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3I0-013 Questions and Answers

Question # 6

Which risk factors fall under counterparty risk?

A.

Currency risk, interest rate risk and swap risk

B.

Settlement risk, delivery risk and replacement cost

C.

Operational risk

D.

Settlement risk and swap risk

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Question # 7

What is a "tick" in the futures markets?

A.

The maximum daily price change permissible on the futures exchange

B.

A temporary suspension of trading at a futures exchange

C.

The initial margin requirements at a futures exchange

D.

The minimum fluctuation in price allowed for a futures contract as specified by the contract terms

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Question # 8

By what means should a financial institution preferably submit SSI changes and notifications to its clients?

A.

E-mail

B.

Fax or letter

C.

MTn99 Swift message

D.

MT670/671 Swift message

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Question # 9

In settling a money market placing between your dealer and a counterparty, what would be the financial consequences of a payment made one day late?

A.

The counterparty would cancel the deal

B.

The bilateral limit with the counterparty would have to be adjusted

C.

The counterparty would demand interest on the late payment

D.

There are no adverse financial consequences

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Question # 10

For the third time in a month, a back office clerk has been questioned by one of his spot FX dealers about back office payment authorization and confirmation procedures. What should he/she do?

A.

He/she should report this to his/her supervisor

B.

He/she should respond to the questions

C.

He/she should avoid the dealer

D.

He/she should refuse to answer the questions

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Question # 11

What is the meaning of settlement (Herstatt) risk?

A.

The risk a payment order will not be processed due to a power failure in which the disaster recovery back-up system fails

B.

Any amount that is due to be received under a contract should be regarded as a settlement risk until final confirmation of receipt is confirmed

C.

The risk that settlement arrangements will be made with the wrong counterparty

D.

The risk of aborting settlement procedures due to the unavailability of back office staff

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Question # 12

What are the main advantages of settling an FX transaction through the CLS Bank?

A.

CLS eliminates foreign exchange risk and thus increases bank profits on FX deals

B.

CLS minimizes the settlement risk

C.

CLS reduces operational banking costs

D.

CLS eliminates the settlement risk but reduces operational efficiency

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Question # 13

Operational efficiency, STP rates, quality and control effectiveness are the main indicators of operational performance. With whom and how often should they be reviewed?

A.

On a monthly basis with senior management and operations

B.

At least monthly with compliance and risk management; on a more frequent and regular basis within operations

C.

Quarterly with senior management and on a monthly basis within operations

D.

At least monthly with senior management and on a more frequent and regular basis within operations

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Question # 14

If the 90-day rate is 3.10% and the 180-day is 3.50%, what is the 120-day rate using straight-line interpolation?

A.

3.20%

B.

3.21%

C.

3.23%

D.

3.30%

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Question # 15

What does LIBOR stand for?

A.

London Interbank Overseas Rate

B.

London Interbank Offered Rate

C.

Lending Interbank Offered Rate

D.

Leading Interbank Offered Rate

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Question # 16

Bank A has a large number of forward OTC trades with Bank B. What risks will be reduced by concluding a netting agreement?

A.

Market-price-risk and replacement risk

B.

Market-price-risk and delivery risk

C.

Replacement risk and delivery risk

D.

Replacement risk and basis risk

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Question # 17

In a scenario where long-term interest rates are higher than short-term interest rates, the yield curve would best be described as:

A.

Flat

B.

Negative or inverse

C.

Positive

D.

Neutral

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Question # 18

What information is essential for an interbank FX confirmation?

A.

Specification of the applicable law

B.

The value date

C.

The brokerage cost

D.

The name of the person(s) originating the deal

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Question # 19

A USD 1,0000,000.00 US Treasury Bill (91 days) is offered at a discount rate of 0.75%. The offer price will be:

A.

USD 1,000,000.00

B.

USD 998,104.17

C.

USD 992,500.00

D.

USD 998,130.14

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Question # 20

As to futures contracts:

A.

The maintenance margin is a predetermined fraction of initial margin

B.

The initial margin is a predetermined fraction of maintenance margin

C.

The maintenance margin represents the brokerage costs

D.

The maintenance margin represents management fees

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Question # 21

Which of the following are considered money market, cash or derivative instruments?

A.

Currency futures

B.

Forward FXs

C.

Currency options

D.

Forward rate agreements (FRA)

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Question # 22

Your FX swap dealer sold and bought 2 months USD/CHF 10,000,000.00; rates were set to 0.9300 against 0.9285. What payment is your bank expecting in two months from now?

A.

CHF 9,300,000.00

B.

CHF 10,770,059.24

C.

CHF 9,285,000.00

D.

USD 10,000,000.00

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Question # 23

What payment system has to be used for all payments involving the Eurosystem?

A.

SWIFT

B.

