-day 2.75% CD with a face value of USD 1,500,000.00 at par when
it is issued. You sell it in the secondary market after 150 days at 2.60%.What is
your holding period yield?
A. 2.60%
B. 2.75%
C. 2.775%
D. 2.813%
10. A customer gives you GBP 25,000,000.00 at 0.625% same day for 7 days. Through
a broker, you place the funds with a bank for the same period at 0.6875%.
Brokerage is charged at 2 basis points per annum. What is the net profit or loss on
the deal?
A. Profit of GBP299.66
B. Profit of GBP 203.77
C. LossofGBP299.66
D. Loss of GBP203.77
5
ACI Dealing Certificate Session 3 Repo Assessment questions
1. What usually happens to the collateral in a tri-party repo?

A. It is put at the disposal of the buyer
B. It is held by the seller in the name of the buyer
C. It is held by the tri-party agent in the name of the buyer
D. It is frozen in the sellers account with the tri-party agent
2. Which of the following functions does a tri-party repo agent NOT perform?
A. It checks the eligibility and sufficiency of collateral
B. It can impose an initial margin on behalf of the buyer and manages
margin calls
C. It manages substitution of collateral on behalf of the seller
D. It participates in the risk of transactions if one of the parties defaults
3. Which of the following market participants would least likely be a user of

repo?
A. Investment funds
B. Credit institutions and central banks
C. Corporates
D. Retail and private customers
4. In case of a default on a repo by the seller:

A. The buyer can liquidate the collateral
B. The buyer has to liquidate the collateral
C. The buyer cannot liquidate the collateral until the seller is declared
insolvent
D. A court is appointed to decide what happens to the collateral
5. What happens if the issuer of the underlying collateral in a repo, fails to pay a
coupon on this collateral during the period or tenor of the repo?
A. This is an event of default the therefore the seller of the repo must
immediately repay the buyer of the repo any amounts outstanding.
B. It is not yet an event of default as the issuer has 30 days in which to pay the
coupon
C. As the coupon would have been repaid to the seller no further action will be
required
D. The Buyer could ask for more collateral
6. You have been quoted a rate of 4.15/20 for a 31 day repo. You agree to do the
repo and “sell “securities worth EUR 25,215,000. The buyer insists on a
haircut of 1%. What is the amount to be repaid on termination of the repo?
A. EUR 25 054 401-00

B. EUR 24 973 862-11
C. EUR 25 055 637-87
D. EUR 25 054 562-97
6
7. A client places GBP 15,000,000 and you quoted her a rate of 5.10%. for an
overnight deposit on Friday 18th January 20XX. How much interest will your
client earn on this deposit?
A. GBP 2 095.89
B. GBP 6 287.67
C. GBP 15 002 095.89
D. GBP 15 006 287.67
8. A bond is currently trading at 75 basis points special for a 1 week (7 days)

repo. The GC repo rate is quoted at 4.25%. How much interest would you earn
if you reversed in these bonds with a market value of EUR 12,500,000?
A. EUR 1,822.92
B. EUR 12,152.78
C. EUR 8,506.94
D. EUR 10,329.86
9. The tom/next GC rate for French government bonds is quoted to you as

1.50%-1.55%. You sell EUR 10,000,000 bonds with a market value of EUR
11,250,000. The buyer insists on a 1% haircut. What is the repurchase price
of these bonds?
A. EUR 9,901,402.64
B. EUR 9,901,416.39
C. EUR 11,139,077.97
D. EUR 11,139,093.44
10. The 1 month (31 days) GC repo rate for German government bonds is quoted
to you as 2.00%-2.10%. You sell bonds with a market value of EUR
15,250,000 in a sell and buy back agreement. During the term of this
agreement, the issuer pays a coupon of EUR 1,250,000. This is received by
the buyer 7 days before the sell and buy back agreement was to mature. What
is the repurchase price of these bonds on the maturity agreement?
A. EUR 14,027,577.08
B. EUR 14,027,066.67
C. EUR 14,026,263.89
D. EUR 14,025,777.78
7
ACI Dealing Certificate Session 4 FX Spot and Cross Rate Assessment
questions
1. You are quoted the following prices for EUR/GBP:

Bank A 0.8540/0.8545
Bank B 0.8543/0.8555
Bank C 0.8538/0.8547
Bank D 0.8542/0.8550
From which bank would you buy GBP?
A. Bank A
B. Bank B
C. Bank C
D. Bank D
2. You quote a client AUD/USD 0.9080/0.9085. What would you quote them if they
wanted the quote as USD/AUD?
A. 1.1013/1.1007
B. 1.1007/1.1013
C. 0.9085/0.9080
D. 0.9100/0.9110
3. Calculate the rate for SGD/HKD given that:
USD/SGD 1.2873/1.2885
USD/HKD 7.7700/7.7710
A. 6.0303/6.0367
B. 6.0310/6.0359
C. 10.0036/10.0117
D. 10.0023/10.0129
4. Which of the following best describes the term “covered interest arbitrage”?
A. When a dealer purchases a money market instrument in a foreign currency
and hedges the maturity value (of the instrument) in the forward market
B. When a dealer has a forward or future interest rate exposure and covers this
exposure using a derivative product
C. When on arbitrages the interest rate differential between two different bond
issuers
D. When one arbitrages the possible price differences between the spot market
and the derivative market as indicated by FRA prices
5. A broker has obtained the following quotes for EUR/GBP: Bank A 0.6250/0.6258,
Bank B 0.6252/0.6257, Bank C 0.6249/0.6259 and Bank D 0.6251/0.6255. What
price will the broker indicate on his screen?
A. 0.6249/0.6255
B. 0.6252/0.6255
C. 0.6249/0.6259
D. 0.6252/0.6259
6. A dealer needs to sell EUR against NZD. Of the following quotes which is the best
for her?
A. 1.7185/1.7195
B. 1.7180/1.7190
C. 1.7183/1.7196
D. 1.7186/1.7198
8
7. You sold USD 12,000,000 and received NZD 15,513,898.87. At what rate was
this deal concluded?
A. 0.8108
B. 1.2930
C. 0.7735
D. 1.292825
8. You have concluded the following trades:
Long 5m CHF/SEK @ 7.7650
Short 3m CHF/SEK @ 7.7660
At the end of day the mark to market rates were:
USD/CHF 1.0430
USD/SEK 8.1010
What is your mark to market profit or loss for the day?
A. SEK 1,360,486 profit
B. SEK 1,360,486 loss
C. SEK 4,200 profit
D. SEK 4,300 loss
9. At the end of the day you are short EUR 10 million against GBP at 0.8225. At the
end of the trading day the mark to market for EUR/GBP is 0.8214. What is the
resulting profit or loss?
A. Loss of EUR 11,000
B. Profit of EUR 11,000
C. Loss of GBP 11,000
D. Profit of GBP 11,000
10. The mid-rate for USD/CHF is 1.3950 and the mid-rate for AUD/USD IS 0.7060.
What is the migrate for CHF/AUD
A. 0.9849
B. 1.0154
C. 1.9759
D. 0.5061
11. Spot USD/CHF is quoted to you at 0.9613-17. If you sold CHF 10,000,000.00 at
this quote, how many USD would you receive in exchange?
A. USD 9,613,000.00
B. USD 9,617,000.00
C. USD 10,402,579.84
D. USD 10,398,253.09
9
ACI Dealing Certificate Session 5 Forward Foreign Exchange Assessment
questions
1. You are quoted the following market rates:

Spot USD/SGD 1.2430
1M (30 day) USD 0.25%
1M (30 day) SGD 1.15%
What is 1-month USD/SGD?
A. 1.2435
B. 1.2415
C. 1.2421
D. 1.2439
2. A client phones you in a bit of a panic and says that they need to buy USD against
SEK for value tomorrow! You look at your screen and see the following:
Spot USD/SEK 6.2928/38, O/N swap points 1.5/0.5, T/N swap points 2.0/1.5, 1-week
swap points 10.5/8.5
At what rate will you sell USD against SEK to your client?
a. 6.29295
b. 6.2940
c. 6.29265
d. 6.29365
3. At what price would you be able to go long of AUD against USD in the one-month if
you have been quoted the following?
Spot 0.8995/05
1 month forward points 15/13
a. 0.9010
b. 0.9018
c. 0.8980
d. 0.8992
4. If the 90 day swap points are quoted as 72, and the 180 day swap points are quoted
as 45, what are the 115 day swap points (assuming linear interpolation)?
A. 64.5
B. 79.5
C. 76.5
D. 67.5
5. Spot USD/CAD is 0.9870/0.9882 and interest rates in CAD are higher than interest
rates in USD. Would you expect the forward points for USD/CAD to be:
A. +5/-3
B. -8/+2
C. 10/15
D. 15/10
10
6. A “time option” is an outright forward FX transaction where the customer:
A. Has the right but not the obligation to exercise the outright forward at maturity
B. May freely choose the maturity of the option, given a 24-hout notice to the bank
C. Can choose any maturity date within a previously pre-arranged fixed period of
time
D. May decide to deal at the regular maturity or on either the business day before or
after the regular maturity date
7. How would you compute the bid side of the forward/forward FX swap points?
A. Bid side of the near leg swap points minus offered side of the far leg swap points
B. Bid side of the far leg swap points minus offered side of the near leg swap points
C. Offered side of the far leg swap points minus bid side of the far leg swap points
D. Offered side of the near leg swap points minus bid side of the far leg swap points
8. A customer asks for a price in 3-month USD/SEK. You quote 48/45. The
customer deals at 45. What have you done?
A. Bought USD against SEK spot and sold SEK against USD 3-month forward
B. Sold USD against SEK spot and bought USD against SEK 3-month forward
C. Bought USD against SEK spot and sold USD against SEK 3-month forward
D. Sold SEK against USD 3-month outright
9. The dealing term “my risk” indicates:

A. An acknowledgement by the giver of the quote that the receiver of the
quote might experience a short delay in their response, but that the price
maker will not re-quote
B. An acknowledgement by the receiver of the quote that they might
experience a short delay in their response, but that they may be re-quoted
C. An acknowledgement by the giver of the quote that the receiver of the
quote might experience a short delay in their response, but that the
receiver may request a re-quote
D. An acknowledgment by the giver of the quote that the receiver of the quote
might experience a short delay in their response, but that the price maker
will bear the risk
10. The “spot basis” of a 3 against 6 months EUR/CHF forward/forward swap is:
A. always the forward EUR/CHF bid rate of the first swap leg
B. generally the prevailing 3-month forward EUR/CHF mid-rate
C. commonly the prevailing 6-month forward EUR/CHF mid-rate
D. normally the current spot EUR/CHF mid-market rate
11. A customer would hedge a currency exposure with a forward FX time option if:
A. He is unsure about the presence of current risk

B. The amount of the currency risk is not precisely known in advance
C. His currency might change over time
D. The precise maturity of the currency risk is not known
11
12. If you sell forward USD to a client against EUR, what is the first thing you should
do to cover your exposure to exchange rate movements
A. Sell and buy USD in the FX swap market

B. Sell USD in the spot market
C. Buy USD in the spot market
D. Buy and Sell USD in the FX swap market
13. If spot GBP/CHF is quoted 2.3875-80 and the 3-month forward outright is
2.3660-70, what are the forward points?
A. 21.5/21
B. 210/215
C. 215/210
D. 21/21.5
14. If EUR/USD is 1.1025-28 and the 6-month swap is 112.50/113, what is the 6-month
outright price?
A. 1.1380-1.11405
B. 1.11375-1.1141
C. 1.09125-1.0915
D. None of these
15. Are the forward points materially affected by the changes in the spot rate?
A. Never
B. Only for very large movements or longer terms
C. Always
D. Spot is the principal influence

Spot EUR/USD 1.3097-00
0/N EUR/USD swap 0.08/0.11
TIN EUR/USD swap 0.29/0.34
S/N EUR/USD swap 0.10/0.13
Where can you buy EUR against USD for value tomorrow?
A. 1.299971
B. 1.309966
C. 1.309971
D. 1.310029
12
17. You are quoted the following rates: Spot JPY/CHF 0.009520-25, 6-month JPY/CHF
is 10/7. At what rate can you buy 6-month outright CHF against the JPY?
A. 0.00951
B. 0.009518
C. 0.009515
D. 0.00852
18. Which of the following transactions will hedge a short outright 3-month EUR/USD
position?
A. buy spot EUR/USD, lend 3-month EUR, borrow 3-month USD
B. sell & buy 3-month EUR/USD, buy spot EUR/USD
C. buy outright 3-month EUR/USD
D. all of the above
19. If a dealer were to “buy and sell 10 million USD/JPY 3-months”, he would be doing:
A. an FX swap involving a spot purchase of USD 10 million against JPY and a sale
of USD 10 million against JPY in 3 months at the current 3-month forward rate
B. an outright forward involving buying USD 10 million in 3 months against JPY at
the current 3-month forward rate
C. a matched purchase and sale of USD 10 million against JPY in 3 months with
different counterparties at the current 3-month forward rate
D. a matched purchase and sale of USD 10 million against JPY in 3 months with
different counterparties at the future spot forward rate
20. What is the ISO code for gold?

