ACI 3I0-012 - ACI Dealing Certificate

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.

Risk Weighted Assets

Risk Weighted Average

Recovery Weighted Assets

Risk Weighted Adjustments

The maturity mismatch among assets and liabilities denominated in the home and reporting currencies.

The gap between variable and fixed rate assets and liabilities across all currencies.

The sum of all assets in one currency minus the sum of all liabilities in that same currency.

The sum of all off-balance sheet assets in one foreign currency minus the on-balance sheet equity in another currency.

1.2993

1.3023

1.3141

1.4323

It is reasonable for the bank to purchase futures contracts if they expect interest rates to rise.

It is reasonable for the bank to take a long position in anticipation of rising rates.

Losses (or gains) in the value of the cash position can be largely offset by gains (or losses) in the value of the futures position

It is reasonable for the bank to sell futures contracts if it expects interest rates to fall

standard settlement instructions

netting agreement

terms of engagement

master agreement

Treasury bill

Repo against Treasury bill collateral

They have the same yield

Cannot say

if a principal refuses to honour the deal

no conditions are required; the broker is entitled to take positions

only if he can not find another counterparty for a name switching

brokers act only as intermediaries or arrangers of deals

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

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

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.

I buy the base currency at the bid rate.

I buy the base currency at the offer rate.

I buy the counter-currency at the offer rate.

I sell you the base currency at the bid rate,

Loss Given Default

Liquidity Given Distress

Limit Given Default

Loss Given Distress

you should hit the price and hold the bank to the quoted incorrect rate, as the quoted party is entitled to hold the quoting party to an erroneous rate

you should ask the dealer to check his price, as it is highly unethical for one party to hold another to an erroneously agreed rate

you should point out the mistake and split the difference

you should keep on dealing with this bank until the mistake is rectified

Costs more than an ‘in-the-money’ call option

Costs less than an ‘out-of-the-money’ call option

Costs more than an ‘out-of-the-money’ call option

Costs the same as an ‘in-the-money’ put option