CHAPS

C.

Euro Link System (ELS)

D.

TARGET2

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Question # 24

Which of the following is required for institutions acting as prime brokers?

A.

They must remain neutral and stay out of disputes between their customers.

B.

They must rely on the execution venue to resolve disputes.

C.

They must delegate the resolution of broken trades downstream to their clients.

D.

They must take responsibility for the swift resolution of any disputes.

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Question # 25

Which of the following statements about the time frame for claims is incorrect?

A.

Claims after 30 days of the actual settlement date need not to be submitted.

B.

Claims should be sent to the counterparty as soon as possible and within 30 days at the latest.

C.

Claims must be sent to the counterparty within 15 days of the actual settlement date,

D.

The maximum time limit for a claim submission is 60 days.

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Question # 26

Which of the following are considered best practices?

A.

Front office and back office should have different management reporting lines

B.

Confirmation discrepancies should be investigated within 48 hours

C.

Confirmations need only be exchanged if the amount involved is higher than USD 1,000,000.00 or equivalent

D.

Money market and FX dealers should have different management reporting lines

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Question # 27

Which of the following types of payment cannot be executed in the United States?

A.

Same day value payment in JPY

B.

Same day value payment in EUR

C.

Value tomorrow payment in AUD

D.

Value tomorrow payment in NZD

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Question # 28

An American-style option is:

A.

An option traded in USD

B.

An option which can be exercised at any time between the purchase and expiration date

C.

An option based on any US dollar instrument

D.

An option which can be exercised only on its expiry date

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Question # 29

What is a nostro bank account?

A.

An account held with another bank

B.

An account another bank holds with you

C.

A trust account

D.

A suspense account

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Question # 30

What is the advantage of instantaneous matching?

A.

It gives the counterparty more time to cancel a deal

B.

It reduces errors and costs

C.

It gives front-office staff more time to process the payment orders

D.

It reduces the number of trades

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Question # 31

Your FX swap dealer bought and sold 1 month GBP/USD 25,000,000,00; rates were set to 1,5305 against 1.5300. What payment is your bank expecting in a month from now?

A.

USD 38,250,000.00

B.

USD 38,262,500.00

C.

GBP 25,000,000.00

D.

USD 16,339,869.28

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Question # 32

You have 10 credited amounts of 1 million each with same value date and same currency. Which of the following items is most helpful in reconciling these amounts?

A.

When the deal was processed is a good indication of the amounts to be reconciled

B.

Each deal is registered according to a unique reference which helps in reconciling the items

C.

The BIC-address helps you to reconcile the open items

D.

None of the above. You should telephone your counterparties to request more information

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Question # 33

In the weekend newspapers you read that one of your FX counterparties has gone into liquidation. You have no netting or close-out agreements in place with this counterparty and remember that you have one forward deal outstanding. What is the main risk affecting your bank?

A.

The loss of the entire principal amount of the deal

B.

The “replacement risk”, also known as “replacement-cost risk”

C.

The loss of the negative mark-to-market value of the deal

D.

As the deal is in the future, there is no impact on P&L

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Question # 34

Which two countries are not participating in TARGET2?

A.

Denmark and Finland

B.

Latvia and Lithuania

C.

The Czeck Republic and the United Kingdom

D.

Bulgaria and Romania

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Question # 35

Why is a failed trade log important?

A.

It helps the risk manager to adjust the limits

B.

It allows the cash positions keeper to retrace the arrival of the funds

C.

It is essential in determining compensation arrangements at a later date

D.

The auditors require these logs for their statistics

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Question # 36

Which SWIFT message type is a nostro cash reconciliation software package based on?

A.

SWIFT MT 300

B.

SWIFT MT 292

C.

SWIFT MT 571 (i.e. a statement of holdings)

D.

SWIFT MT 940 and MT 950 (i.e. a statement of account)

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Question # 37

Sterling Treasury bills can be issued with maturities of:

A.

3 months, 6 months and 9 months

B.

1 month only

C.

Up to 2 years

D.

1 month, 3 months, 6 months and 12 months

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Question # 38

Why should the maturity profile of unreconciled items be frequently reviewed?

A.

It allows the compliance officer to see how often the reconciliation staff has claimed for an outstanding item

B.

It allows management to see what items are pending by value and counterparty, but also how long items have been outstanding and whether there is an improvement in the pace of reconciliations.

C.

It allows reconciliation staff to check the bilateral limits with counterparties and to adjust these limits as necessary

D.

Because the most recent figures have to be published in the balance report

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Question # 39

What is the Bank Identifier Code (BIC)?

A.

A worldwide unique identification code for both financial and non-financial institutions

B.

A unique identification code for European financial institutions

C.

The short form of the IBAN-code

D.