A. GLD
B. XAU
C. ORO
D. AUR
21. If you were quoted XAU/USD 1349.75-25 and USD/SGD 1.2795-00, how many SGD
would you pay to buy 100 ounces of gold?
A. SGD 172,700.51
B. SGD 172,704.00
C. SGD 172,760.00
D. SGD 172,832.00
22. The daily gold fixing rate takes place at N.M Rothschild’s:
A. Once a day at 10:30am (London time)
B. Once a day at 3:00pm (London time)
C. Once a day at 12:00 noon (London time)
D. Twice a day 10:30am and 3:00pm (London time)
13
ACI Dealing Certificate Session 6 Assessment FRA questions
1. Calculate the 1x4 FRA rate for GBP given the following interest rates:
1-month (31 days) 6%
4-month (120 days) 5.85%
A. 5.84%
B. 5.77%
C.5.69%
D.5.75%
2. The settlement amount on an FRA is:

A. Paid in arrears on an unadjusted basis
B. Paid in advance on an unadjusted basis ignoring the time value of money
C. Paid in arrears on an adjusted basis taking the time value of money into
account.
D. Paid in advance on an adjusted basis taking the time value of money into
account
3. You take in a 6-month deposit (180 days) at a rate 6.75% and simultaneously
place the same amount of funds out on a loan for 3 months (91 days) at a rate of
6.35%. The resulting mismatch i.e. 3x6 month rate can be described as:
A. A forward-forward rate
B. A break-even rate
C.A balancing rate
D.All of the above
4. You have a 6-month liability and have a 3-month asset. What of the following
would be the best cover for the remaining three months?
A. buy a 0x6 FRA and take 3-month cash in 3 months’ time
B. sell a 0x6 FRA and lend 3-month cash in 3 months’ time
C. buy a 3x6 FRA and take 3-month cash in 3 months’ time
D. sell a 3x6 FRA and lend 3-month cash in 3 months’ time
5. You have gone long of a 6 x 12 (183 days) FRA at a rate of 4.95%. On

settlement date GBP LIBOR was quoted at a rate of 4.80%. The amount of the
FRA was GBP 100,000,000. What is your expected settlement figure?
A. Receive GBP 74 433.82
B. Pay GBP 74 433.82
C.Receive GBP 73 438.14
D.Pay GBP 73 438.14
6. You have gone long of a 6x9 FRA (90 days) at a rate of 4.25% with a notional
value of USD 75,000,000. On calculation date USD Libor is quoted at a rate of
4.525%. What is the settlement amount on this FRA?
A. Receive USD 50,295.00
B. Pay USD 50,295.00
C. Receive USD 50,985.72
D. Pay USD 50,985.72
14
7. You have borrowed at 3-month LIBOR+50BP. LIBOR for the loan will be re-fixed
in exactly one month. The market is quoting:
• 1x3 USD FRA 0.42-45%
• 1x4 USD FRA 0.54-58%
• 1x5 USD FRA 0.57-62%
To hedge the next LIBOR fixing, you should:
A. Sell a 1x3 FRA at 0.42%
B. Buy a 1x3 FRA at 0.45%
C. Buy a 1x4 FRA at 0.58%
D. Sell a 1x4 FRA at 0.54%
15
ACI Dealing Certificate Session 7 STIR futures and IRS Assessment questions
1. You have gone short 25 Short Sterling futures at a price of 97.45. The closing price
is fixed at 97.48. By how much will your margin account be debited or credited?
A. GBP 937.50 debited
B. GBP 937.50 credited
C. GBP 1,875.00 debited
D. GBP 1,875.00 credited
2. You predict that you will be short of funds in 6 months’ time. The 6x9 FRA rate is
quoted to you as 4.45/4.55 and the relevant STIR future price is 95.47/95.58. How
should you hedge this exposure?
A. Buy the FRA @ 4.55
B. Sell the FRA @ 4.45
C. Buy the future @ 95.58
D. Sell the future @ 95.47
3. Which of the following is the most accurate description of the tick value of
Short Sterling futures traded on Euronext LIFFE?
A. £ 12.50 per basis point
B. £ 12.50 per half basis point
C. £ 25.00 per basis point
D. £ 25.00 per half basis point
4. In order to hedge your position you have purchased 100 Short Sterling futures.
What was the position that you’re trying to hedge?
A. You were long £100,000,000
B. You were short £ 100,000,000
C. You were long £ 50,000,000
D. You were short £ 50,000,000
5. A Eurodollar futures price of 99.285 implies:

A. A forward-forward rate of 0.715%
B. A forward-forward rate of 0.285%
C. Current 3-month LIBOR of 0.715%
D. Current 3-month LIBOR of 0.285%
6. You are short of 20 December Eurodollar futures contracts at 98.75. Yesterday,

the closing price was 98.95. Today’s closing price is 98.905. How much will be
debited or credited to your variation margin account today?
A. Debit of USD 2,250
B. Credit of USD 2,250
C. Debit of USD 1,125
D. Credit of USD 1,125
16
7. You are paying 1% per annum paid semi-annually and receiving 6-month LIBOR
on a USD 10 million interest rate swap with exactly two years to maturity. 6-
Month LIBOR for the next payment date is fixed today at 0.95%. How would you
hedge the swap using FRA’s
A. Buy a strip of 0x6, 6x12, 12x18 and 18x24 FRA’s
B. Sell a strip of 0x6, 6x12, 12x18 and 18x24 FRA’s
C. Buy a strip of 6x12, 12x18 and 18x24 FRA’s
D. Sell a strip of 6x12, 12x18 and 18x24 FRA’s
8. An interest rate swap is:

A. A contract to exchange one stream of income payments for another
B. A temporary exchange of one deposit for another of a longer maturity in the
same currency
C. A forward-forward contract
D. All of the above
9. You have sold a USD 50,000,000 2-year interest rate swap at a rate of 5.15%
reset against 6- month USD Libor is currently quoted at 5.00%. Assuming a 30/360
day count convention, what is the settlement amount on this portion of the swap?
B. Pay USD 36,585.37
D. Pay USD 37,500.00
10. Another name for a “money market” swap is:

A. A short term swap i.e. less than 3 years
B. A basis swap
C. A liability swap
D. An asset swap
17
ACI Dealing Certificate Session 8 Option Assessment questions
1. An option is:
A. The right to buy or sell a commodity at a fixed price
B. The right to buy a commodity at a fixed price
C. The right but not the obligation to buy or sell a commodity at a fixed price
D. The right but not the obligation to buy a commodity at a fixed price
2. A put option is ‘out-of-the-money’ if:

A. Its strike price is higher than the current market price of the underlying
commodity
B. If the current market price of the underlying commodity is higher than the
strike price of the option
C. Its strike price is equal to the current market price of the underlying
commodity
D. If the current market price of the underlying commodity is lower than the
strike price of the option
3. What is a long straddle option strategy and why would you use it?
A. A long call option + long put option with the same strike prices to benefit
from high volatility
B. A short call option + short put option with the same strike prices to benefit
from low volatility
C. A long call option + short put option with the same strike prices to benefit
from a rise in the price of the underlying asset.
D. A short call option + long put option with the same strike prices to benefit
from a fall in the price of the underlying asset.
4. What is a short strangle option strategy and why would you use it?
A. A short call option + long put option with a higher strike price than the call
option to benefit from a fall in the price of the underlying asset.
B. A long call option + long put option with a lower strike price than the call
option to benefit from a rise in the price of the underlying asset.
C. A short call option + short put option with a lower strike price than the call
option to benefit from low volatility
D. A long call option + long put option with higher strike price than the call
option to benefit from very high volatility
5. An option premium is normally a positive function of:

A. the traded volume
B. the historical volatility of the price of the underlying commodity
C. the style (European or American) of the option
D. the implied volatility of the price of the underlying
18
6. How can a long asset position be synthesised from options?
A. buy a call option and a put option at the same strike price
B. sell a call option and a put option at the same strike price
C. buy a call option and sell a put option at the same strike price
D. sell a call option and buy a put option at the same strike price
7. A long call option has a strike price of 95. The current market price of the underlying
is 105. This option can be described as being:
A. In the money
B. At the money
C. Out the money
D. It depends on what type of option it is.
8. The premium of a deeply in the money option is made up of:
A. Time value only
B. Intrinsic value only
C. Equal amounts of time value and intrinsic value
D. Both intrinsic value and time value, but more intrinsic value than time value
9. A lenders interest rate floor can be described as:

A. A series or strip of European put options
B. A series or strip of European call options
C. A series or strip of American put options
D. A series or strip of American call options
10. The intrinsic value of a long call option:

A. Falls and rises with the price of the underlying commodity, but is always
positive
B. Rises if the price of the underlying commodity falls and vice versa
C. Depends solely on the volatility of the price of the underlying commodity
D. Becomes negative if the market price of the underlying commodity falls
below the strike price
11. You option position is currently made up of the following options:

Long 100 calls with a delta of 0.62
Short 250 puts with a delta of 0.31
Long 220 puts with a delta of 0.73
What should you do in order to become delta neutral on this portfolio?
A. Go long approximately 21 of the underlying
B. Go short approximately 21 of the underlying
C. Go long approximately 145 of the underlying
D. Go short approximately 145 of the underlying
19
12. The buyer of a cap:
A. Receives compensation if a reference interest rate falls below an agreed level
B. Pays compensation if a reference interest rate falls below an agreed level
C. Receives compensation if a reference interest rate rises above an agreed
level
D. Pays compensation if a reference interest rate rises above an agreed level
13. An interest rate guarantee (IRG) call is effectively:

a. An FRA
b. An call option on an FRA
c. A collar
d. An IRS
14. The delta on a long “in-the-money” call is usually

a. +0.50
b. between -0.5 and -1.0
c. between +0.5 and +1.0
d. zero
15. How would you delta hedge a deeply “in-the-money” short call option?
a. Go short of the underlying commodity equal to 50% of the size of the
option contract
b. Go long of the underlying commodity equal to 50% of the size of the
option contract
c. Go long of the underlying commodity equal to more than 50% of the full
size of the option contract
d. Go short of the underlying commodity equal to more than 5O% of the
full size of the option contract
16. What is the probability of an ‘at-the-money’ option being exercised?

a. Less than 50% probability
b. 50% probability
c. More than 50% probability
d. Zero probability
20
ACI Dealing Certificate Session 9 ALM Assessment questions
1. Which of the following is part of the typical scope of Asset Liability Management (ALM)?
A. Selling distressed assets and investing in bank liabilities trading at distressed levels.
B. Making sure that fixed assets are depreciated according to the applicable tax code.
C. Planning the maturity structure and net funding requirements arising from banking
book and trading book transactions.
D. Planning the liability structure and net funding requirements arising from trading book
assets carried at amortized cost.
2. All other things being equal, if a bank borrows short and lends long what is the effect
on the liquidity risk of the bank?
A. positive
B. changes only when interest rates levels are high
C. negative
D. changes only when interest rates levels are low
3. Which of the following situations would be most likely to result in a negative mark-to-
market for a bank borrowing short term and lending long term?
A. credit spread tightening of the long term position
B. if the yield curve is inverted
C. if the yield curve becomes steeper
D. if there is a downward parallel shift in the yield curve
4. Under new Basel rules, what is the meaning of CVA?

A. Credit Value Adaption
B. Call Value Adaption
C. Credit Value Adjustment
D. Counterpart Value Adjustment
5. Which of the following both provide credit enhancement to a true-sale securitization?

A. reserve account and third-party insurance
B. subordinated tranches and creditworthiness of the originator
C. creditworthiness of the originator and third-party insurance
D. reserve account and interest rate hedging
6. Which one of the following formulae is correct?

A. Long a straight bond + pay fixed on a swap = long a synthetic Floating Rate Note
B. Long a straight bond + pay floating on a swap = long a synthetic Floating Rate Note
C. Short a straight bond + receive fixed on a swap = long a synthetic Floating Rate Note
D. Short a straight bond + pay fixed on a swap = long a synthetic Floating Rate Note
7. Which one of the following statements is incorrect under Basel III?

