3I0-012 ACI Dealing Certificate Questions and Answers

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

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

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

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

Higher interest rates

Lower interest rates

Steepening yield curve

Parallel shift downwards in the yield curve

0.8500

0.8506

0.8512

0.8505

Gambling and betting between market participants should be strongly discouraged.

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

Gambling and betting between market participants should be forbidden.

All of the above.

front running

ex ante trading

insider dealing

forward-facing

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

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

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

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

Market participants should strictly adhere to the rules issued by local regulators, supervisors or central banks in order to maintain efficiency and avoid disputes.

Even if local provisions are in place, market participants should only adhere to the ACI best practices of the Model Code in order to maintain efficiency and avoid disputes.

Participants must at all times adhere to the rules issued by local regulators, supervisors or central banks even if these rules or procedures conflict with any provision of an existing written agreement.

Parties may unilaterally decide whether they wish to adhere to the terms of the agreement or to amend the terms of the transaction to follow the relevant procedure.

EUR 27,947,276.43

EUR 27,946,077.08

EUR 27,950,071.43

EUR 27,948,871.97

USD 124,641,442.43

USD 124,636,476.94

USD 124,635,416.67

USD 123,915,737.30

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

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

Sell a 3-month EUR/USD outright forward

Any of the above

Delivery repo

HIC repo

TO-party repo

There is no real difference

CHY

CNR

CHR

CNY

Currency Conversion Factor

Credit Conversion Factor

Credit Contribution Factor

Credit Collateralization Factor

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

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

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

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

4.19%

4.25%

4.30%

4.31%

visit a broker’s dealing room to arrange or confirm deals

visit a broker’s dealing room with the permission of the management of both parties

deal from within a broker’s dealing room with the permission of the broker’s management

place an order with a broker from within the same broker’s office

Sales I trading staff

Operations staff

Nostro staff

Front office staff

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

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

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

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

borrowing short and lending long

borrowing long and lending short

paying a higher rate on deposits than the market

increasing the banks leverage

Receives compensation if a reference interest rate falls below an agreed level

Pays compensation if a reference interest rate falls below an agreed level

Receives compensation if a reference interest rate rises above an agreed level

Pays compensation if a reference interest rate rises above an agreed level

Tier 3 capital requirements held against liquidity risk.

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

Central bank internal management processes regarding open market operations.

The transparent disclosure of illiquid on-balance sheet liabilities.

...only at the discretion of the head of treasury.

...only at the discretion of the head of trading.

...as long a counterparty and issuer limit is in place.

... is not permitted.

You will have to pay USD 5,925.00

You will receive USD 5,925.00

You will have to pay USD 3,675.00

You will receive USD 3,675.00

reserve account and third-party insurance

subordinated tranches and creditworthiness of the originator

creditworthiness of the originator and third-party insurance

reserve account and interest rate hedging

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

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

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

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

positive

changes only when interest rates levels are high

negative

changes only when interest rates levels are low

The transaction should be concluded and the broker should inform both counterparties accordingly.

The dealer who hits the broker’s price may decide whether the deal is done or not; the broker should inform both counterparties accordingly.

The deal should not be concluded and the broker should inform both counterparties accordingly.

The broker should immediately inform both counterparties that the deal will have to berenegotiated.

1.534284

1.534316

1.534287

1.534313

Substantial opportunity for gain and limited risk of loss

Substantial risk of loss and substantial opportunity for gain

Limited risk of loss and limited opportunity for gain

Substantial risk of loss and limited opportunity for gain

only after consultation with the local regulator

only if the switching transaction is done at the current market rate

only provided that such transactions are identified as switching transactions

only after approval by the broker’s senior management

33

42

27

40

selling holdings of 30-year German Government bonds

replacing retail savings accounts with 3-month borrowings under repo

selling futures contracts on 30-year German Government bonds

placing a 20-year covered bond in the market

Long a straight bond + pay fixed on a swap = long a synthetic Floating Rate Note

Long a straight bond + pay floating on a swap = long a synthetic Floating Rate Note

Short a straight bond + receive fixed on a swap = long a synthetic Floating Rate Note

Short a straight bond + pay fixed on a swap = long a synthetic Floating Rate Note

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

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

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

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

7,291,286.91

7,293,946.02

13,710,000.00

13,715,000.00

To anticipate lower volatility in the price of the underlying commodity

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

To anticipate increasing volatility in the price of the underlying commodity

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

Investment funds

Credit institutions and central banks

Corporates

Retail and private customers

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

The amending party should verbally inform the other party.

