ACI-Dealing Certificate (2) Set 1

1.

The seller of a put option has:

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

2.

The exercise price in an option contract is:

The price of the underlying instrument at the time of the transaction The price at which the transaction on the underlying instrument will be carried out if and when the option is exercised The price the buyer of the option pays to the seller when entering into the options contract The price at which the two counterparties can close-out their position

3.

An 'at-the-money' option has:

Intrinsic value but no time value Time value but no intrinsic value Both time value and intrinsic value Neither time value nor intrinsic value

4.

The vega of an option is:

The sensitivity of the option value to changes in interest rates The sensitivity of the option value to changes in implied volatility The sensitivity of the option value to changes in the time to expiry The sensitivity of the option value to changes in the price of the underlying

5.

An option is:

The right to buy or sell a commodity at a fixed price The right to buy a commodity at a fixed price The right but not the obligation to buy or sell a commodity at a fixed price The right but not the obligation to buy a commodity at a fixed price

6.

A put option is 'out-of-the-money' if:

Its strike price is higher than the current market price of the underlying commodity If the current market price of the underlying commodity is higher than the strike price of the option Its strike price is equal to the current market price of the underlying commodity If the current market price of the underlying commodity is lower than the strike price of the option

7.

Which of the following transactions would have the effect of lengthening the average duration of assets in the banking book?

buying futures contracts on 30-year German Government bonds selling futures contracts on 30-year German Government bonds buying put options on 30-year German Government bonds buying a 3x6 forward rate agreement

8.

What is a 'duration gap'?

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

9.

Which statement about modern matched-maturity transfer pricing in banks is correct?

It is now a widely accepted standard that banks should use a single representative transfer price across the entire maturity spectrum. Modern matched-maturity pricing systems include an additional liquidity surcharge that is specifically applied to more liquid short maturities. Matched-maturity transfer prices should represent a weighted average cost of capital that incorporates the cost of equity into the cost of borrowed funds. Modern matched-maturity systems differentiate transfer prices by the maturity of the commitment and also apply a marginal funding cost perspective.

10.

Supervisors would generally consider interest rate risk exposure in the banking book excessive beginning at what level of losses given a +1- 200 bps market rate movement?

> 2% of 6 months forward earnings > 20% of regulatory capital <10% of regulatory capital < 5% of 12 months forward earnings

ACI-Dealing Certificate (2) Set 1

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ACI-Dealing Certificate (2) Set 1

Answer & Solution

Answer: Option B

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Congratulations

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