A. Instruments qualifying for recognition as Tier 1 or Tier 2 capital will be
substantially restricted.
B. Basel III does not include Tier 3 capital
21
C. There is a distinction between upper Tier 2 and lower Tier 2 capital
D. New non-common equity Tier 1 and Tier 2 instruments are more loss-absorbing
than previously
8. Net funding requirements in liquidity management are determined by means of:

A. adding up expected vault cash outflows, ATMs and other cash points operated
by the institution across all branches
B. establishing a forward cash flow plan that takes account of all contractual and
behavioural cash flows related to assets and liabilities
C. the net cash flow from investment activities in the IFRS consolidated Statement
of Cash Flows for prior periods
D. subtracting short-term liabilities from short-term assets
9. The weighted average duration of liabilities can be increased by:

A. buying additional 30-year German Government bonds
B. selling futures contracts on 30-year German Government bonds
C. buying futures contracts on 10-year German Government bonds
D. exercising an early repayment option on a long-term senior borrowing
10. Complete the following sentence. If a bank has an asset repricing in 6 months funded
by a liability repriced in 3 months:
A. the bank would benefit from higher interest rates
B. the bank could hedge this interest rate risk with a 3x6 derivative
C. the bank will make mark-to-market losses if rates decrease
D. the bank could hedge this interest rate risk by selling a 6x9 derivative
11. What is interest rate immunization in the context of bank gap management?
A. the strategy of holding more interest rate sensitive assets than interest rate
sensitive liabilities
B. the strategy of holding fewer interest rate sensitive assets than interest rate
sensitive liabilities
C. reducing the size of the balance sheet
D. 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
12. You are entering into a swap as a fixed rate receiver with Party A and into an
offsetting position with party B. All other things being equal, which of the scenarios
below will lead to the greatest increase in the sum of the Credit Value Adjustments
for A and B?
A. upward shift of the swap curve and rating downgrade of party A
B. downward shift of the swap curve and rating downgrade of party A
C. downward shift of the swap curve and rating downgrade of party B
D. downward shift of the swap curve only
22
ACI Dealing Certificate Session 10 Risk Management Assessment questions
1. When dealing with a counterparty, which of the following statements is FALSE

regarding the use of a master agreement?
A. They specify who the parties are that deal on behalf of the organisation
B. They avoid the need for written confirmations
C. Basel committee recommends the use of master agreements
D. They contain netting clauses in the case of a default
2. Which of the following constitutes the objective of the “FATF” (also known by its
French acronym “GAFI”)?
A. To set standards and promote effective implementation of legal, regulatory and
operational measures for combating money laundering, terrorist financing and other
related threats to the integrity of the international financial system
B. To protect investors, maintain fair, orderly, and efficient markets, and facilitate
capital formation
C. To contribute to the protection and enhancement of stability of the UK financial
system and to reduce the extent to which it is possible for a regulated business to
be used for a purpose connected with financial crime
D. To maintain the professional level of competence and the ethical standards of
loyalty that are indispensable in the development of international relations, and
render mutual assistance so far as possible
3. What is the implication of trading with unidentified principals?

A. It prohibits the netting of exposures in bankruptcy
B. It may raise the suspicion of trading on inside information or allegations of other
illegal dealing practices
C. It prohibits the netting of exposures for capital adequacy
D. All of the above
4. According to the Model Code, how frequently should business continuity plans
(BCP) be tested?
A. At least once a year
B. At least once a month
C. At least once a quarter
D. At least six-monthly
5. What does the Model Code recommend regarding the length of time that
operations should maintain records of transactions?
A. One year
B. According to the local regulations
C. Five years
D. Record keeping falls outside of the responsibility of the operations division
6. How often should operational performance indicators be reviewed with senior

management according to the Model Code?
A. No review by senior management is necessary
B. According to volumes traded
C. At least once a year
D. At least monthly
23
7. When calculating regulatory capital for operational risk under Basel II, which of
the following approaches is considered to be the least risk-sensitive?
A. Advanced Measurement Approach

B. Standardized Approach
C. Basic Indicator
D. IRB
8. Which of the following increases market risk?

A. Increasing dealers limits to trade
B. A failure to follow up on outstanding confirmations
C. An increase in the volatility of the market prices
D. All of the above
9. Which of the following describes the ‘expected shortfall’?

A. The maximum loss on a portfolio
B. VaR for a longer holding period
C. The expected loss when the portfolio value falls below a certain value
D. The expected portfolio loss when the portfolio level is above a certain threshold
10. When calculating VaR for market risk under the Basel rules, which of the
following is required?
A. A holding period of 1 day with a 95% confidence level
B. A holding period of 10 days with a 99% confidence level
C. A holding period of 1 day with a 99% confidence level
D. A holding period of 10 days with a 95% confidence level
11. Which of the following should increase the VaR of a portfolio comprising long
positions in several instruments?
A. Higher correlation of returns between the instruments in the portfolio
B. Lower confidence level
C. Lower volatility of returns on the instruments in the portfolio
D. Shorter holding period
12. According to the Model Code, which of the following represents the best guide
for doing mark-to-market on their trading positions?
A. Prices off a snapshot of a Reuters screen
B. Prices calculated by an internal model
C. Historical prices
D. Quoted market prices
13. Which of the following would be considered ‘wrong-way’ risk for a bank?
A. The purchase of credit protection on a basket of bonds issued by insurance
companies from an insurance company
B. The forward sale of gold to a mining company
C. The purchase of USD/ZAR from the South African government
D. All of the above
24
ACI DEALING CERTIFICATE
DISTANCE LEARNING
SESSION ASSESSMENT
QUESTIONS
SOLUTIONS
25
ACI Dealing Certificate Session 1 Basic Interest Rate Calculations Assessment
SOLUTIONS
1. From the following GBP deposit rates:

calculate the 3x4 forward-forward rate.

A. 3.410%
B. 3.977%
C. 3.485%
D. 3.996%
using forward/forward rate formula:

(1+(0.0341x91÷365))÷(1+(0.0356x184÷365))=-1=x360÷(120-91)x100 = 3.996% (to 2dp)
Using FRA formula 3.56 LR, 120 LD, 365 DB, 3.41 SR, 91 SD, push FRA 3.996% (to 2dp).
2. From the following AUD rates:
3M AUD (91-day) deposit 2.35%

3x6 AUD (90-day) FRA 2.55%
Calculate the 6-month implied rate.

A. 2.37%
B. 2.46%
C. 2.55%
D. 4.90%
Using FRA formula
2.35 SR, 91SD, 360 DB, 2.55 FRA, 181 LD push LR 2.46%
Using EFF 2.35 R1, 91 D1, 360 DB, 2.55 R2, 90 D2 push EFF
(1+(0.0235x91÷360))x(1+(0.0255x90÷360))=-1=x360÷(91+90)x100 = 2.46%.
you can also use the FRA formula
Using FRA formula 2.35 SR, 91 SD, 360 DB, 2.55 FRA, 181 LD, push LR 32.46%.
3. Which is the day/count/annual basis convention for SGD money market

deposits?
A. ACT/365
B. ACT/360
C. ACT/ACT
D. 30E/360
26
4. A 6-month(182-day) investment of CAD 15,500,000.00 yields a return of CAD
100,000.00. What is the rate of return?
A. 1.32%
B. 1.29%
C. 1.28%
D. 0.65%
100,000 ÷ 15,500,000 x360÷ 182x100 = 1.28% (to 2dp)
Using PV formula 15,500,000 PV, 15,600,000 FV, 182DAYS, 360DB push IR1.28% (to 2dp)
5. According to some textbooks on investment what is the shape of ‘normal’ yield

curve?
A. Gently upwards sloping

B. Steeply upwards sloping
C. Negative
D. Flat
6. A rate of 3.50% p.a. is quoted on an annual basis, what is the equivalent semi-
annual rate?
A. 3.548%
B. 3.470%
C. 3.452%
D. 3.530%
Using ANNYLD formula: 3.50 ANN, push SEMI 3.470%
Using ACI formula Ö1.035= -1 = x 200 = 3.470%
7. Which of the following gives you the best return?
A. An annual bond market of 4.00%

B. A semi-annual bond market rate of 4.00%
C. A semi-annual money market rate of 4.00%
D. An annual money market rate of 4.00%
This is because money market gives you extra days and compounding.
8. A financial instrument has an annual bond yield of 4.20%. What is the

equivalent annual money market yield?
A. 4.168%
B. 4.142%
C. 4.175%
D. 4.213%
4.20 x 360/365 = 4.142%
Using MM formula: 4.20 BB push MM 4.20%
27
9. If the 30-day USD interest rate is 0.75% p.a. and the 60-day USD interest rate
is 0.65% p.a., what is the 45-day interest rate using straight line interpolation?
A. 0.60%
B. 0.80%
C. 1.40%
D. 0.70%
Here we have an inverted yield curve.
The difference between 30 and 60 days is 30 days. The change in the interest
rate between 30 and 60 days is -0.10% (0.65-0.75). The number of days from
the near date to the required date is 15 days (45-30).
To calculate the required rate, divide the interest difference by the number of
days between the two rates and multiply by the number of days from the near
rate to the required rate and add it to the near rate. So the 45-day rate is
calculated as follows:
0.75+(-0.10÷30x15)=0.75-0.05 = 0.70%
In one line 0.75+((0.65-0.75) ÷ (60-30)x (45-30)) = 0.70%
Using the SLINT formula: 45 RQDYS, 30 SHTDYS, 60 LNGDY, 0.75 SR, 0.65
LR
push SLINT 0.70% is the 45 day rate.
10 You borrow GBP 2,500,000.00 at 0.625% for 165 days. How much do you repay
including interest?
A. GBP 2,507,161.46
B. GBP 2,507,063.36
C. GBP 2,507,006.85
D. GBP 2,507,106.16
2,500,000 x (1+(0.625%x165÷365)) = 2,507,063.36
Using PV formula 2,500,000 PV, 0.625 IR, 165 DAYS, 365DB push FV
2,507,063.36
28
ACI Dealing Certificate Session 2 Money Market Assessment SOLUTIONS
1. You have quoted your customer the following eurodollar deposit rates:
1M 5.25/5.37%
2M 5.3125/5.4375%
3M 5.375/5.50%
The customer says,” I give you USD 20 million in the two’s”

What have you done?
A. Borrowed USD 20 million at 5.3125%

B. Lent USD 20 million at 5.4375%
C. Borrowed USD 20 million at 5.4375%
D. Lent USD 20 million at 5.3125%
The customer is giving you 20m on deposit in the two months at your bid for cash.
2. A 7% CD was issued at par, which you now purchase. You would expect to
pay:
A. The face value of the CD
B. More than the face value
C. Less than the face value
D. Too little information to decide
A CD is usually issued at par which is the face value. Subsequent to issue, it will
usually trade at a price (secondary market proceeds) higher than the face value as
the CD accrues interest. However, it is impossible to say what the price will be if you
are not given the coupon and/or the secondary market rate.
Note: It is unusual to find the correct answer being ‘too little information’, or ‘none of
the above’, but it is occasionally the correct answer.
3. Which of the following statements about Eurodollar deposits is correct?

A. Eurodollar deposits can only be dealt by banks in the USA
B. US withholding tax applies to Eurodollar deposits
C.Eurodollar deposits are free of US reserve requirements
D. Eurodollar deposits are subject to US exchange controls
Euro currency deposits are unencumbered as they are held by non-residents, so
there is no local market restrictions placed on them.
4. A 7-day piece of USCP is quoted at a rate of discount of 1.75%. What is its true
yield?
A. 1.73%
B. 1.75%
C. 1.77%
D. 1.80%
1.75÷(1-(0.0175x7÷360)) = 1.75% (to 2dp)

Using YLD formula 1.75 DR, 7 DAYS, 360DB, push YLD 1.75% (to 2dp)
29
5. Today’s spot value date is the 29th of February. What is the maturity date of a 4-
month USD deposit deal today? Assume no bank holidays.
A. Thursday 27th June
B. Friday 28th June
C. Saturday 29th June
D. Monday 1st July
This question is testing your ability to recognize the end-end convention which
applies to both money market and forward foreign exchange maturities for the fixed
periods.
Because this deal starts (its value date) is the last business day in February, the
maturity date must be the last business day in the month in which it matures.
Because the last calendar day in the June is a Sunday and Saturday is not
considered a working day in London, you roll backwards to the Friday.
6. Which of the following cannot produce a capital gain?