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

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

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

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

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

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

1.3042-1.30435

1.30405-1.3045

1.30095-1.3011

1.4575- 1.4728

mis-stroke

slip-bid

mis-hit

broken trade

Credit Value Adaption

Call Value Adaption

Credit Value Adjustment

Counterpart Value Adjustment

ProfitofGBP 299.66

Profit of GBP 203.77

LossofGBP299.66

Loss ofGBP 203.77

Positive, steepening

Positive, flattening

Inverted, steepening

Inverted, flattening

Buyer

Seller

Issuer

It depends on the agreement between the buyer and seller

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

The market value of bond collateral at the end of the repo at the dirty price of the bond

The amount of cash actually paid for collateral at the start of the repo

The amount of cash actually paid for collateral at the start of the repo plus repo interest

Profit of CHF 29,750.00

Profit of SEK 29,750.00

Loss of SEK 29,750.00

Loss of CHF 29,750.00

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

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

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

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

The other dealer is bound to reciprocate.

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

The Model Code does not comment on dealing reciprocity.

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

Time stamps on e-trading platforms need to be internally and globally synchronised to ensure appropriate tracking of trades

All records should be archived and appropriate audit trails must be maintained as required by the local Central Bank

Regular tests for loss of access to external liquidity platforms but not loss of service to clients should be undertaken

Testing of the system’s capability to cope with extreme volumes should be carried out annually

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

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

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

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

Reviewed Supervisory Factor

Required Stable Funding

Riskless Stable Funding

Riskless Supervised Funding

Longer rates are lower than short rates

Forward exchange rates are at a discount

Short term rates are lower than long

Forward exchange rates are a premium

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

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

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

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

3.2281%

3.2278%

3.00%

2.875%

installed on secret number known only to the chief dealer

installed and located in the office of the head of compliance

installed and located in such a way that reported transactions cannot be subsequently erased without senior management approval.

securely saved by recordings that have to be stored for at least a twelve-month period

They must be posted with a clear intent to be tradable.

They must be identified as indicative rates only.

They must be posted subject to later credit line approval.

They need not be posted in an appropriate trading style.

South Korea

Sri Lanka

Slovakia

Sweden

JPY 152,090

JPY 152,139

JPY 152,169

JPY 152,217

AnFRA

An option on an FRA

A collar

AnIRS

EUR

JPY

HKD

AUD

When trading in financial products described by the Model Code, dealers and voice brokers need not clarify whether they propose to use standard terms.

Standard terms and conditions should be signed bilaterally by senior management of both principals before any applicable market transactions are entered into.

When using legal agreements any proposed modifications or choices offered in the agreement must be clearly stated as soon as the trade is agreed.

For many instruments, standard master agreements issued by recognized authorities need not be signed by senior management of the principals intending to transact business.

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

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

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

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

interest rate, currency, equity and commodity risk

interest rate, currency, equity and default risk

interest rate, equity, liquidity and default risk

legal, reputation and regulatory risk

USD 252,056,972.97

USD 252,028,916.32

USD 250,000,000.00

USD 248,911,014.31

IDR

RUP

INR

IND

The cost of hedging is given by the forward points, which are equal to the interest rate differential between the two currencies

The high interest rate currency will depreciate

The profit from the appreciation of the high interest rate currency has been hedged away

