ACI 002-101 - ACI Dealing Certificate New Version Exam Certification Examination Exam

Under Basel III, the Net Stable Funding Ratio (NSFR) is a liquidity standard designed to ensure that banks maintain stable funding over a one-year period.
The NSFR is calculated as:
NSFR = Available Stable Funding (ASF) ÷ Required Stable Funding (RSF)
Where:
ASF (Available Stable Funding): The amount of stable funding available from capital and liabilities.
RSF (Required Stable Funding): The amount of stable funding a bank needs based on the liquidity characteristics and maturity of its assets and off-balance-sheet exposures.
The requirement is:
NSFR ≥ 100%
This means a bank's Available Stable Funding should be at least equal to its Required Stable Funding.
Option Analysis
A. Riskless Stable Funding ❌
"Riskless" is not a Basel III term.
B. Required Stable Funding ✅ Correct
Official Basel III terminology.
C. Riskless Supervised Funding ❌
Not a Basel III concept.
D. Reviewed Supervisory Factor ❌
Not related to the NSFR framework.
Exam Tip
Remember the pair:
ASF = Available Stable Funding
RSF = Required Stable Funding
✅ Correct Answer: B. Required Stable Funding.

Forward points are primarily determined by:

• The interest rate differential between the two currencies.

• The time to maturity of the forward contract.

Although the spot exchange rate is part of the forward rate calculation, changes in the spot rate generally do not materially affect the forward points, except when:

• The movement in the spot rate is very large, and

• The contract has a longer maturity.

Option Analysis

A. Never ❌

• Incorrect. Spot rate changes can have some effect in certain circumstances.

B. Only for very large movements and longer terms ✅ Correct

• This is the accepted market practice and exam answer.

• Under normal conditions, forward points are driven mainly by interest rate differentials, not spot rate fluctuations.

C. Spot is the principal influence ❌

• Incorrect. The principal influence on forward points is the interest rate differential, not the spot rate.

D. Always ❌

• Incorrect. Spot rate changes do not always materially affect forward points.

Exam Tip

Remember:

• Forward Rate = Spot Rate ± Forward Points

• Forward Points ≈ Interest Rate Differential × Time

• Spot rate movements usually have little effect on forward points unless they are very large and over longer maturities.

✅ Correct Answer: B. Only for very large movements and longer terms.

An at-the-money (ATM) option has a strike price equal (or very close) to the current market price of the underlying asset.
At this point:
There is approximately an equal chance that the option will finish in the money (ITM) or out of the money (OTM) at expiration.
Therefore, an ATM option is commonly said to have about a 50% probability of being exercised.
Option Analysis
A. Less than 50% probability ❌
Incorrect. An ATM option is not generally expected to have less than a 50% chance.
B. More than 50% probability ❌
Incorrect. More than 50% would typically apply to an in-the-money option.
C. 50% probability ✅ Correct
An at-the-money option has approximately an equal chance of expiring in or out of the money.
This is why it is often associated with a 50% probability of exercise.
D. Zero probability ❌
Incorrect. An ATM option certainly has a chance of becoming profitable before expiration.
Exam Tip
Remember:
In-the-money (ITM): Probability of exercise > 50%
At-the-money (ATM): Probability of exercise ≈ 50%
Out-of-the-money (OTM): Probability of exercise < 50%
✅ Correct Answer: C. 50% probability.

The dealer wants to buy USD against SGD.
When a bank quotes:
1.4315–20
it means:
Bid = 1.4315
Ask (Offer) = 1.4320
Since the dealer is buying USD, he must pay the ask (offer) rate.
So compare the ask rates of all options:

Option	Quote	Ask (Offer) Rate
A	1.4320–25	1.4325
B	1.4318–23	1.4323
C	1.4315–20	1.4320 ✅
D	1.4323–26	1.4326

The lowest ask rate is 1.4320, so it is the best rate for someone buying USD.
Rule to Remember
Buying the base currency (USD) → Use the Ask/Offer rate → Choose the lowest ask.
Selling the base currency (USD) → Use the Bid rate → Choose the highest bid.

AN upward-sloping yield curve means:
Short-term interest rates are lower.
Long-term interest rates are higher.
Banks typically profit by:
Borrowing short-term (at lower interest rates), and
Lending long-term (at higher interest rates),
earning the difference, known as the net interest margin.
Option Analysis
A. Borrowing long and lending short ✅ Correct
The bank borrows at high long-term rates and lends at low short-term rates.
This creates a negative interest margin, so the bank would not profit.
B. Borrowing short and lending long ❌
This is the traditional profitable banking model when the yield curve slopes upward.
C. Paying a higher rate on deposits than the market ❌
This reduces profitability, but it is not specifically related to the effect of an upward-sloping yield curve.
The key concept tested is the borrowing/lending maturity mismatch.
D. Increasing the bank's leverage ❌
Higher leverage may increase both profits and risks.
It is not the direct reason a bank would fail to profit from an upward-sloping yield curve.
Exam Tip
For an upward-sloping yield curve:
✅ Borrow short → Lend long = Profit
❌ Borrow long → Lend short = Loss / No profit
✅ Correct Answer: A. Borrowing long and lending short.