A. Treasury bill
B. CD
C. ECP
D. Classic repo
A, B, and C, are all tradeable i.e. negotiable instruments which can be bought and
then sold for a profit (capital gain), but repo is not negotiable so you can only earn
interest and not a capital gain on the repo
7. You have taken 6-month (183 days) deposits of GBP 10,000,000.00 at 0.60%
and GBP 15,000,000.00 at 0.55%. The same day, you quote 6-month GBP
0.57-62% to another bank. The other dealer takes GBP 25,000,000.00 at your
quoted price. What is the resulting profit or loss?
A. Nil
B. Profit of GBP 6,267.12
C. Profit of GBP 6,354.17
D. Loss of GBP 6,354.17
10,000,000 x 0.60%x183/365 = -30,082.19
15,000,000 x 0.55%x183/365 = -41,363.01
25,000,000 x 0.62%x183/365 = +77,712.33
Profit = +6,267.12
8. A CD with a face value of USD 50,000,000.00 and a coupon of 4.50% was
issued at par for 90 days and is now trading at 4.50% with 30 days remaining
to maturity. What has been the capital gain or loss since issue?
A. +USD 373,599.00
B. +USD 186,099.00
C. -USD 1,401
D. Nil
When selling a CD at a yield equal to the coupon after the issue date, you will make
a SMALL capital loss. So the answer is obvious and you should would really be
expected to choose C as the answer because you know that intuitively that is the
only possibly correct answer. But let’s look at the calculations. In determining the
expected loss (profit), you need to calculate both the current book value of the CD
and the secondary market value of the CD. Any difference will be the profit or loss.
The remaining days to maturity are 30, so the accrued days are 60.
30
The secondary market proceeds (SMP) are calculated as follows:
Maturity value 50,000,000 x (1+(0.045x90÷360)) = 50,562,500.
Now SMP is 50,562,500÷ (1+(0.045x30÷360)) = 50,373,599
The current book value will be the face value plus the accrued interest to date.
50,000,000 + (50,00,000 x 0.045 x 60÷360) = 50,375,000
SMP minus book value = profit (loss)
50,373,599 – 50,375,000 = -1,401
Remember the three rules from the slides to determine whether you are making a
profit or loss on a CD.
Using the PV formula can solve the maturity proceeds and SMP as well as the
holding period return.
9. You buy a 181-day 2.75% CD with a face value of USD 1,500,000.00 at par
when it is issued. You sell it in the secondary market after 150 days at
2.60%.What is your holding period yield?
A. 2.60%
B. 2.75%
C. 2.775%
D. 2.813%
Three steps: calculate the maturity value, calculate the SMP, calculate the
holding period return (HPR)
Maturity value 1,500,000 x (1+(0.0275x181÷360)) = 1,520,739.58
PV formula 1,500,000 PV, 2.75 IR, 181 DAYS, 360 DB push FV 1,520,739.58
Keeping what you have in the formula, you only need to change the DAYS to
31 and IR to 2.60 and push PV 1,517,342.42.
Using brackets SMP is 1,520,739.58÷ (1+(0.0260x31÷360)) = 1,517,342.42
Calculate the HPR 1,517,342.42÷1,500,000=-1=x360÷150x100 = 2.775%
Or 17,342.42÷1,500,000x360÷150x100 = 2.775%
Using the PV formula 1,517,342.42FV 1,500,000 PV 360 DB, 150 DAYS push
IR = 2.775%
10. A customer gives you GBP 25,000,000.00 at 0.625% same day for 7 days.
Through a broker, you place the funds with a bank for the same period at
0.6875%. Brokerage is charged at 2 basis points per annum. What is the net
profit or loss on the deal?
A. Profit of GBP299.66
B. Profit of GBP 203.77
C. LossofGBP299.66
D. Loss of GBP203.77
You lend the money at: 0.6875%

Minus what you borrow at: 0.625%
Minus brokerage: 0.02%
Profit as a percentage: 0.0425%
To work out the GBP profit you do a simple interest calculation:

25,000,000 x 0.0425% x 7 ÷ 365 = 203.77
31
ACI Dealing Certificate Session 3 Repo Assessment SOLUTIONS
1. What usually happens to the collateral in a tri-party repo?

A. It is put at the disposal of the buyer
B. It is held by the seller in the name of the buyer
C. It is held by the tri-party agent in the name of the buyer
D. It is frozen in the sellers account with the tri-party agent
Explanation: A bond held by the custodian in the name of the buyer is not usually put
at the disposal of the buyer for the purpose of covering a short position in that bond.
2. Which of the following functions does a tri-party repo agent NOT perform?
A. It checks the eligibility and sufficiency of collateral
B. It can impose an initial margin on behalf of the buyer and manages margin calls
C.It manages substitution of collateral on behalf of the seller
D. It participates in the risk of transactions if one of the parties defaults
3. Which of the following market participants would least likely be a user of repo?
A. Investment funds
B. Credit institutions and central banks
C.Corporates
D. Retail and private customers
Explanation: Repo is only done in large amounts, usually in excess of USD1m, and
so is not used by small investors.
4. In case of a default on a repo by the seller:

A. The buyer can liquidate the collateral
B. The buyer has to liquidate the collateral
C.The buyer cannot liquidate the collateral until the seller is declared insolvent
D. A court is appointed to decide what happens to the collateral
Explanation: Because the buyer has the right of ownership to the bond during the
repo, they can do with that bond as they please as long as they return it to the seller
at maturity when they receive their cash back.
5. What happens if the issuer of the underlying collateral in a repo, fails to pay a
coupon on this collateral during the period or tenor of the repo?
A. This is an event of default the therefore the seller of the repo must immediately
repay the buyer of the repo any amounts outstanding.
B. It is not yet an event of default as the issuer has 30 days in which to pay the
coupon
C. As the coupon would have been repaid to the seller no further action will be
required
D. The Buyer could ask for more collateral
Explanation: Because the issuer has failed to pay the coupon, it could impact
negatively on the value of the bond and the buyer could be at risk. By taking more
collateral, the buyer is protecting against the value of the collateral being insufficient
to cover the value of the cash.
32
6. You have been quoted a rate of 4.15/20 for a 31 day repo. You agree to do the
repo and “sell “securities worth EUR 25,215,000. The buyer insists on a haircut
of 1%. What is the amount to be repaid on termination of the repo?
A. EUR 25 054 401-00
B. EUR 24 973 862-11
C. EUR 25 055 637-87
D. EUR 25 054 562-97
In answering repo calculation questions, you need to answer (in no particular order)
the following 5 questions:
1.What is the collateral value? 25,215,000
2.What is the repo rate? 4.15/4.20
3.Am I doing the repo or reverse repo? You are selling bonds so you do the repo
and borrow cash from the offer side of the repo rate 4.20%.
4.How long is the repo term? 31 days
5.Is there a haircut or initial margin? Yes a 1% haircut
Firstly calculate the start money:
25,215,000÷1.01 = 24,965,346.53 using REPOCASH formula 25,215,000 BONDV, 1
HC, push REPOCASH 24,965,346.53
Now calculate the buy-back price 24,965,346.53 x (1+(0.0420x31÷360)) =
25,055,637.87
Or using PV formula 24,965,346.53 PV, 4.20 IR, 31 DAYS, 360 DB push FV
25,055,637.87
7. A client places GBP 15,000,000 and you quoted her a rate of 5.10%. for an
overnight deposit on Friday 18th January 20XX. How much interest will your
client earn on this deposit?
A. GBP 2 095.89
B. GBP 6 287.67
C. GBP 15 002 095.89
D. GBP 15 006 287.67
Friday to Monday is 3 days! 15,000,000 x 0.510x 3 ÷365 = 6 287.67
8. A bond is currently trading at 75 basis points special for a 1 week (7 days) repo.
The GC repo rate is quoted at 4.25%. How much interest would you earn if you
reversed in these bonds with a market value of EUR 12,500,000?
A. EUR 1,822.92
B. EUR 12,152.78
C. EUR 8,506.94
D. EUR 10,329.86
A special repo trades at a yield BELOW the general collateral (GC) rate. So 75 BP is
0.75% below the GC rate of 4.25%.
4.25 – 0.75 = 3.50% special repo rate.
12,500,000 x 0.0350 x 7 ÷360 = 8,506.94
33
9. The tom/next GC rate for French government bonds is quoted to you as 1.50%-
1.55%. You sell EUR 10,000,000 bonds with a market value of EUR 11,250,000.
The buyer insists on a 1% haircut. What is the repurchase price of these bonds?
A. EUR 9,901,402.64
B. EUR 9,901,416.39
C. EUR 11,139,077.97
D. EUR 11,139,093.44
In answering repo calculation questions, you need to answer (in no particular order) the
following 5 questions:
1. What is the collateral value? 11,250,000
2. What is the repo rate? 1.50%/1.55%
3. Am I doing the repo or reverse repo? You are selling bonds so you do the
repo and borrow cash from the offer side of the repo rate 1.55%.
4. How long is the repo term? Tom/next is 1 day
5. Is there a haircut or initial margin? Yes a 1% haircut
Firstly calculate the start money:
11,250,000÷1.01 = 11,138,613.86 using REPOCASH formula 11,250,000BONDV, 1 HC,
push REPOCASH 11,138,613.86
Now calculate the buy-back price 11,138,613.86 x (1+(0.0155x1÷360)) = 11,139,093.44
Or using PV formula 11,138,613.86 PV, 4.20 IR, 31 DAYS, 360 DB push FV 11,139,093.44
10. The 1 month (31 days) GC repo rate for German government bonds is quoted to
you as 2.00%-2.10%. You sell bonds with a market value of EUR 15,250,000 in a
sell and buy back agreement. During the term of this agreement, the issuer pays a
coupon of EUR 1,250,000. This is received by the buyer 7 days before the sell and
buy back agreement was to mature. What is the repurchase price of these bonds
on the maturity agreement?
A. EUR 14,027,577.08
B. EUR 14,027,066.67
C. EUR 14,026,263.89
D. EUR 14,025,777.78
In answering repo calculation questions, you need to answer (in no particular order) the
following 5 questions:
1. What is the collateral value? 15,250,000
2. What is the repo rate? 2.00%/2.10%
3. Am I doing the repo or reverse repo? You are selling bonds so you do the
repo and borrow cash from the offer side of the repo rate 2.10%.
4. How long is the repo term? 31 days
5. Is there a haircut or initial margin? No haircut
When a coupon is paid on a on a sell/buy-back repo the buy-back price is:
original cash + repo interest – coupon – interest on the coupon
First calculate the buy-back price without the coupon payment adjustment
15,250,000 x (1+(0.0210x31÷360)) = 15,277,577.08
Or using PV formula 15,250,000 PV, 2.10 IR, 31 DAYS, 360 DB push FV 15,277,577.08
Now calculate the buy-back price with the coupon payment adjustment 15,277,577.08 –
1,250,000 – (1,250,000 x 0.0210 x 7÷360) = 14,027,066.67
34
ACI Dealing Certificate Session 4 FX Spot and Cross Rate Assessment
SOLUTIONS
1. You are quoted the following prices for EUR/GBP:

Bank A 0.8540/0.8545
Bank B 0.8543/0.8555
Bank C 0.8538/0.8547
Bank D 0.8542/0.8550
From which bank would you buy GBP?
A. Bank A
B. Bank B
C. Bank C
D. Bank D
EXPLANATION: Remember to always look at what you are doing in the base
currency. Here you buying the quoted currency GBP, so you are selling the base
currency. If you sell the base, you are looking to sell to the highest bid which is
0.8543
2. You quote a client AUD/USD 0.9080/0.9085. What would you quote them if they
wanted the quote as USD/AUD?
A. 1.1013/1.1007
B. 1.1007/1.1013
C. 0.9085/0.9080
D. 0.9100/0.9110
EXPLANATION: All you need to do here is calculate the reciprocal quote.
Remember the bid becomes the offer and vice versa when you calculate the
reciprocal.
To calculated the USD/AUD bid, divide the AUD/USD offer into 1.
1÷0.9085 = 1.1007. to get the offer do the same with this bid of the AUD/USD.
3. Calculate the rate for SGD/HKD given that:

USD/SGD 1.2873/1.2885
USD/HKD 7.7700/7.7710
A. 6.0303/6.0367
B. 6.0310/6.0359
C. 10.0036/10.0117
D. 10.0023/10.0129
EXPLANATION: Given two direct quotes, ‘cross and divide’ because SGD is the
‘stronger’ currency, it will become the base. So divide the USD/HKD bid with the
USD/SGD offer to get the SGD/HKD bid and vice versa to get the offer.
35
4. Which of the following best describes the term “covered interest arbitrage”?
A. When a dealer purchases a money market instrument in a foreign
currency and hedges the maturity value (of the instrument) in the forward
market
B. When a dealer has a forward or future interest rate exposure and covers this
exposure using a derivative product
C. When one arbitrages the interest rate differential between two different bond
issuers
D. When one arbitrages the possible price differences between the spot market
and the derivative market as indicated by FRA prices
EXPLANATION: Covered interest rate arbitrage is borrowing or lending one
currency and then converting that currency into another currency by doing an FX
swap.
So for example, I borrow 3-month ZAR and buy a 3-month USD CD (invest in USD).
I then do an FX swap where I buy USD/ZAR spot and sell USD/ZAR 3 months.
Looking at the cash flows:
SPOT
+ ZAR via the borrowing – ZAR through the FX swap.
+USD through the FX swap –USD for buying USD CD.
3-MONTHS
- ZAR (repay borrowing) + ZAR through the swap.
-USD through the FX swap +USD via the maturity proceeds of the USD CD.
PLEASE DON’T PANIC! They will not ask you complex questions on covered
interest rate arbitrage. It is dealt with in far more detail in the ACI Diploma.
5. A broker has obtained the following quotes for EUR/GBP: Bank A

0.6250/0.6258, Bank B 0.6252/0.6257, Bank C 0.6249/0.6259 and Bank D
0.6251/0.6255. What price will the broker indicate on his screen?
A. 0.6249/0.6255
B. 0.6252/0.6255
C. 0.6249/0.6259
D. 0.6252/0.6259
The brokers role is to quote the HIGHEST bid and the LOWEST offer.
6. A dealer needs to sell EUR against NZD. Of the following quotes which is the
best for her?
A. 1.7185/1.7195
B. 1.7180/1.7190
C. 1.7183/1.7196
D. 1.7186/1.7198
EXPLANATION: Following EGANU, these quotes are assumed to be EUR/NZD. So
you want to sell the base EUR to the highest bid.
36
7. You sold USD 12,000,000 and received NZD 15,513,898.87. At what rate was
this deal concluded?
A. 0.8108
B. 1.2930
C. 0.7735
D. 1.292825
EXPLANATION: To determine the exchange rate given two currency amounts,
ALWAYS divide the quoted currency amount by the base currency amount.
Following EGANU, the base currency is NZD and the quoted currency is USD. So
you divide the USD amount with the NZD amount.
8. You have concluded the following trades:

Long 5m CHF/SEK @ 7.7650
At the end of day the mark to market rates were:
USD/CHF 1.0430
USD/SEK 8.1010
What is your mark-to-market profit or loss for the day?
A. SEK 1,360,486 profit
B. SEK 1,360,486 loss
C. SEK 4,200 profit
D. SEK 4,300 loss
EXPLANATION: To get the CHF/SEK at the end of the day, calculate the cross rate
from the two USD base (direct quotes) given. So, 8.1010÷1.0430 gives us a mark-to-
market rate at the end of the day of CHF/SEK 7.7670. To calculate the M-T-M profit
or loss, you need to square your position at the end of the day by using the M-T-M
rate.
CHF RATE SEK
+5,000,000 x 7.7650 -38,825,000
-3,000,000 x 7.7660 +23,298,000
-4,000,000 x 7.7663 +31,065,200
-2,000,000 +15,538,200
+2,000,000 x 7.7670 -15,534,000
Square +4,200
9. At the end of the day you are short EUR 10 million against GBP at 0.8225. At the
end of the trading day the mark-to-market for EUR/GBP is 0.8214. What is the
resulting profit or loss?
A. Loss of EUR 11,000
B. Profit of EUR 11,000
C. Loss of GBP 11,000
D. Profit of GBP 11,000
37
EXPLANATION: You make a 0.0011 profit (sold at 0.82256 and can buy back at
0.8214). EUR10,000,000 x 0.0011 = GBP11,000 profit
10. The mid-rate for USD/CHF is 1.3950 and the mid-rate for AUD/USD IS 0.7060.
What is the migrate for CHF/AUD
A. 0.9849
B. 1.0154
C. 1.9759
D. 0.5061
EXPLANATION: Trick question!! Calculating the cross rate given USD/CHF and
AUD/USD (one direct and one indirect) you multiply 1.3950 by 0.7060 to get
AUD/CHF 0.9849 following EGANU. They have asked for CHF/AUD which is the
reciprocal of AUD/CHF. 1÷0.9849 = CHF/AUD 1.0154
11. Spot USD/CHF is quoted to you at 0.9613-17. If you sold CHF 10,000,000.00 at
this quote, how many USD would you receive in exchange?
A. USD 9,613,000.00
B. USD 9,617,000.00
C. USD 10,402,579.84
D. USD 10,398,253.09
EXPLANATION: Always look at what you are doing in the base currency. Because
you sell CHF, you are buying the base currency USD from the market at the offer
side.
Remember, always divide the quoted currency amount by the exchange rate to get
the base currency amount. 10,000,000÷0.9617 = 10,398,253.09
38
ACI Dealing Certificate Session 5 Forward Foreign Exchange Assessment
SOLUTIONS

Spot USD/SGD 1.2430
1M (30 day) USD 0.25%
1M (30 day) SGD 1.15%
What is 1-month USD/SGD?
A. 1.2435
B. 1.2415
C. 1.2421
D. 1.2439
EXPLANATION: Forward outright = 1.2430 x (1+(0.0115 x 30÷365)) ÷(1+(0.0025 x

30÷360)) = 1.2439
Using FWDOR formula: 1.2430 SPT, 1.15 QCIR, 30 DYS, 3654 DBQ, 0.25 BCIR,
360 DBB, Push FWDOR1.2439
2. A client phones you in a bit of a panic and says that they need to buy USD against
SEK for value tomorrow! You look at your screen and see the following:
Spot USD/SEK 6.2928/38, O/N swap points 1.5/0.5, T/N swap points 2.0/1.5, 1-week
swap points 10.5/8.5
At what rate will you sell USD against SEK to your client?
A. 6.29295
B.6.2940
C.6.29265
D.6.29365
EXPLANATION: To calculate value tomorrow, you use the Tom/Next (T/N) swap
points. Because we are going backwards from spot to tomorrow, switch the bid and
offer to change the points from negative (high/low) to positive (low/high) and add
them to the spot. (if the points were positive, you would switch them to make them
negative and subtract them from the spot).
6.2928 + 0.00015 = 6.29295 BID
6.2938 + 0.0002 = 6.2940 OFFER
Because this is a market quote and you are buying cable, you deal on the offer side.
3. At what price would you be able to go long of AUD against USD in the one-
month if you have been quoted the following?
Spot 0.8995/05
1 month forward points 15/13
A. 0.9010
B. 0.9018
C.0.8980
D.0.8992
EXPLANATION: To derive the 3-month bid/offer, you adjust the spot bid with the bid
points and offer with the offer points. Here we subtract the negative points.
0.8995 – 0.0015 = 0.8980 BID, 0.9005 – 0.0013 = 0.8992 OFFER.
39
Because you are buying the base AUD you need to buy from the market offer
4. If the 90 day swap points are quoted as 72, and the 180 day swap points are
quoted as 45, what are the 115 day swap points (assuming linear interpolation)?
A. 64.5
B. 79.5
C. 76.5
D. 67.5
EXPLANATION: The difference between 180 and 90 days is 90 days. The change in
the forward points between 180 and 90 days is -27 (45-72). This is an inverted yield
curve! The number of days from the near date to the required date is 25 days (115-
90).
72+(-27÷90x25)=72-7.5 = 64.5.
In one line 72 + ((45-72) ÷ (180-90)x (115-90)) = 64.5
Using the SLINT formula: 115 RQDYS, 90 SHTDYS, 180 LNGDY, 72 SR, 45 LR
push SLINT 64.5 are the 115-day forward points.
5. Spot USD/CAD is 0.9870/0.9882 and interest rates in CAD are higher than
interest rates in USD. Would you expect the forward points for USD/CAD to be:
A. +5/-3
B. -8/+2
C. 10/15
D. 15/10
EXPLANATION: The spot has no bearing on the question. If the quoted currency
CAD interest rates are higher than the base currency USD, then the points are
positive (high/low).
6. A “time option” is an outright forward FX transaction where the customer:

A. Has the right but not the obligation to exercise the outright forward at maturity
B. May freely choose the maturity of the option, given a 24-hout notice to the
bank
C. Can choose any maturity date within a previously pre-arranged fixed
period of time
D. May decide to deal at the regular maturity or on either the business day
before or after the regular maturity date
EXPLANATION: A time option is a contract that allows the client to draw down or
take up the contract during the agreed period, but they must take it up at maturity.
7. How would you compute the bid side of the forward/forward FX swap points?
A. Bid side of the near leg swap points minus offered side of the far leg swap points
B. Bid side of the far leg swap points minus offered side of the near leg swap
points
C. Offered side of the far leg swap points minus bid side of the far leg swap points
D. Offered side of the near leg swap points minus bid side of the far leg swap points
40
EXPLANATION: A forward-forward swap is one that starts at a date beyond spot.
For example, a 3-month swap starting in 3 months’ time.
8. A customer asks for a price in 3-month USD/SEK. You quote 48/45. The
customer deals at 45. What have you done?
A. Bought USD against SEK spot and sold SEK against USD 3-month forward
B. Sold USD against SEK spot and bought USD against SEK 3-month forward
C. Bought USD against SEK spot and sold USD against SEK 3-month forward
D. Sold SEK against USD 3-month outright
EXPLANATION: The customer is paying your offer which means they are buying
your USD in the 3 months. Because they are dealing on your swap points, it is
assumed that they are doing an FX swap. If they are buying in the 3 months, they
must sell an equivalent amount to you in the spot. So they are Selling USD/SEK in
the spot and buying USD/SEK in the 3 months. The question asks what have you
done? So you buy USD/SEK spot and sell USD/SEK 3 months.
9. The dealing term “my risk” indicates:

A. An acknowledgement by the giver of the quote that the receiver of the quote
might experience a short delay in their response, but that the price maker will not
re-quote
B. An acknowledgement by the receiver of the quote that they might
experience a short delay in their response, but that they may be re-quoted
C. An acknowledgement by the giver of the quote that the receiver of the quote
might experience a short delay in their response, but that the receiver may
request a re-quote
D. An acknowledgment by the giver of the quote that the receiver of the quote might
experience a short delay in their response, but that the price maker will bear the
risk
EXPLANATION: I have asked someone for a price and I’m going to take a little while
to respond, so the correct thing to do is to tell the quoting bank “my risk” which lets
them know that I’m going to take a little while to respond and so I understand that the
quoting bank may change the price when I ask them for the price again. This is how
the conversation might go:
Me: “Dollar Rand in 5mio please”
Quoting bank: 20/25
Me: “my risk”
A little while later and I now want to buy Dollars
Me: “Where is your price now?”
Quoting bank: “same”
Me: “Mine at 25”
10. The “spot basis” of a 3 against 6 months EUR/CHF forward/forward swap is:
A. always the forward EUR/CHF bid rate of the first swap leg
B. generally, the prevailing 3-month forward EUR/CHF mid-rate
C. commonly the prevailing 6-month forward EUR/CHF mid-rate
D. normally the current spot EUR/CHF mid-market rate
41
EXPLANATION: Because the swap starts in 3 months’ time, the swap points will be
added (or subtracted) from the rate which is the current 3-month forward rate. Just
like a conventional swap out of spot where you adjust the mid-rate of the spot with
the swap points, you would use the mid-rate of the 3-months as the ‘spot’.
11. A customer would hedge a currency exposure with a forward FX time option if:
A. He is unsure about the presence of current risk
B. The amount of the currency risk is not precisely known in advance
C. His currency might change over time
D. The precise maturity of the currency risk is not known
EXPLANATION: Time options give the customer flexibility on the drawdown of a

contract during a pre-agreed period, but they must take up the contract at maturity.
12. If you sell forward USD to a client against EUR, what is the first thing you should
do to cover your exposure to exchange rate movements
A. Sell and buy USD in the FX swap market
B. Sell USD in the spot market
C. Buy USD in the spot market
D. Buy and Sell USD in the FX swap market
EXPLANATION: When quoting a client an outright forward, you use the current spot
and adjust it with the forward points. If they agree to deal, the first thing that can
change is the spot. So if the client was buying USD against the EUR in the forward
you need to buy USD spot and then do a sell/buy EUR/USD swap to be fully hedged.
13. If spot GBP/CHF is quoted 2.3875-80 and the 3-month forward outright is 2.3660-
70, what are the forward points?
A. 21.5/21
B. 210/215
C. 215/210
D. 21/21.5
EXPLANATION: When calculating the forward points given the forward outright and the
spot, ALWAYS subtract the spot from the forward rate.
2.3660 – 2.3875 = -0.0215 x10,000 = -215 BID
2.3670 – 2.3880 = -0.0210 x 10,000 =-210 OFFER
so 215/210 would be the market quote
14. If EUR/USD is 1.1025-28 and the 6-month swap is 112.50/113, what is the 6-
month outright price?
A. 1.1380-1.11405
B. 1.11375-1.1141
C. 1.09125-1.0915
D. None of these
EXPLANATION: To derive the 6-month bid/offer, you adjust the spot bid with the bid
points and offer with the offer points. Here we add the positive points.
1.1025.01125 = 1.11375 BID , 1.1028 + 0.0113 = 1.1141 OFFER.
42
15. Are the forward points materially affected by the changes in the spot rate?
A. Never
B. Only for very large movements or longer terms
C. Always
D. Spot is the principal influence
EXPLANATION: small changes in the spot will not impact on the forward points
(although obviously, it will certainly impact on the OUTRIGHT FORWARD rate). But
should the spot move significantly, then the forward points will be impacted.

Spot EUR/USD 1.3097-00
0/N EUR/USD swap 0.08/0.11
TIN EUR/USD swap 0.29/0.34
S/N EUR/USD swap 0.10/0.13
Where can you buy EUR against USD for value tomorrow?
A. 1.299971
B. 1.309966
C. 1.309971
D. 1.310029
EXPLANATION: NOTE: SET YOUR CALCULATOR TO 6 DECIMAL PLACES. To

calculate value tomorrow you use the Tom/Next (T/N) swap points. Because we are
going backwards from spot to tomorrow, switch the bid and offer to change the
points from positive (low/high) to negative (high/low) and subtract them to the spot.
(if the points were negative, you would switch them to make them positive and add
them from the spot).
1.3097 - 0.000034 = 1.654172 BID
1.3100 - 0.000029 = 1.309971 OFFER
This is a market quote so you are buying the base EUR on the offer side.
17. You are quoted the following rates: Spot JPY/CHF 0.009520-25, 6-month
JPY/CHF is 10/7. At what rate can you buy 6-month outright CHF against the JPY?
A. 0.00951
B. 0.009518
C. 0.009515
D. 0.00852
EXPLANATION: Using the bid side (if you are buying the quoted currency CHF then
you are selling the base currency JPY to the market).
0.009520 – 0.000010 = 0.009510 or 0.00951 to 5 decimal places.
This question comes verbatim in the exam!!
18. Which of the following transactions will hedge a short outright 3-month EUR/USD
position?
A. buy spot EUR/USD, lend 3-month EUR, borrow 3-month USD
B. sell & buy 3-month EUR/USD, buy spot EUR/USD
C. buy outright 3-month EUR/USD
D. all of the above
43
EXPLANATION: Obvious hedge would be to do an outright where you buy
EUR/USD. You could also buy EUR/USD
19. If a dealer were to “buy and sell 10 million USD/JPY 3-months”, he would be doing:
A. an FX swap involving a spot purchase of USD 10 million against JPY and a
sale of USD 10 million against JPY in 3 months at the current 3-month
forward rate
B. an outright forward involving buying USD 10 million in 3 months against JPY at
the current 3-month forward rate
C. a matched purchase and sale of USD 10 million against JPY in 3 months with
different counterparties at the current 3-month forward rate
D. a matched purchase and sale of USD 10 million against JPY in 3 months with
different counterparties at the future spot forward rate
EXPLANATION: An Foreign exchange swap involves two legs namely a buy and
sell or sell and buy. The deals are done in the same base currency amount (or
quoted currency amount) for both the start and end legs of the trade.
The deal is done with the same counterparty.
The deals are usually agreed base on the forward (swap) points and the spot is
agreed immediately based on the current mid-rate at the time the deal is concluded.
The spot rate is then adjusted with the swap points to determine the second leg
exchange rate.
20. What is the ISO code for gold?