Interest rates are mean reverting, which means the low interest rate will tend to rise and the high interest rate will tend to fall

a given deposit with a term of six months

a taken deposit with a term of three months

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

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

credit risk

liquidity risk

legal risk

refinancing risk

if you do so when you make the price

provided the amounts are marketable

once you have discovered the name of the counterparty for credit reasons

at anytime

the swap curve is shifting downwards

the swap curve is shifting upwards

swaption volatilities are decreasing

time to expiry is becoming shorter

a 1x2 FRA short position

a 1- against 2-month buy and sell forward/forward FX swap

a 1- against 2-month sell and buy forward/forward FX swap

a 1- against 2-month forward/forward long position

Unilateral collateral obligations to sovereign counterparties provide liquidity to banks.

Under Basel III commercial banks are most likely to incur lower costs to service their sovereign clients.

While banks usually do not call for collateral from sovereign counterparties, they must provide collateral for the offsetting hedge transactions which are undertaken with commercial counterparties.

Uncollateralised exposures to sovereign counterparties will not require additional regulatory capital to be set aside against potential credit losses

a potential buyer of EUR against RUB

speculating on an appreciation of the Russian Rouble

expecting rising EUR/RUB exchange rates

a seller of Russian Rouble

quarterly tests I updates as needed

at least every second year

half-yearly tests / yearly updates

at least yearly

the market supervisor

the national ACI association

the management of such organizations

the central bank

Volume-weighted average overnight EUR deposit rate

Volume-weighted average overnight EUR LIBOR

Arithmetic average overnight EUR deposit rate

ECB overnight lending rate

CAD 2,722.19

CAD 460.00

CAD 3,220.00

CAD 2,760.00

Effective Expected Potential Exposure

Effective Expected Positive Exposure

Effective Expected Price Earning

Effective Expected Payment Exposure

0.7961

1.0864

1.7860

1.2561

It is good practice to collect and disclose incidents and near-misses for the future benefit of the professional community.

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

A report describing operational risks should be made at the request of the front office.

A report describing operational risks should be made at least once a year and provided to the front office.

Treasury bill

CD

Interbank deposit

Classic repo

The need to maintain confidentiality with respect to non-public price sensitive information

The maximum amounts or sizes of trades dealers are allowed to trade for their own account

The instruments/products dealers can trade for their own account

The pledge that no action is taken by employees that might adversely affect the interests of clients or counterparties

a buyer of Argentine Pesos

expecting a falling USD/ARS rate

hedging against a weakening of the Argentine Peso

speculating on an appreciation of the Argentine Peso

4,816,500.00

1,869,158.88

1,868,57677

4,815,000.00

The risk of an adverse change in the futures price

The risk of an adverse change in the spread between futures and cash prices

The progressive illiquidity of a futures contract as it approaches expiry

The risk of a divergence between the futures price and the final fixing of the underlying interest rate

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

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

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

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

Implicit nominal rate

Implied forward rate

Funding rate

Effective future rate

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

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

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

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

Brokers should only show the names of banks to counterparties who have prime credit ratings.

Brokers should only show the names of banks to counterparties who provide good liquidity to the brokered market.

Brokers should only show the names of banks to counterparties whom they know well.

Brokers should only show the names of bank counterparties if both sides display a serious intention to transact

27th August

30th August

31st August

1 September

you would take as bid rate the bid side of the 2-month forward and as offered rate the offered side of the 1-month forward

you would take as bid rate the offered side of the 2-month forward and as offered rate the bid side of the 1-month forward

you would take as bid rate the offered side of the 1-month forward and as offered rate the offered side of the 2-month forward

you would take as bid rate the bid side of the 1-month forward and as offered rate the bid side of the 2-month forward

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

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

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

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

it reduces operational risk

it splits differences arising from failed settlement between the two counterparties

it removes the need for sending out SWIFT confirmations

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

EUR 50,015,416.67

EUR 50,016,219.18

EUR 50,016,444.44

EUR 50,016,958.33

Substantial opportunity for gain and limited risk of loss

Substantial risk of loss and substantial opportunity for gain

Limited risk of loss and limited opportunity for gain

Substantial risk of loss and limited opportunity for gain

1.4340

1.4343

1.4337

1.4335

Traded on the Chicago Mercantile Exchange (CME Group) and have a face value of USD 500,000.00