A unique access-code to SWIFT-platforms

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Question # 40

What is a SWIFT message type 210?

A.

A request for financial institution transfer

B.

A general financial institution transfer

C.

A financial institution transfer for its own account

D.

A notice to receive

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Question # 41

Which one of the following statements regarding “single changes to default SSIs” is correct?

A.

The counterparty does not need to be notified about any alterations to original payment instructions or SSIs.

B.

Any alterations to original payment instructions or SSIs are to be agreed to by the relevant parties involved either by fax or e-mail.

C.

Alterations must be agreed to by the parties involved via a written legally binding document or an authenticated confirmation message.

D.

Alterations need to be agreed to by the relevant parties involved and must be verbally confirmed.

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Question # 42

The trade life cycle of a treasury deal starts with input and ends with:

A.

Accounting

B.

Adjustment of bilateral limits

C.

Netting

D.

Nostro reconciliation

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Question # 43

When is the final cut-off time for settlement payment orders using the Fedwire Funds Service?

A.

17:30 (5:30 p.m.) Eastern Time (ET)

B.

18:00 (6:00 p.m.) Eastern Time (ET)

C.

18:30 (6:30 p.m.) Eastern Time (ET)

D.

19:00 (7:00 p.m.) Eastern Time (ET)

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Question # 44

What is the main role of back office staff?

A.

To confirm the accuracy of counterparties' mailing addresses

B.

To inform the central bank when a country limit is higher than a fixed level

C.

To ensure that trades are confirmed and settled correctly in accord with best market practice recommendations

D.

To be in constant contact with the counterparties' front office staff

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Question # 45

Who is responsible for producing the Model Code?

A.

The Federation of Bankers Associations

B.

The International Foreign Exchange Market Practices Committee

C.

The G7 Committee of Central Banks

D.

ACI - The Financial Markets Association

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Question # 46

In the US commercial paper market, commercial paper is limited to:

A.

a 270-day tenor

B.

a 360-day tenor

C.

a 365-day tenor

D.

a 366-day tenor

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Question # 47

Which of the following statements concerning "account reconciliations" is incorrect?

A.

Account reconciliations are necessary for the early detection of missing, failed or erroneous entries.

B.

Custody accounts should be reconciled after each account movement or at least once a month.

C.

Reconciliations related to transactions and balances should only be conducted for cash accounts.

D.

Cash accounts should be reconciled as soon as an updated account statement is available.

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Question # 48

Internal nostro ledger accounts:

A.

Are commonly used to register off-balance sheet movements

B.

Are used to book internal tax related items

C.

Generally mirror the nostro statements

D.

Are reserved for audit and compliance purposes only

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Question # 49

Rising interest rates will cause:

A.

A higher volume on settlement

B.

Government borrowing to fall

C.

Bond prices to rise in response to higher interest rates

D.

Bond prices to fall

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Question # 50

The abbreviation "FRN" stands for:

A.

Fixed rate notional

B.

Forward rate note

C.

Fixed rate note

D.

Floating rate note

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Question # 51

The two main risks to which treasuries are exposed can be grouped into:

A.

Market and loss

B.

Market and money

C.

Market and credit

D.

Market and unavailability

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Question # 52

The calculation method of the foreign exchange rates for value today or for value tomorrow outrights:

A.

Is based on the interest rate differential between the two currencies

B.

Is based on the same calculation method as the forward rate agreements (FRA)

C.

Is based on linear interpolation

D.

Is based on the calculation of compound interest rates

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Question # 53

Which interest convention is used in the bond market for GBP?

A.

ACT/360

B.

ACT/ACT

C.

360/360

D.

ACT/365

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Question # 54

In the event that standard settlement instructions are provided by a third party, full authentication and authorization of those SSIs should be independently performed by?

A.

Sales / trading staff

B.

Operations staff

C.

Nostro staff

D.

Front office staff

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Question # 55

How would you denote that EUR funds are to be paid via TARGET2 on a typical MT 202 message?

A.

There is no need to note this separately as payments via TARGET2 are made only in EUR.

B.

The code word "viaTARGET2" is used in field 72 - "Bank to Bank Information".

C.

7/RT" is indicated once in the optional account number field 56A, 57A or 58A.

D.

The code word "TARGET2" is used in the "Pay To Bank" field.

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Question # 56

Under what circumstances would you have to pay overdraft interest?

A.

If the counterparty's fees are higher than yours

B.

If your nostro account balance at the end of the month is less than the amount of fees paid

C.

If your nostro account shows a debit balance you will be charged overdraft interest on the remaining debit amount.

D.

Overdraft interest is charged if your collateral at the central bank is lower than your cash balance

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Question # 57

When a deal is done via a broker:

A.

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

B.

It should also be confirmed directly between the two counterparties

C.

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

D.

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

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