A. GLD
B. XAU
C. Org
D. AUR
EXPLANATION: ISO codes follow the periodic table symbols preceded by an X.

Gold is XAU, silver is XAG, Platinum is XPT, and Palladium is XPD. These are the
only metallic symbols you need to know.
21. If you were quoted XAU/USD 1349.75-25 and USD/SGD 1.2795-00, how many
SGD would you pay to buy 100 ounces of gold?
A. SGD 172,700.51
B. SGD 172,704.00
C. SGD 172,760.00
D. SGD 172,832.00
EXPLANATION: To determine the XAU/SGD gold price, we can do a cross-rate

calculation. The challenge with this question is that the bid/offer in both quotes
crosses a big figure. Treat the quotes as one direct; USD/SGD, and one indirect;
XAU/USD
BID OFFER
XAU/USD 1349.75 1350.25
x x
USD/SGD 1.2795 1.2800
XAU/SGD 1,727.01 1,728.32
44
Because you are buying gold from the market, you buy at the offer side. Multiply
100oz. with the offer of 1,728.32 and you end up paying SGD 172,832.
22. The daily gold fixing rate takes place at N.M Rothschild’s:
A. Once a day at 10:30am (London time)
B. Once a day at 3:00pm (London time)
C. Once a day at 12:00 noon (London time)
D. Twice a day 10:30am and 3:00pm (London time)
EXPLANATION: The fixing is often referred to as the ‘ringing of the bell’ and it
happens twice daily
One tricky question which I came across when I was in Jordan.
23. You quote another bank dealer GBP/USD 3-month swap of 35/38. The other
dealer asks you to do 10 million at 35. What have YOU done?
A. You have sold and bought GBP/USD spot against 3-months against you
B. You have bought and sold GBP/USD spot against 3-months against you
C. You have bought and sold GBP/USD spot against 3-months your favour
D. You have sold and bought GBP/USD spot against 3-months your favour
Explanation: Because the other dealer hit your bid, you are buying in the 3-months
from him and you will sell the equivalent amount to him in the spot. The reason it is
against you is because the points are positive and you are buying the points. If the
spot was 1.3500 the 3-month would be 1.3535. You would be selling at 1.3500 in the
spot and buying at 1.3535 in the 3-months.
45
ACI Dealing Certificate Session 6 FRA Assessment questions SOLUTIONS
1. Calculate the 1x4 FRA for GBP given the following interest rates:
1-month (31 days) 6.00%
4-month (120 days) 5.85%
A. 5.84%
B. 5.77%
C. 5.69%
D. 5.75%
Explanation: They are asking for a forward-forward rate, so use the forward/forward
rate formula:
(1+(0.0585x120÷365))÷(1+(0.06x30÷365))=-1=x365÷(120-31)x100 = 5.77% (to 2dp)
Using FRA formula 5.85 LR, 120 LD, 365 DB, 6.00 SR, 31 SD, push FRA 5.77%
2. The settlement amount on an FRA is:

A. Paid in arrears on an unadjusted basis
B. Paid in advance on an unadjusted basis ignoring the time value of money
C. Paid in arrears on an adjusted basis taking the time value of money into
account.
D. Paid in advance on an adjusted basis taking the time value of money
into account
Explanation: When calculating the settlement amount on a FRA, you discount the
simple interest amount using the LIBOR fixing rate. So we describe it as being
settled in advance taking into account the time value of money.
3. You take in a 6-month deposit (180 days) at a rate 6.75% and simultaneously
place the same amount of funds out on a loan for 3 months (91 days) at a rate of
6.35%. The resulting mismatch i.e. 3x6 month rate can be described as:
A. A forward-forward rate
B. A break-even rate
C. A balancing rate
D. All of the above
Explanation: The rate calculated given the two interest rates is the rate, that if
achieved for the 3x6 forward period, will result in the amount paid back on the 6
months on the deposit (capital plus interest) being equal to the amount received on
the amount lent out (capital plus interest).
4. You have a 6-month liability and have a 3-month asset. What of the following
would be the best cover for the remaining three months?
A. buy a 0x6 FRA and take 3-month cash in 3 months’ time
B. sell a 0x6 FRA and lend 3-month cash in 3 months’ time
C. buy a 3x6 FRA and take 3-month cash in 3 months’ time
D. sell a 3x6 FRA and lend 3-month cash in 3 months’ time
Explanation: You have borrowed cash for 6 months and lent out the cash for 3
months. You are exposed to interest rates falling in the next 3 months. To hedge
or cover your risk, sell a 3x6 FRA today and then lend the cash out for 3 months
starting in 3 months’ time.
46
5. You have gone long of a 6 x 12 (183 days) FRA at a rate of 4.95%. On
settlement date GBP LIBOR was quoted at a rate of 4.80%. The amount of the
FRA was GBP 100,000,000. What is your expected settlement figure?
A. Receive GBP 74 433.82
B. Pay GBP 74 433.82
C. Receive GBP 73 438.14
D. Pay GBP 73 438.14
Explanation: 100,000,000 x (0.0480-0.0495) x 183÷ 365 = -75,205.48

75,205.48÷ (1+(0.0480 x 183 ÷ 365)) = - 73 438.14 Using the programed formula
FRASET: 100,000,000 AMT, 183 DAYS, 4.95 FRA, 4.80 LIB, 365 DB
Push FRASET - 73 438.14
Negative result so the buyer pays the seller!
6. You have gone long of a 6x9 FRA (90 days) at a rate of 4.25% with a notional
value of USD 75,000,000. On calculation date USD Libor is quoted at a rate of
4.525%. What is the settlement amount on this FRA?
B. Pay USD 50,295.00
D. Pay USD 50,985.72
Explanation: 75,000,000 x (0.04525-0.0425) x 90 ÷ 360 = 51,562.50
51,562.50÷ (1+(0.04525 x 90 ÷ 360)) = 50,985.72 Using the programed formula
FRASET: 75,000,000 AMT, 90 DAYS, 4.25 FRA, 4.525 LIB, 360 DB
Push FRASET 50,985.72
Positive so the buyer receives from the seller!
7. You have borrowed at 3-month LIBOR+50BP. LIBOR for the loan will be re-fixed
in exactly one month. The market is quoting:
• 1x3 USD FRA 0.42-45%
• 1x4 USD FRA 0.54-58%
• 1x5 USD FRA 0.57-62%
To hedge the next LIBOR fixing, you should:
A. Sell a 1x3 FRA at 0.42%
B. Buy a 1x3 FRA at 0.45%
C. Buy a 1x4 FRA at 0.58%
D. Sell a 1x4 FRA at 0.54%
Explanation: You have a floating rate loan which resets every 3 months against 3
month LIBOR. You are therefore exposed to interest rates rising. To hedge you need
to buy a FRA.
Because your loan reprices in exactly 1 month from today, you need to buy a 1x4
FRA to cover the 3 month period starting 1 month from today. As the market is
quoting you, you have to buy at the offer side of the 1x4 price.
47
ACI Dealing Certificate Session 7 STIR Futures and IRS Assessment questions
SOLUTIONS
1. You have gone short 25 Short Sterling futures at a price of 97.45. The closing price
is fixed at 97.48. By how much will your margin account be debited or credited?
A. GBP 937.50 debited
B. GBP 937.50 credited
C. GBP 1,875.00 debited
D. GBP 1,875.00 credited
Explanation: Because you sold the contracts, you will benefit is the price falls and
lose if the price goes up. Because you sold at 97.45 and the closing price (Mark-to-
Market) is 97.48, you pay the difference. You pay 0.03 the equivalent to 3 ticks. The
full tick value for the short Sterling Future is GBP12.50.
-3 ticks lost x 25 contracts x £12.50 tick value = -937.50
2. You predict that you will be short of funds in 6 months’ time. The 6x9 FRA rate is
quoted to you as 4.45/4.55 and the relevant STIR future price is 95.47/95.58. How
should you hedge this exposure?
A. Buy the FRA @ 4.55
B. Sell the FRA @ 4.45
C. Buy the future @ 95.58
D. Sell the future @ 95.47
Explanation: A dealer is short of cash in the forward period. They are exposed to
interest rates rising. To hedge, buy FRAS or sell futures. The dealer can buy the FRA
at the offer 4.55% or sell a future at the bid of 95.47. To get the equivalent interest rate
from the futures price, 100 – 95.47 = 4.53% which is lower than 4.55% so the future
is a cheaper hedge than the FRA
3. Which of the following is the most accurate description of the tick value of Short
Sterling futures traded on Euronext LIFFE?
A. £ 12.50 per basis point
B. £ 12.50 per half basis point
C. £ 25.00 per basis point
D. £ 25.00 per half basis point
Explanation: 1 tick (0.01%) is worth 12.50 on the Short Sterling future because:
500,000 x 0.01% x 3/12 = 12.50
4. You have purchased 100 Short Sterling futures in order to hedge your position.
What was the position that you were trying to hedge?
A. You were long £100,000,000
B. You were short £ 100,000,000
C. You were long £ 50,000,000
D. You were short £ 50,000,000
Explanation: The term ‘Short sterling’ does not mean you sold it is just describing the
contract as one with a short duration i.e. 3-months. Each Short Sterling future has a
nominal value of GBP 500,000 so trading 100 contracts has a nominal value of GBP
50,000,000. Buying the contracts means you are hedging against interest rates
falling in the future, so you must be long cash.
48
5. A Eurodollar futures price of 99.285 implies:
A. A forward-forward rate of 0.715%
B. A forward-forward rate of 0.285%
C. Current 3-month LIBOR of 0.715%
D. Current 3-month LIBOR of 0.285%
Explanation: 100 – 99.285 = 0.715% implied forward-forward rate
6. You are short of 20 December Eurodollar futures contracts at 98.75. Yesterday,

the closing price was 98.95. Today’s closing price is 98.905. How much will be
debited or credited to your variation margin account today?
A. Debit of USD 2,250
B. Credit of USD 2,250
C. Debit of USD 1,125
D. Credit of USD 1,125
Explanation: Because you sold (short) the contracts, you will benefit is the price falls
and lose if the price goes up. Here they are asking you for the latest margin call. You
need to use yesterday’s MTM and today’s MTM. Based on yesterday’s MTM, you
are short 20 contracts at 98.95 and todays MTM is 98.905. The difference between
98.95 and 98.905 is 0.045 or 4.5 ticks which you receive. The USD contract has a
full tick value of $25.
+4.5 ticks x 20 contracts x $25 tick value = 2,250 you receive
7. You are paying 1% per annum paid semi-annually and receiving 6-month LIBOR
on a USD 10 million interest rate swap with exactly two years to maturity. 6-
Month LIBOR for the next payment date is fixed today at 0.95%. How would you
hedge the swap using FRA’s
A. Buy a strip of 0x6, 6x12, 12x18 and 18x24 FRA’s
B. Sell a strip of 0x6, 6x12, 12x18 and 18x24 FRA’s
C. Buy a strip of 6x12, 12x18 and 18x24 FRA’s
D. Sell a strip of 6x12, 12x18 and 18x24 FRA’s
Explanation: The first period (0x6) is already dealt with because of the fixing today.
The risk is for the 3 subsequent periods namely, 6x12,12x18, and 18x24. You need
to receive fixed to be hedged. You can do this by selling an interest rate swap or
selling a strip of FRAs. A strip is consecutive FRAs in the same amount. So you sell
a 6x12, a 12x18,and a 18x24 FRA all in USD10m.
8. An interest rate swap is:

A. A contract to exchange one stream of income payments for another
B. A temporary exchange of one deposit for another of a longer maturity in the
same currency
C. A forward-forward contract
D. All of the above
49
Explanation: There is no exchange of principal, so a swap is simply a contract for
difference.
9. You have sold a USD 50,000,000 2-year interest rate swap at a rate of 5.15%
reset against 6- month USD Libor is currently quoted at 5.00%. Assuming a 30/360
day count convention, what is the settlement amount on this portion of the swap?
B. Pay USD 36,585.37
D. Pay USD 37,500.00
Explanation: Because you sold the swap, you receive fixed and pay LIBOR. So you
receive 5.15% and pay 5.00% for the first 6 months. So you receive the net
difference of 0.15% on 50m for 180 days (30/360 convention means each month has
180 days).
50,000,000 x 0.0015 x 180/360 = 37,500 you will receive on the next fixing date.
10. Another name for a “money market” swap is:
A. A short term swap i.e. less than 3 years
B. A basis swap
C. A liability swap
D. An asset swap
Explanation: Traditionally in the market, anything shorter than 3 years is considered

money market. Anything longer is considered fixed income.
50
ACI Dealing Certificate Session 8 Options Assessment questions SOLUTIONS
1. An option is:
A. The right to buy or sell a commodity at a fixed price
B. The right to buy a commodity at a fixed price
C. The right but not the obligation to buy or sell a commodity at a fixed price
D. The right but not the obligation to buy a commodity at a fixed price
ANSWER: C. An option contract gives the holder the right but not the obligation to
exercise the option. That can either be the right to buy or to sell. So although d looks
like a good answer, it would only correct of they asked “what is a call option?”.
2. A put option is ‘out-of-the-money’ if:

A. Its strike price is higher than the current market price of the underlying
commodity
B. If the current market price of the underlying commodity is higher than the strike
price of the option
C. Its strike price is equal to the current market price of the underlying commodity
D. If the current market price of the underlying commodity is lower than the strike
price of the option
ANSWER: B. A put option is the right to sell so you would only exercise the option if
you cannot sell the asset at a higher price in the market. So for the put to be in-the-
money, the current market price (spot) must be lower than the strike price. The put
will be out-the-money if the spot price is higher than the strike price.
3. What is a long straddle option strategy and why would you use it?
A. A long call option + long put option with the same strike prices to benefit from
high volatility
B. A short call option + short put option with the same strike prices to benefit from
low volatility
C. A long call option + short put option with the same strike prices to benefit from a
rise in the price of the underlying asset.
D. A short call option + long put option with the same strike prices to benefit from a
fall in the price of the underlying asset.
ANSWER: A. Long straddle requires the purchase of both a call and put option with
the same strike price (usually at-the-money strike). A trader would use this strategy
to benefit from high volatility. Remember that if the volatility of an option increases,
so the value of the option increases irrespective of whether it is a put or call.
51
4. What is a short strangle option strategy and why would you use it?
A. A short call option + long put option with a higher strike price than the call option
to benefit from a fall in the price of the underlying asset.
B. A long call option + long put option with a lower strike price than the call option to
benefit from a rise in the price of the underlying asset.
C. A short call option + short put option with a lower strike price than the call option
to benefit from low volatility
D. A long call option + long put option with higher strike price than the call option to
benefit from very high volatility
ANSWER: C. Short strangle requires the sale of a call and a put, but they have
different strikes. The put strike will be lower than the call strike. A trader would use
this strategy to benefit from low volatility. Remember that if the volatility of an option
decreases, so the value of the option decreases irrespective of whether it is a put or
call.
5. An option premium is normally a positive function of:

A. the traded volume
B. the historical volatility of the price of the underlying commodity
C. the style (European or American) of the option
D. the implied volatility of the price of the underlying
ANSWER: D. If the volatility increases so the premium of an option will increase
holding everything else constant. Remember volatility represents the likelihood
(probability) of an option being exercised. The greater the likelihood, the more
expensive an option. Option premiums can be equated with insurance premiums.
The more likely a client is to claim the more expensive the insurance premium.
6. How can a long asset position be synthesised from options?

A. buy a call option and a put option at the same strike price
B. sell a call option and a put option at the same strike price
C. buy a call option and sell a put option at the same strike price
D. sell a call option and buy a put option at the same strike price
ANSWER: C. Dealers would synthesis a long asset position because they believe
strongly that the price of the underlying asset will rise during the life of the position.
To benefit from rising prices they would buy a call and sell a put with the same strike
price and expiry date. If the price of the asset is above the strike price at expiry, they
will exercise the call and make a profit. If the price of the asset is below the strike
price at expiry, the put they sold will be exercised and they will make a loss. The
effect of the asset price on this strategy creates is identical to owning the underlying
asset.
7. A long call option has a strike price of 95. The current market price of the
underlying is 105. This option can be described as being:
A. In-the-money
B. At-the-money
C. Out-the-money
D. It depends on what type of option it is
52
ANSWER: A. A call option is in-the-money when the current market price (spot) of
the underlying asset is higher than the strike price. The logic is that I could exercise
the call and pay 95 and immediately sell it in the market at 105.
8. The premium of a deeply in the money option is made up of:

A. Time value only
B. Intrinsic value only
C. Equal amounts of time value and intrinsic value
D. Both intrinsic value and time value, but more intrinsic value than time value
ANSWER: D. An option premium will only have intrinsic value when it is in-the-
money. The deeper in-the-money an option becomes, the more its value (premium)
is influenced by the spot price and less by the time to expiry. So for example if I have
a $10 call with 1-month to go to expiry and the current market price of the underlying
asset is $15 then the premium would be say $5.10 reflecting the $5 intrinsic value
and 10c time value.
9. A lenders interest rate floor can be described as:
A. A series or strip of European put options
B. A series or strip of European call options
C. A series or strip of American put options
D. A series or strip of American call options
ANSWER: A. A floor is a multiple event option. It can be exercised on each of the

agreed upon dates in the contract. So for example, a 2-year 5% floor against 6-
month LIBOR would be fixed 4 times during the 2 years i.e. every 6 months. This
means that every 6 months, the floor rate would be compared to 6-month LIBOR on
the fixing date. If at the first fixing, the 6-month LIBOR is 5.25%, then the floor will
not be exercised. At the second fixing if 6-month LIBOR is 4.50%, then the seller of
the floor will pay compensation to the buyer. So the buyer of the floor has four dates
on which he is able to exercise the floor. So it is like he has four options in a row.
One after 6,12,18, and 24 months. This is referred to as a strip of options. Because
they can only be exercised on the set fixing dates, they are European in style.
10.The intrinsic value of a long call option:

A. Falls and rises with the price of the underlying commodity, but is
always positive
B. Rises if the price of the underlying commodity falls and vice versa
C. Depends solely on the volatility of the price of the underlying
commodity
D. Becomes negative if the market price of the underlying commodity
falls below the strike price
ANSWER A. Only options that are in-the-money have intrinsic value. Intrinsic value
represents the difference between the current market price of the underlying asset
and the strike price of options that are in-the-money. For example, if I have a $10 call
and the current market price of the underlying asset is $15 then the option has $5
intrinsic value.
53
11. You option position is currently made up of the following options:
Long 100 calls with a delta of 0.62
Short 250 puts with a delta of 0.31
Long 220 puts with a delta of 0.73
What should you do in order to become delta neutral on this portfolio?
a. Go long approximately 21 of the underlying
b. Go short approximately 21 of the underlying
c. Go long approximately 145 of the underlying
d. Go short approximately 145 of the underlying
ANSWER A. Long calls and short puts both have positive deltas. Short calls and
long puts both have negative deltas. If the delta on a position is positive (negative),
to delta hedge you would sell (buy) the proportion of the underlying asset indicated
by the delta of the position. Because you end up with a negative delta, you need to
buy approximately 21 of the underlying to be delta neutral. The table below
illustrates:
Trades done Delta Delta position

Long 100 calls +0.62 100 x +0.62 = +62
Short 250 puts +0.31 250 x +0.31 = +77.50
Long 220 puts -0.73 220 x -0.73 = -160.6
Net delta -21.21
12. The buyer of a cap:

A. Receives compensation if a reference interest rate falls below an agreed level
B. Pays compensation if a reference interest rate falls below an agreed level
C. Receives compensation if a reference interest rate rises above an agreed
level
D. Pays compensation if a reference interest rate rises above an agreed level
ANSWER C. The buyer of a cap pays premium. That gives them the right but not the
obligation to exercise the option. A cap protects the buyer from rising interest rates. If
the benchmark rate is above the cap, the buyer receives compensation from the
seller base on the difference between the cap rate and the benchmark.
13. An interest rate guarantee (IRG) call is effectively:

A. An FRA
B. An call option on an FRA
C. A collar
D. An IRS
ANSWER: B. An IRG is a single period option and so it can be described as an
option on a FRA. A IRG call is effectively a call on a FRA.
54
14. The delta on a long “in-the-money” call is usually
A. +0.50
B. between -0.5 and -1.0
C. between +0.5 and +1.0
D. zero
ANSWER: C. Long call has a positive delta. As the call in in-the-money, the delta will
be between 0.50 and 1.00 or between 50% and 100%.
15. How would you delta hedge a deeply “in-the-money” short call option?
A. Go short of the underlying commodity equal to 50% of the size of the option
contract
B. Go long of the underlying commodity equal to 50% of the size of the option
contract
C. Go long of the underlying commodity equal to more than 50% of the full size of
the option contract
D. Go short of the underlying commodity equal to more than 5O% of the full size of
the option contract
ANSWER: C. Short call has a negative delta. To be delta hedged you need to go
long (buy) the underlying. Because the call is deeply in-the-money, you need to buy
more than 50% of the underlying to be delta hedged.
16. What is the probability of an ‘at-the-money’ option being exercised?

A. Less than 50% probability
B. 50% probability
C. More than 50% probability
D. Zero probability
ANSWER: B. The delta of an option is often used to describe the likelihood of the
option being exercised. When an option is out-the-money, the delta will be less than
0.50 or 50% which means there is a less than 50% chance of the option being
exercised. An option which is in-the-money has a delta between 0.50 and 1 in other
words, greater than 50%. There is therefore more than 50% chance of it being
exercised. When an option is at-the-money, it has a delta of 0.50 or 50%, so a 50%
chance of being exercised.
55
ACI Dealing Certificate Session 9 ALM Assessment questions SOLUTIONS
1.Which of the following is part of the typical scope of Asset Liability Management
(ALM)?
A. Selling distressed assets and investing in bank liabilities trading at distressed
levels.
B. Making sure that fixed assets are depreciated according to the applicable tax
code.
C. Planning the maturity structure and net funding requirements arising from banking
book and trading book transactions.
D. Planning the liability structure and net funding requirements arising from trading
book assets carried at amortized cost.
ANSWER: C.
2. All other things being equal, if a bank borrows short and lends long what is
the effect on the liquidity risk of the bank?
A. positive
B. changes only when interest rates levels are high
C. negative
D. changes only when interest rates levels are low
ANSWER: C. Most banks fund themselves short and lend long which means that
they will lose money if interest rates rise and profit if interest rates fall. This means
they have a negative gap.
3. Which of the following situations would be most likely to result in a negative

mark-to-market for a bank borrowing short term and lending long term?
A. credit spread tightening of the long term position
B. if the yield curve is inverted
C. if the yield curve becomes steeper
D. if there is a downward parallel shift in the yield curve
ANSWER: C. A steepening yield curve is one where long-term interest rates rise and
short-term interest rates remain relatively unchanged. So where you are borrowing
short-term and lending long-term, the cost of funding is unaffected but the long-term
loans or bonds will have a negative Mark-To-Market as long-term interest rates rise.
Remember as interest rates rise, the price (value) of bonds will fall.
4. Under new Basel rules, what is the meaning of CVA?

A. Credit Value Adaption
B. Call Value Adaption
C. Credit Value Adjustment
D. Counterpart Value Adjustment
ANSWER: C.
56
5. Which of the following both provide credit enhancement to a true-sale
securitization?
A. reserve account and third-party insurance
B. subordinated tranches and creditworthiness of the originator
C. creditworthiness of the originator and third-party insurance
D. reserve account and interest rate hedging
ANSWER: C. Credit enhancement means that in the event of losses, the originator
or a third party (usually and insurance company) will absorb the losses.
6. Which one of the following formulae is correct?

A. Long a straight bond + pay fixed on a swap = long a synthetic Floating
Rate Note
B. Long a straight bond + pay floating on a swap = long a synthetic
Floating Rate Note
C. Short a straight bond + receive fixed on a swap = long a synthetic
Floating Rate Note
D. Short a straight bond + pay fixed on a swap = long a synthetic
Floating Rate Note
ANSWER: A. A fixed coupon bond is sometimes referred to as a straight bond. So
long a straight bond means you are receiving a fixed interest rate. When you buy a
swap you are paying fixed and receiving floating. Combining a long straight bond
with a paying fixed swap, means you receive fixed on the bond pay fixed on the
swap in return receive floating on the swap. The two fixed rates offset each other
out, so you are now receiving floating. You have created a synthetic floating rate
note.
7. Which one of the following statements is incorrect under Basel III?