Traded on the Intercontinental Exchange (ICE) and have a face value of USD 1,000,000.00

Traded on the Intercontinental Exchange (ICE) and have a face value of USD 500,000.00

Traded on the Chicago Mercantile Exchange (CME Group) and have a face value of USD 1,000,000.00

EUR 1,388,89

EUR 1,561.11

EUR 2,255.56

EUR 2,951.39

The 3-month EURODOLLAR futures contract has a basis point value of USD 50.00 and a face value of USD 1,000,000.00

The 3-month EURIBOR futures contract has a a basis point value of EUR 12.50 and a face value of EUR 500,000.00

The 3-month Sterling (SHORT STERLING) futures contract has a a basis point value of GBP 12.50 and a face value of GBP 500,000.00

The 3-month Euro Swiss Franc (EUROSWISS) futures contract has a a basis point value of CHF 50.00 and a face value of CHF 2,000,000.00

Profiles for functions are encouraged and should be reviewed semi-annually by a manager.

Developers should have unrestricted access to production systems.

Access to production systems should be rigorously controlled.

Users should not have access to change system functionalities.

The face value of the CD

More than the face value

Less than the face value

Too little information to decide

ECP

Repo

Interbank deposit

CD

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

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

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

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

A loss of at least EUR 2,000,000.00 can be expected in 97 out of the next 100 days.

A loss of at most EUR 2,000,000.00 can be expected in 3 out of the next 100 days.

A loss of at least EUR 2,000,000.00 can be expected in 3 out of the next 100 days.

A loss of at most EUR 2,000,000.00 can be expected in 6 out of the next 100 days.

the average maturity of liabilities on a balance sheet

the difference between the duration of assets and liabilities

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

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

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

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

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

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

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

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

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

entering into a GBP/USD FX swap

EUR 3,297,004.19

EUR 3,297,005.86

EUR 3,297,025.09

EUR 3,296,985.23

H-15 Index

Prime Rate

Overnight Fed funds

Fed funds effective rate

Bought and sold 3-month EUR/USD through the swap

Sold and bought 3-month EUR/USD through the swap

Made the quote

Cannot say

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

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

reducing the size of the balance sheet

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

it need not be confirmed between the counterparties as the broker confirms it immediately with both counterparties

it should also be confirmed directly between the two counterparties

it is important to note that broker confirmations are bilateral confirmations between the principals of the trade

the dealer should obtain acknowledgement that the deal has been agreed to but may assume agreement to the trade in the absence of such acknowledgement

4.05%

3.891%

3.838%

1.946%

agree, since entertainment is a normal part of business

refer this to senior management

agree but insist on paying half the cost

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

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

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

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

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

US Treasury bill

CD

Interbank deposit

USCP

You pay JPY 440,694

You receive JPY 440,694

You pay JPY 438,882

You receive JPY 438,882

usually the current spot EUR/USD mid-market rate

commonly the prevailing 4-month forward EUR/USD mid-rate

always the forward EUR/USD bid rate of the first swap leg

generally the prevailing 2-month forward EUR/USD mid-rate

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

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

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

the broker decides whether the transaction should be concluded or not

the traded volume

the historical volatility of the price of the underlying commodity

the style (European or American) of the option

the implied volatility of the price of the underlying

Go short of the underlying commodity equal to 50% of the size of the option contract

Go long of the underlying commodity equal to 50% of the size of the option contract

Go long of the underlying commodity equal to the full size of the option contract

Go short of the underlying commodity equal to the full size of the option contract

The buyer

The to-party agent

A third-party guarantor

A central clearing counterparty

added to spot

subtracted from spot

a negative value

Insufficient information to decide

0.8963

1.1157

1.1159

1.1160

7.09%

7.03%

6.90%

6.95%

USD rates are higher than CAD rates in the 6-month

CAD rates are higher than USD rates in the 6-month

There is a positive USD yield curve

There is not enough information to decide

lower correlation of underlying risk factors

a shorter time horizon

a lower confidence level

a higher confidence level

BBA LIBOR

Fed funds

ISDALIBOR

EURIBOR

Less than 50% probability

50% probability

More than 50% probability

Zero probability

1.4206

1.4215

1.4217

1.4225

A written legal agreement between the parties

The oversight of the transaction by the custodian of the collateral

The creditworthiness of the collateral

The right of close-out and set-off in an event of default

The leverage ratio is the ratio of the bank’s Tier 1 Capital to total assets of the bank, excluding its off- balance sheet exposures and derivatives.

The purpose of introducing a leverage ratio is to avoid the build-up of excess leverage that could potentially lead to a “credit crunch” in stressed conditions.

The leverage ratio under Basel III must be higher than 4%.

The leverage ratio is the ratio of the bank’s Tier 1 and Tier 2 Capital to total assets of the bank, including its off-balance sheet exposures and derivatives.

1.4523

1.4526

1.4513

1.4516

Substantial opportunity for gain and limited risk of loss

Substantial risk of loss and substantial opportunity for gain

Limited risk of loss and limited opportunity for gain

Substantial risk of loss and limited opportunity for gain

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

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

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

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

Short USD 1.50 million at 112.60

Short USD 3.50 million at 111.75

Long USD 1.50 million at 111.10

Long USD 3.50 million at 111.55

Nil

A profit of EUR 16,847.58

A loss

A profit of EUR 18,166.05

Credit risk

Market risk

Both of the above

None of the above

Agree in writing with the fund manager that the allocation will be confirmed as soon as practicable after the transaction is executed.

Insist on the allocation being made and confirmed before the transaction is executed.

Agree in writing with the fund manager that he will guarantee the transaction until the allocation is confirmed.

Any of the above.

3.625%

3.285%

3.965%

3.835%

LEP

LBD

LBP

LNP

Loss of GBP 17000

Profit of GBP 17,000

Loss of EUR 17,000

Profit of EUR of 17,000

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

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

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

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

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

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

There is a clearly laFd down policy.

The dealers see no conflict of Interest in such dealing.

Management must ensure ongoing lines of communication are in place between the parties.

Management must report to the central bank.

Management allows only experienced dealers to take such orders.

Bank staff must secure the approval of the counterpartqs management to accept such orders.

+USD 373,599.00

÷USD 186,099.00

-USD 1,400.99

Nil

As you have heard the reports from other parties, you are entitled to pass them on to market news services.

As you have heard the reports from other parties, you are entitled to pass them on to other market participants.

You should not pass any information you know to be false.

You should contradict the reports.

EUR 25,962,011.01

EUR 25,959,714.91

EUR 25,948,878.47

EUR 25,948,648.82

EUR

AUD

Depends on whether the price is being quoted in Europe or Australia

Depends on whether the price is being quoted interbank or to a customer

Suspicious transactions should be reported by the principals.

Brokers need to make staff aware of the problem and exercise vigilance.

A broker should report any suspicions about a transaction to the other counterparty.

Brokers should advise clients to reject the name.

3.410%

3.977%

3.996%

3.997%

The customer understands the structure of the transaction.

The customer has made its own assessment and independent decision to enter into the transaction and is doing so at its own risk and for its own account.

No fiduciary or advisory relationship exists between the parties, and all the information is has received is not to be construed as investment advice or a recommendation to transact.

All of the above.

0.7291-94

0.7294-91

1.3710-15

None of these

It is good practice for compliance, legal or credit functions to identity counterparties before the execution of a deal.

Management should have in place a clearwritten policy and procedures governing such transactions.

Management needs to be aware of the risks involved, particularly with respect to credit exposure and money laundering.

All of the above.

Credit risk

Legal risk

Settlement risk

Basis risk

It is the responsibility of the broking firm to conduct due diligence before transacting a deal.

All principals have the responsibility for assessing the creditworthiness of their counterparties or potential counterparties whether dealing direct or through a broking firm.

The principal is obliged to take into account any information provided by a broker as they are bound by a professional relationship.

All of the above.

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

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

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

(0.0025) for the nearest contract

All of the above

1.73%

1.75%

1.77%

1.80%

A contract to exchange one stream of income payments for another

A temporary exchange of one deposit for another of a longer maturity in the same currency

A forward-forward contract

All of the above

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

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

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

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

Duties and reporting lines.

Systems.

Career paths.

All of the above.

Is not considered good practice.

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

Is accepted for senior dealers.

Is accepted for hedging transactions.

1.6045

1.6047

1.6050

1.6052

You may not be able to ensure that your firm can avoid suspicion of trading on non-public information or other allegations of bad or illegal trading practice.

You may not be able to net your exposure in an insolvency.

You may not be able to net your exposure for capital adequacy purposes.

All of the above.

You should provide all reasonable assistance.

You should report the request immediately to senior management.

Do not get involved; you may be at risk.

There is no recommendation in the Model Code.

Ban them from the dealing room or back office.

State whether they are allowed in the dealing room and back office, and can be used.

Ban their use in the dealing room or back office.

Restrict their use to senior management and authorised out-of-hours trading and sales staff.

Risk Weighted Assets

Risk Weighted Average

Recovery Weighted Assets

Risk Weighted Adjustments

Nostro reconciliations, the Cash Management Department and Operations

Front Office, the Cash Management Department and Operations

Front Office, Nostro reconciliations and Operations

Front Office, Nostro reconciliations and the Cash Management Department

0.25%

0.375%

0.75%

0.50%

Margin maintenance

Re-pricing

Margin maintenance or re-pricing, but usually margin maintenance

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

When one of the principals confirms the deal

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

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

When both back offices acknowledge the deal

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

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

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

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

the market amount for which the quote is valid

the acknowledgement by the broker that he may be stuffed

the acknowledgement by the dealer receiving the quote that the rate may have to be re-quoted

the quoting dealer cautions the receiver of the quote that the price may have to be re-quoted at the receiver’s risk

increase the maturity of its liabilities

reduce the maturity of its asset portfolio

runazerogap

lengthen the maturity of its asset portfolio

Hedging a long bond position with payer’s swap involves basis risk

Hedging the credit risk of an asset swap package with a credit default swap has no basis risk

Basis risk is a result only of maturity mismatches

Basis risk is a result only of duration mismatches.

claims of less than USD 100.00

claims of less than USD 1,000.00

claims of less than EUR 100.00

claims of less than EUR 1,000.00

6.5825

6.5820

6.5815

6.5830

bilaterally cleared ABS trades only

exchange traded derivatives only

derivatives cleared via a CCP

bilaterally settled OTC derivatives trades

Raise USD interest rates

Lower USD interest rates

Lower reserve requirements

It could not squeeze you

Between +0.5 and +1

+0.5

Between 0 and +0.5

Zero

Loss Given Default

Liquidity Given Distress

Limit Given Default

Loss Given Distress

12-month AUD rates are higher than 12-month NZD rates

12-month AUD rates are lower than 12-month NZD rates

Spot AUD/NZD will be higher by approximately 50 points in 12 months

The AUD yield curve is positive, whilst the NZD curve is negative

1.2993

1.3023

1.3141

1.4323

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

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

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

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

the trade is not within the specified tenor limits

the trade is not within the specified credit limits

the trade details provided by the executing dealer and the client match

the trade is a permitted transaction type as specified in the give-up agreement with the executing dealer

15

20

35

40

CLS settlement members may rescind instructions unilaterally provided that the rescind messages reach the CLS Bank before the 00:00 CET deadline.

CLS settlement members may rescind instructions unilaterally provided that the rescind messages reach the CLS Bank before the 06:30 CET deadline.

CLS settlement members may rescind instructions bilaterally only if the rescind messages reach the CLS Bank before the 00:00 CET deadline.

CLS settlement members may rescind instructions bilaterally only if the rescind messages reach the CLS Bank after the 06:30 CET deadline.

0%

15%

20%

75%

Replacement risk

Settlement risk

Legal risk

Basis risk

same way”

me too”

“par”, or “parity”

“join at”, or “support at”

The interest rates of the two currencies

The spot exchange rate

Thedaycount

Market expectation

In the case of short date deposits, if the borrower is not prepared to repay the deposit prior to notice of receipt of the funds from the correspondent bank.

The borrower has no lending line for the placer of the funds and does not wish to be embarrassed by being unable to reciprocate.

If he secures a better rate elsewhere.

The borrower would be in breach of internal or regulatory depositor concentration limitations.

Yes, it is allowed for sporting events.

Yes, it is allowed if no money is involved.

Although not prohibited, it is strongly discouraged.

It is allowed for purposes of charity.

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

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

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

aFXswap

an in/out swap

a currency swap

a quanto swap

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

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

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

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

In their function as intermediaries, banks must necessarily accept some degree of interest rate risk.

Banks incur interest rate risk to increase income

Banks prefer c red it risk to market risk.

If banks failed to take on interest rate risk they would not be able to meet the needs of their deposit and loan customers.

Receives compensation if a reference interest rate falls below an agreed level

Pays compensation if a reference interest rate falls below an agreed level

Receives compensation if a reference interest rate rises above an agreed level

Pays compensation if a reference interest rate rises above an agreed level

Sell

Sell and subsequently buy back

Sell and borrow

Sell, borrow and buy back simultaneously

The confirmation takes precedence as it is a written contract.

The matter will have to be submitted to arbitration in order to establish the mutual intent of the parties.

It depends on local law.

The verbal agreement is binding.

79.995

79.965

79.895

79.865

The dealer should not reveal his future dealing intentions to his counterparty.

The dealer should make his intention to assign clear before transacting.

The dealer should agree the method of assignment before transacting.

The counterparty should specify whether or not assignment would be acceptable in negotiations.

Sending settlement instructions

Investigating settlement discrepancies

Keeping a contact list of all back office staff of the bank’s counterparties

Exchanging standard settlement instructions (SSIs)

GBP 10,000

EUR 10,000

GBP 6,990

EUR 6,990

0.008520

0.009510

0.009515

0.009518

You receive USD 12,330.46

You pay USD 12,330.46

You pay USD 12,163.81

You receive USD 12,163.81

overnight, tom-next and spot-next

maturities up to one week

maturity dates of less than one month

maturity dates of less than 10 days

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

Bought EUR/USD spot and sold EUR/USD forward

Taken a EUR loan in exchange for making a USD loan with the same counterparly

All of the above

Profit of JPY 340.000

Profit of JPY 1.500,000

Loss of JPY 340.000

LossofJPV 500.000

enable the parties to comply with any capital adequacy requirements

provide for the absolute transfer of title to securities

provide for the calculation of initial consideration of the repo transaction

detail the course of action in the case of defaults, for example the rights and obligations of the counterparties and the full set-off of claims between the parties

To reduce the number and size of payments and transfers

To reduce exposure to credit risk

To reduce the size of the balance sheet

All of the above

Within 24 hours of the deal.

Within two business days of the deal.

Before the value date.

As soon as possible.

Your account at another bank

A foreign bank’s account in your bank in your domestic currency

An account in your bank used for internal transactions

A customer’s account at your bank

a five-year liability and a three-month asset

a five-year asset and a three-month liability

a five-year asset only

a three-month liability only

Every 6 months

Yearly

Whenever the BCP procedures are changed

Every 3 months

Technically impossible on electronic platforms

Not an uncommon practice and something which professional dealers should be able to guard against.

Not good practice.

A criminal offence.

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

as a taken deposit with a term of one month

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

as a given deposit with a term of four months

Immediately after the deal is done.

As quickly as possible after the deal is done.

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

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