A. Instruments qualifying for recognition as Tier 1 or Tier 2 capital will be
substantially restricted.
B. Basel III does not include Tier 3 capital
C. There is a distinction between upper Tier 2 and lower Tier 2 capital
D. New non-common equity Tier 1 and Tier 2 instruments are more loss-
absorbing than previously
ANSWER: C. This is a negative question so be careful in choosing the correct
answer! Tier 1 capital is divided into common equity and other Tier 1 instruments,
but there is no distinction between the different instruments which qualify as Tier 2
capital.
8. Net funding requirements in liquidity management are determined by means of:

A. adding up expected vault cash outflows, ATMs and other cash points
operated by the institution across all branches
B. establishing a forward cash flow plan that takes account of all
contractual and behavioural cash flows related to assets and liabilities
C. the net cash flow from investment activities in the IFRS consolidated
Statement of Cash Flows for prior periods
D. subtracting short-term liabilities from short-term assets
57
ANSWER: B. Net funding requirements of a bank considers the deposits and assets
which are maturing as well as the anticipated cash flow movement from transactional
retail savings and wholesale call accounts. It is vital that a bank is able to predict with
relative accuracy what its funding requirements will be so as to meet them in time
and without undue stress.
9. The weighted average duration of liabilities can be increased by:

A. buying additional 30-year German Government bonds
B. selling futures contracts on 30-year German Government bonds
C. buying futures contracts on 10-year German Government bonds
D. exercising an early repayment option on a long-term senior borrowing
ANSWER: B. selling a bond future is like issuing a bond for delivery at some date on
the future other than spot. A 30-year short bond position would be seen as a liability
on a bank’s balance sheet.
10. Complete the following sentence. If a bank has an asset repricing in 6 months
funded by a liability repriced in 3 months:
A. the bank would benefit from higher interest rates
B. the bank could hedge this interest rate risk with a 3x6 derivative
C. the bank will make mark-to-market losses if rates decrease
D. the bank could hedge this interest rate risk by selling a 6x9 derivative
ANSWER: B. In this scenario, the bank would benefit from falling interest rates and
would lose money if interest rates increased. So they could hedge against interest
rates rising by buying a 3x6 FRA or selling a futures contract with a dates close to
the 3x6 period.
11. What is interest rate immunization in the context of bank gap management?
A. the strategy of holding more interest rate sensitive assets than interest
rate sensitive liabilities
B. the strategy of holding fewer interest rate sensitive assets than
interest rate sensitive liabilities
C. reducing the size of the balance sheet
D. 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
ANSWER: D. To immunize a banks exposure to interest rates, they would need to
run a zero gap. This means to match the timing of the repricing of their assets and
liabilities.
12. You are entering into a swap as a fixed rate receiver with Party A and into an
offsetting position with party B. All other things being equal, which of the
scenarios below will lead to the greatest increase in the sum of the Credit Value
Adjustments for A and B?
A. upward shift of the swap curve and rating downgrade of party A
B. downward shift of the swap curve and rating downgrade of party A
C.downward shift of the swap curve and rating downgrade of party B
D.downward shift of the swap curve only
58
ANSWER: B. If you are receiving fixed from party A, you will start to show a M-T-M
profit on the swap if interest rates fall ie. If there is a downward shift in the yield
curve. For example, if they are paying you fixed at 5% and the yield curve shifts
down and the fixed rates fall to 4%, you can pay fixed at 4% on a swap and lock in a
profit of 1%. If party A defaults on the swap, you will lose the M-T-M profit. If party A
downgrades, it is also likely that they will default and so you will also lose you M-T-M
profit. If there is a downward shift in the yield curve and party A is downgraded, then
the CVA will be greatest. Remember CVA is a change made to the market value of
an over-the-counter derivative instrument to account for counterparty credit risk. It
represents the discount to the standard derivative value that a buyer would offer after
taking into account the possibility of a counterparty's default. CVA reduces the mark-
to-market value of an asset or a liability by the CVA's amount. CVA = LGDxEADxPD.
59
ACI Dealing Certificate Session 10 Risk Management Assessment questions
SOLUTIONS
1. When dealing with a counterparty, which of the following statements is FALSE

regarding the use of a master agreement?
A. They specify who the parties are that deal on behalf of the organisation
B. They avoid the need for written confirmations
C. Basel committee recommends the use of master agreements
D. They contain netting clauses in the case of a default
Explanation: Answer is B. Although the master agreement does not remove the need
for written confirmations, it does avoid the need to attach a risk disclosure to every
trade. This is usually referred to as ‘long’ confirmation. With a master agreement in
place, confirmations are then ‘short’ in nature and only contain the material terms of
the deal. It is however important for the counterparties to indicate on the confirmation
that it is subject to the ISDA master agreement.
2. Which of the following constitutes the objective of the “FATF” (also known by its
French acronym “GAFI”)?
A. To set standards and promote effective implementation of legal, regulatory and
operational measures for combating money laundering, terrorist financing and
other related threats to the integrity of the international financial system
B. To protect investors, maintain fair, orderly, and efficient markets, and facilitate
capital formation
C. To contribute to the protection and enhancement of stability of the UK financial
system and to reduce the extent to which it is possible for a regulated business
to be used for a purpose connected with financial crime
D. To maintain the professional level of competence and the ethical standards of
loyalty that are indispensable in the development of international relations, and
render mutual assistance so far as possible
Explanation: Answer is A. The model code recommends KYC including the

establishment of the end principal (the person who is the ultimate beneficiary)
to a trade and any issues relating to credit, suspected fraud, terrorist financing,
and money laundering should be done prior to undertaking a transaction.
3. What is the implication of trading with unidentified principals?

A. It prohibits the netting of exposures in bankruptcy
B. It may raise the suspicion of trading on inside information or allegations of other
illegal dealing practices
C. It prohibits the netting of exposures for capital adequacy
D. All of the above
Explanation: Answer is D. The trading with unidentified principals generally occurs

when a fund or agent acts on behalf of investor. The investor is usually someone
unknown to the bank who executes for the fund or the broker. The investor may be
instructing the fund or broker to deal because they are trying to launder money or
they are acting on inside (non-public) information. Because the bank does not know
who the final beneficiaries of the assets are, it cannot net those exposures or recover
assets or net-off in the case of a bankruptcy.
60
4. According to the Model Code, how frequently should business continuity plans
(BCP) be tested?
A. At least once a year
B. At least once a month
C. At least once a quarter
D. At least six-monthly
Explanation: Answer is A. A business continuity plan is essential in providing

uninterrupted business function in key areas of the bank should the normal premises
of the bank be disable for whatever reason. For example, a remote dealing facility
should be available if the existing on-premises dealing room is disabled. Testing can
be done more than once a year but should be done at least once every 12 months.
5. What does the Model Code recommend regarding the length of time that
operations should maintain records of transactions?
A. One year
B. According to the local regulations
C. Five years
D. Record keeping falls outside of the responsibility of the operations division
Explanation: Answer is B. There is no global standard and as such the local

regulations set by each country will dictate the length of record keeping.
6. How often should operational performance indicators be reviewed with senior

management according to the Model Code?
A. No review by senior management is necessary
B. According to volumes traded
C. At least once a year
D. At least monthly
Explanation: Answer is D. The review done of performance indicators such as

operation efficiency are useful in setting targets and reporting on performance.
Senior management should be involved in the process.
7. When calculating regulatory capital for operational risk under Basel II, which of the
following approaches is considered to be the least risk-sensitive?
A. Advanced Measurement Approach
B. Standardized Approach
C. Basic Indicator
D. IRB
Explanation: Answer is C. The Basic Indicator approach is the least risk-sensitive

because it is simply calculated as 15% of the average gross income of a bank over
the last three years. It does not consider the operational riskiness of each individual
sector (the Standardized Approach) in the bank or use sophisticated mathematical
models (the Advanced Measurement Approach) to determine the capital charge.
61
8. Which of the following increases market risk?
A. Increasing dealers limits to trade
B. A failure to follow up on outstanding confirmations
C. An increase in the volatility of the market prices
D. All of the above
Explanation: Answer is D. Although A and C are certainly events or actions that

would cause market risk to increase, failing to follow up on outstanding confirmations
many result in a disputed trade leading to a loss.
9. Which of the following describes the ‘expected shortfall’?

A. The maximum loss on a portfolio
B. VaR for a longer holding period
C. The expected loss when the portfolio value falls below a certain value
D. The expected portfolio loss when the portfolio level is above a certain threshold
Explanation: Answer is C. VaR measured the most that a bank can expect to lose
given a certain confidence level. For example, a USD 10m VaR with 95% confidence
indicates that the loss is expected to be less than USD 10m 95 days out of 100 (19
days out of 20). If the loss in the other 5 days exceeds the USD 10m, VaR does not
indicate how big the loss will be. That is referred to as the expected short fall and is
the loss which takes the value of the portfolio below the impact of the VaR number.
So if the portfolio is worth USD 150m and the VaR is USD 10m then if the portfolio
falls to below USD 140m that would be described as an expected shortfall.
10. When calculating VaR for market risk under the Basel rules, which of the
following is required?
A. A holding period of 1 day with a 95% confidence level
B. A holding period of 10 days with a 99% confidence level
C. A holding period of 1 day with a 99% confidence level
D. A holding period of 10 days with a 95% confidence level
Explanation: Answer is B Basel recommends a 10 day holding period with a 99%

confidence level. They also recommend that at least 12 months of historical data be
used to calculate the VaR.
11. Which of the following should increase the VaR of a portfolio comprising long
positions in several instruments?
A. Higher correlation of returns between the instruments in the portfolio
B. Lower confidence level
C. Lower volatility of returns on the instruments in the portfolio
D. Shorter holding period
Explanation: Answer is A. A high correlation between two instruments means that if

the price of the one instrument moves up the other will also move up by about the
same value or vice versa. If you have two long positions that have high correlation
and the market price falls you will lose money on both positions so your VaR will
increase.
62
12. According to the Model Code, which of the following represents the best guide
for doing mark-to-market on their trading positions?
A. Prices off a snapshot of a Reuters screen
B. Prices calculated by an internal model
C. Historical prices
D. Quoted market prices
Explanation: Answer is D. When doing Mark-to-Market, the rates used should be

sourced independently by the middle office. The rates should be representative of
actual prices of where the instruments are trading in the market at the time that the
revaluation is done. Quoted market prices will be the most relevant. It is also
possible for the bank to use a process called marking-to-model where they use an
internal pricing model to do revaluation.
13. Which of the following would be considered ‘wrong-way’ risk for a bank?
A. The purchase of credit protection on a basket of bonds issued by insurance
companies from an insurance company
B. The forward sale of gold to a mining company
C. The purchase of USD/ZAR from the South African government
D. All of the above
Explanation: Answer is D. All of these situations create a risk where both default risk
and credit risk increase together.
63

ACI Dealing Certificate Session Assessment Questions and Solutions June 2021

Uploaded by

Copyright:

Available Formats

You might also like

ACI Dealing Certificate Session Assessment Questions and Solutions June 2021

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

ACI Dealing Certificate Session Assessment Questions and Solutions June 2021

Uploaded by

Copyright:

Available Formats

ACI DEALING CERTIFICATE

1. From the following GBP deposit rates:

calculate the 3x4 forward-forward rate.

2. From the following AUD rates:

3M AUD (91-day) deposit 2.35%

Calculate the 6-month implied rate.

3. Which is the day/count/annual basis convention for SGD money market

4. A 6-month(182-day) investment of CAD 15,500,000.00 yields a return of CAD

5. According to some textbooks on investment what is the shape of ‘normal’

A. Gently upwards sloping

7. Which of the following gives you the best return?

A. An annual bond market of 4.00%

8. A financial instrument has an annual bond yield of 4.20%. What is the

The customer says,” I give you USD 20 million in the two’s”

A. Borrowed USD 20 million at 5.3125%

3. Which of the following statements about Eurodollar deposits is correct?

6. Which of the following cannot produce a capital gain?

1. What usually happens to the collateral in a tri-party repo?

3. Which of the following market participants would least likely be a user of

4. In case of a default on a repo by the seller:

A. EUR 25 054 401-00

8. A bond is currently trading at 75 basis points special for a 1 week (7 days)

9. The tom/next GC rate for French government bonds is quoted to you as

1. You are quoted the following prices for EUR/GBP:

1. You are quoted the following market rates:

9. The dealing term “my risk” indicates:

A. He is unsure about the presence of current risk

A. Sell and buy USD in the FX swap market

16. You are quoted the following market rates:

20. What is the ISO code for gold?

2. The settlement amount on an FRA is:

5. You have gone long of a 6 x 12 (183 days) FRA at a rate of 4.95%. On

5. A Eurodollar futures price of 99.285 implies:

6. You are short of 20 December Eurodollar futures contracts at 98.75. Yesterday,

8. An interest rate swap is:

10. Another name for a “money market” swap is:

2. A put option is ‘out-of-the-money’ if:

5. An option premium is normally a positive function of:

9. A lenders interest rate floor can be described as:

10. The intrinsic value of a long call option:

11. You option position is currently made up of the following options:

13. An interest rate guarantee (IRG) call is effectively:

14. The delta on a long “in-the-money” call is usually

16. What is the probability of an ‘at-the-money’ option being exercised?

4. Under new Basel rules, what is the meaning of CVA?

5. Which of the following both provide credit enhancement to a true-sale securitization?

6. Which one of the following formulae is correct?

7. Which one of the following statements is incorrect under Basel III?

8. Net funding requirements in liquidity management are determined by means of:

9. The weighted average duration of liabilities can be increased by:

1. When dealing with a counterparty, which of the following statements is FALSE

3. What is the implication of trading with unidentified principals?

6. How often should operational performance indicators be reviewed with senior

A. Advanced Measurement Approach

8. Which of the following increases market risk?

9. Which of the following describes the ‘expected shortfall’?

1. From the following GBP deposit rates: