Diploma in Treasury and Risk Management -2021
Practice Questions
Time Value of Money
1. Suppose you are considering purchasing a financial asset that promises to pay Rs
10,000 per year for five years, with the first payment one year from now. The required
rate of return is 9 percent per year. How much should you pay for the asset?
2. You are retiring today and must choose to take your retirement benefits either as a
lump sum or as an annuity. You are given two alternatives: an immediate lump sum of
Rs 2,000,000 or an annuity with 20 payments of Rs 200,000 a year with the first
payment starting today. The interest rate is 8 percent per year compounded annually.
Assume no tax in either case. Which option has the greatest present value?
3. A pension fund manager anticipates that benefits of Rs 1 million per year must be
paid to retirees. Retirements will not occur until 10 years from now. Once benefits
begin to be paid, they will extend for a total of 30 payments. What is the present value
of the pension liability if the appropriate annual discount rate for plan liabilities is 5
percent compounded annually?
4. Consider a level perpetuity of Rs 10,000 per year with its first payment beginning at
t=10. What is the present value today given a 8 percent discount rate?
5. A couple plans to set aside Rs 20,000 per year in a portfolio to ear 7 percent a year. If
they make their first savings contribution one year from now, how much will they
have at the end of 20 years?
6. To cover the first year’s total college tuition payments for his two children, a father
will make Rs 75,000 payment three years from now. How much will he need to invest
today to meet his first tuition goal if the investment earns 8 percent annually?
7. A client invest Rs 200,000 in a four year certificate of deposit that annually pays
interest of 12.5%. The annual CD interest payments are automatically reinvested in a
separate savings account at a stated annual interest rate of 7% compounded monthly.
What is the value of the combined asset at maturity?
8. A depositor deposits the following amounts in an account paying a stated annual rate
of 5%, compounded semi-annually.
Year 1 2 3 4
End of year deposit (Rs) 6,000 4,500 8,000 9,000
What is the balance in his account at the end of 5 years period?
9. A perpetual preferred stock makes its first quarterly dividend payment of Rs 20.00 in
five quarters. If the required annual rate of return is 12% compounded quarterly, what
is the current value of the stock?
10. A bank quotes a stated annual interest rate of 4%. If that rate is equal to an effective
annual rate of 4.08%, then what is the compounding frequency used by the bank?
Fixed Income
1. Other things being equal, which of the following bonds would show the largest relative
price increase given the same downward shift in the yield curve?
A. a zero coupon bond
B. a low coupon bond
C. a high coupon bond
D. a junk bond
2. What is the Modified Duration of a 2-year 3.75% semi-annual bond yielding 4.10%?
A. 1.84%
B. 1.91%
C. 1.79%
D. 1.95%
3. A USD Eurobond is issued at par. The face value is USD 1,000,000 and the coupon is
5%. What will be the consideration at issue?
A. 1,050,000
B. 1,000,000
C. 950,000
D. too little information to say
4. A bond which has a price below par is referred to as
A. A discount bond
B. A premium bond
C. A par plus bond
D. A FRN
5. If the coupon of a bond is equal to the required or market yield then the bond can be
described as
A. A discount bond
B. A premium bond
C. A par bond
D. A FRN
6. The clean price on a bond describes
A. the price at which bonds trade in some markets
B. the dirty price adjusted for accrued interest
C. a reflection of market yields for bonds of a certain maturity
D. all of the above
7. What is the definition of the ‘dirty price’ of a security?
A. Same as ‘clean price’
B. Clean price plus a margin
C. Clean price plus accrued interest to date
D. None of these
8. Your dealer buys $ 5,000,000 10-year zero coupon bonds with a YTM of 5%. How
much interest do you get at the end of year 5?
A. USD 2,500
B. USD 250,000
C. USD 0
D. USD 1,930,434
9. The price of a zero coupon, maturing in 2 years, is
A. always close to 100 %
B. above 100 %
C. below 100 %
D. None of these
10. A bond has a par value of Rs.5,000 and a coupon rate of 8.5% payable semi-annually.
What is the rupee amount of the semi-annual coupon payment?
A. Rs. 212.50
B. Rs. 238.33
C. Rs. 425.00
11. An investor paid a full price of $1,059.04 each for 100 bonds. The purchase was
between coupon dates, and accrued interest was $23.54 per bond. What is each bond’s
clean price?
A. $1,000
B. $1,035.50
C. $1,082.58
12. A bond with a 7.3% yield has a duration of 5.4 and is trading at Rs. 985. If the yield
decreases to 7.1%, the new bond price is closest to:
A. Rs.974.40
B. Rs.995.60
C. Rs.1,091.40
13. Which of the following 5-year bonds has the greatest interest rate risk?
A. A floating rate bond.
B. A zero coupon bond.
C. A 5% fixed coupon bond.
14. Under the pure expectation theory, an inverted yield curve is interpreted as evidence
that:
A. demand for long term bonds is falling.
B. short-term rates are expected to fall in the future.
C. investors have very little demand for liquidity.
15. An analyst observes a 5-year, 10% semi-annual pay bond. The face value is $1,000.
The analyst believes that the yield to maturity for this bond should be 15%. Based on
this yield estimate, the price of this bond would be:
A. $828.40
B. $1,189.53
C. $1,193.04
16. An analyst observes a bond with annual coupon that’s being priced to yield 6.35%.
What is this issue’s bond equivalent yield?
A. 3.175%
B. 3.126%
C. 6.252%
17. The 4-year spot rate is 9.45%, and the 3-year spot rate is 9.85%. What is the 1-year
forward rate three years from today?
A. 8.258%
B. 9.85%
C. 11.059%
18. The yield to maturity on 6-month and 1-year T-bills are 2.8% and 3.2%, respectively. A
1.5-year, 4% Treasury note is selling at par. What is the 18-month Treasury spot rate?
(Answer: 4.02%)
19. The 4.65% semi-annual pay bond has exactly 17 years to maturity and is currently
priced to yield 4.39%. Using the full valuation approach, the interest rate exposure (in
percentage of value) for these bonds, given a 75 basis point increase in required yield,
is closest to:
A. -9.104%
B. -9.031%
C. -8.344%
20. A 14% semiannual-pay coupon bond has six years to maturity. The bond is currently
trading at par. Using a 25 basis point change in yield, the effective duration of the bond
is closest to:
A. 0.389
B. 3.889
C. 3.970
21. The modified duration of a bond is 7.87. The percentage change in price using duration
for a yield decrease of 110 basis points is closest to:
A. -8.657%
B. -7.155%
C. +8.657%
22. A bond has a convexity of 114.6. The convexity effect if the yield decreases by 110
basis points is closest to:
A. -1.673%
B. +0.693%
C. +1.673%
23. Assume a bond has an effective duration of 10.5 and convexity of 194.6. Using both of
these measures, the estimated percentage change in price for this bond, in response to a
decline in yield of 200 basis points, is closest to:
A. 19.05%
B. 22.95%
C. 24.89%
24. The effect on a bond portfolio’s value of a decrease in yield would be most accurately
estimated by using:
A. the full valuation approach
B. the price value of a basis point (PVBP)
C. both the portfolio’s duration and convexity
25. Suppose you have a two-security portfolio containing bonds A and B. The book value
of bond A is $20 and the market value is $35. The book value of bond B is $40 and the
market value is $50. The duration of bond A is 4.7 and the duration of bond B is 5.9.
Which of the following amounts is closest to the duration of the portfolio?
A. 5.4.
B. 5.6.
C. 5.3.
D. 5.5.
Money Market
1. Your dealer buys 90 day Treasuries at a discount rate of 3.91%. The face amount is
USD 10,000,000. What would pay when settling for them?
A. More than 10,000,000
B. USD 10,000,000
C. Less than 10,000,000
D. Too little information to decide
2. You invest USD 1 million and receive USD 25,000 interest at maturity after 180 days.
At what interest rate did you invest the money?
A. 25%
B. 5%
C. 2.5%
D. 10%
3. The equivalent true yield of a discount rate is
A. the same as the discount rate
B. always lower than the discount rate
C. always higher than the discount rate
D. depends on what the discount rate is
4. A customer borrows from your bank when the market rate is 3.1/8 %. You add 50 basis
points to the rate. What rate does your client pay?
A. 3.62%
B. 3.5/8%
C. 2.6/8%
D. 8.1/8%
5. What is the day count basis convention for a Euro deposit for 5 days?
6. Invest USD 5,000,000 at 2.5% for 273 days. What is the interest amount due?
7. You invest GBP 1,000,000 at 3.5% for 180 days. What do you receive back (capital and
interest) at maturity?
8. You invest EUR at 2.75% for 60 days and receive 1,025,000 back at maturity. What
amount of EUR did you originally invest?
9. You received EUR 75000 as interest on EUR 5,000,000 invested for 180 days. What
yield did you receive on your investment?
10. An investor places Rs. 4,000 on a deposit at an interest rate of 6%p.a. Compounded
monthly. How much will he receive in 2 years time?
11. An investor needs Rs.10,000 in 5 years time. If he earns an interest rate of 10%
compounded semi-annually, how much must he invest today?
12. What will the maturity date be for a 2 month GBP deposit starting on Monday, 30 June
2008?
a) Friday, 29 August 2008
b) Saturday, 30 August 2008
c) Sunday, 31 August 2008
d) Monday, 1 September 2008
13. You place an overnight deposit of GBP 15,000,000 on Friday 18 January 2011 at a rate
of 5.1%. How much of interest will you earn on this deposit?
14. A US security yields 7% of an annually compounded bond basis. What is a equivalent
annually compounded money market yield?
15. Which of the following is always a secured instrument?
a) Commercial Paper
b) Repo
c) Interbank deposit
d) CD
16. Which of the following are quoted in terms of a yield basis?
a) CD
b) Treasury bill
c) Bankers Acceptances
d) Commercial Paper
17. If the value of the collateral in a repo has fallen during the term of the transaction, who
suffers the loss?
18. What functions does a tri-party repo agent perform?
a) It checks the eligibility and sufficiency of collateral
b) It imposes an initial margin on behalf of the buyer and manages margin calls
c) It manages substitution of collateral on behalf of the seller
d) All of the above
19. A 7% CD was issued recently, at par, which you now purchase at 6.75%. You would
expect to pay:
a) The face value of the CD
b) More than the face value of the CD
c) Less than the face value of the CD
d) Too little information to decide
20. Calculate the repayment amount of the following repo: You have been quoted 3.75/90
for a one day repo and you agree to reverse in bonds with a current market value of
EUR11,075,500. No haircut required.
21. You have been quoted a rate of 4.2% for a 31 day repo. You agree to do the repo and
sell securities worth EUR 25,215,000. The buyer insists on a haircut of 1%. What is the
amount to be repaid at the termination of the repo?
Derivatives
1. You are expecting a steepening of the yield curve. Which of the following would be the
most logical low-risk strategy?
A. sell a 3x6 FRA and sell a 6x9 FRA
B. buy a 3x6 FRA and buy a 6x9 FRA
C. buy a 3x6 FRA and sell a 6x9 FRA
D. sell a 3x6 FRA and buy a 6x9 FRA
2. In a Currency Swap, which ONE of the following exchange rates is used to calculate
the final interest amount and capital?
A. Same rate as agreed at inception of Swap
B. The spot rate applying two days before payment date
C. The spot rate applying on the payment date
D. None of these
3. Today is the fixing day for 6x9 FRA which you sold at 5.5% for which the LIBOR is
6.0%. Which of the following is true?
A. You will pay the counterparty
B. Your counterparty will pay you
C. There will be no exchange whatsoever
D. Too little information to decide
4. An American Style Option is:-
A. An option type which is settled by comparing the strike rate with the average rate
over the option period.
B. An option type which can be exercised at any point during its life.
C. An option type with premium payable on its expiry date.
D. An option type which can be exercised only at maturity.
5. What is normally meant by the tick value in the financial futures?
A. The maximum amount that a contract can change in price
B. 1% of a contracts value
C. The minimum permissible change in a contract price
D. The minimum size of contract.
6. A 3x6 (90 day) USD 50 million FRA done at 6.25% 3 months ago is fixing today.
LIBOR fixings: 3-month LIBOR 6.35%, 6-month LIBOR 6.45%, 9-month LIBOR
6.50%. What is the settlement amount and who pays?
A. 12,500 paid by the buyer
B. 25,000 paid by the seller
C. 12,304.66 paid by the seller
D. 24,603.27 paid by the buyer
7. What is the definition of intrinsic value?
A. The difference between the strike price and the market price
B. The difference between the premium cost and the current market value
C. The difference between the strike price and the market price – if the option is in a
profit
D. None of these
8. Which of the following most accurately describes a derivative security? A derivative:
A. always increases risk.
B. has no expiration date.
C. has a payoff based on another asset.
9. Which of the following statements about exchange-traded derivatives is least accurate?
A. They are liquid.
B. They are standardized contracts.
C. They carry significant default risk.
10. A swap is:
A. highly regulated.
B. a series of forward contracts.
C. the exchange of one asset for another.
11. A call option gives the holder:
A. the right to sell at a specific price.
B. the right to buy at a specific price.
C. an obligation to sell at a certain price.
12. The short in a deliverable forward contract:
A. has no default risk.
B. is obligated to deliver the specified asset.
C. makes a cash payment to the long at settlement
13. Consider a $2 million FRA with a contract rate of 5% on 60-day LIBOR. If 60-day
LBOR is 6.0% at settlement, the long will:
A. pay $3,333
B. receive $3,300
C. receive $3,333
14. A company treasurer needs to borrow $10 million euros for 180 days, 60 days from
now. The type of the FRA and position he should take to hedge the interest rate risk of
this transaction are:
FRA Position
A. 2x6 Short
B. 2x8 Long
C. 2x8 Short
15. Which of the following statements about futures markets is least accurate?
A. Hedgers trade to reduce some pre-existing risk exposure.
B. The clearinghouse guarantees that traders in the futures market will honor their
obligations.
C. If an account rises to or exceeds the maintenance margin, the trader must deposit
variation margin.
16. A trader buys (takes a long position in) a Eurodollar futures contract ($ 1 million face
value) at 98.14 and closes it out at a price of 98.27. On this contract, the trader has:
A. lost $325
B. gained $325
C. gained $1,300
17. Compared to forward contracts, futures contracts are least likely to be:
A. Standardized
B. larger in size
C. less subject default risk
18. Which of the following statements about moneyness is least accurate? When:
A. S-X is >0, a call option is in the money.
B. S-X = 0, a call option is at the money.
C. S>X, a put option is in the money.
19. Which of the following statements about American and European options is most
accurate?
A. There will always be some price difference between American and European options
because of exchange rate risk.
B. European options allow for exercise on or before the option expiration date.
C. Prior to expiration, an American option may have a higher value than an equivalent
European option.
20. Which of the following statements about put and call options is least accurate?
A. The price of the option is less volatile than the price of the underlying stock?
B. Option prices are generally higher the longer the time until the option expires.
C. For put options, the higher the strike price relative to the stock’s underlying price,
the more the put is worth.
21. Which of the following statements about options is most accurate?
A. The writer of the put option has the obligation to sell the asset to the holder of the
put option.
B. The holder of the call option has the obligation to sell to the option writer if the
stock’s price rises above the strike price.
C. The holder of the put option has the right to sell to the writer of the option.
22 A decrease in the risk-free rate of interest will:
A. increase put and call prices
B. decrease put prices and increase call prices.
C. increase put prices and decrease call prices
23. A $40 call on a stock trading at $43 is priced at $5. The time value of the option is:
A. $2
B. $5
C. $8
24. The owner of a call option on oil futures with a strike price of $68.70:
A. can exercise the option and take delivery of the oil.
B. can exercise the option and take a long position in oil futures.
C. would never exercise the option when the spot price of oil is less than the strike
price.
25. Which of the followings will increase the value of a put option?
A. An increase in volatility.
B. A decrease in the exercise price.
C. A decrease in time to expiration.
26. Which of the following statements about swaps is least likely correct?
A. In an interest rate swap, the notional principal is swapped.
B. The default problem is the most important limitation to the swap market.
C. In a plain vanilla interest rate swap, fixed rates are traded for variable rates.
27. Which of the following statements about swaps is least likely correct?
A. The time frame of a swap is called its tenor.
B. In a currency swap, only net interest payments are made.
C. In a currency swap, the notional principal is actually swapped twice, once at the
beginning of the swap and again at the termination of the swap.
Use the following data to answer Questions 28 through 31.
Consider a 3-year annual currency swap that takes place between a foreign firm (FF) with FC
currency units and a U.S. Firm (USF) with $ currency units. USF is the fixed-rate payer and
FF is the floating rate payer. The fixed interest rate at the initiation of the swap is 7%, and 8%
at the end of the swap. The variable rate is 5% currently; 6% at the end of year 1; 8% at the
end of year 2; and 7% at the end of year 3. At the beginning of the swap, $1.0 million is
exchanged at an exchange rate of FC2.0 = $[Link] the end of the swap period, the exchange
rate is FC 1.5 = $1.0.
28. At the initiation of the swap, which of the following statements is most likely correct?
A. FF gives USF $1.0 million.
B. USF gives FF $1.0 million.
C. USF gives FF FC2.0 million.
29. At the end of year 2:
A. USF pays FC 140,000; FF pays $60,000.
B. USF pays FC 60,000; FF pays $70,000.
C. USF pays USD 70,000; FF pays FC60,000.
30. At the termination of the swap, FF gives USF which of the following notional amounts?
A. $1 million.
B. FC 2,000,000.
C. FC 1,500,000.
31. At the end of year 3, FF will pay which of the following total amounts?
A. $1,080,000.
B. $1,070,000.
C. FC 2,160,00.
32. A call option sells at $4 on a $25 stock with a strike price of $30. Which of the
following statements is least accurate?
A. At expiration, the buyer of the call will not make a profit unless the stock’s price
exceeds $30.
B. At expiration, the writer of the call will only experience a net loss if the price of the
stock exceeds $34.
C. A covered call position at these prices has a maximum gain of $9 and the maximum
loss of the price less the premium.
33. An investor buys a put on a stock selling for $60, with a strike price of $55 for a $5
premium. The maximum gain is:
A. $50
B. $55
C. $60
34. Which of the following is the riskiest single-option transaction?
A. Writing a call
B. Buying a put
C. Writing a put
35. An investor is likely exercise a put option when the price of the stock is:
A. above the strike price
B. below the strike price plus the premium
C. below the strike price.
36. A put with a strike price of $75 sells for $10. Which of the following statements is least
accurate? The greatest:
A. profit the writer of the put option can make is $10.
B. profit the buyer of the put option make is $65.
C. loss the writer of the put option can have is $75.
37. At expiration, value of a call option must equal:
A. the larger of the strike price less the stock price.
B. The stock price minus the strike price, or arbitrage will occur.
C. the larger of zero, or the stock’s price less the strike price.
38. A financial instrument that has payoffs based on the price of an underlying physical or
financial asset is a(n):
A. derivative security
B. future
C. option
39. An agreement that gives the holder the right, but not the obligation, to sell as asset at a
specified price on a specific future date is
A. a put option
B. a call option
C. a swap
40. A European option can be exercised by:
A. its owner, only at the expiration if the contract.
B. its owner, anytime during the term of the contract.
C. either party, at contract expiration.
41. Which of the following represents a long position in an option?
A. writing a call option.
B. Buying a put option.
C. Writing a put option.
42. Which of the following definitions involving derivatives is least accurate?
A. A call option gives the owner the write to sell the underlying asset at a specific price
for a specified time period.
B. An arbitrage opportunity is the chance to make a riskless profit with no investment.
C. An option writer is the seller of an option.
43. A call option that is in the money:
A. has a value greater than its purchase price.
B. has an exercise price less than the market price of the asset.
C. has an exercise price greater than the market price of the asset.
44. At expiration, the value of a call option is the greater of zero or the:
A. exercise price minus the exercise value.
B. underlying asset price minus the exercise value.
C. underlying asset price minus the exercise price.
45. An option’s intrinsic value is equal to the amount of the option is:
A. out of the money, and the time value is the market value minus the intrinsic value.
B. in the money, and the time value is the market value minus the intrinsic value.
C. in the money, and the time value is the intrinsic value minus the market value.
46. Which of the following statements about moneyness is most accurate? When the stock
price is:
A. above the strike price, a put option is out-of-the money.
B. above the strike price, a put option is in-the-money.
C. below the strike price, a call option is in-the-money.
47. What does it mean to go short a future?
A. Taking a position to buy.
B. Having sufficient derivatives.
C. Taking a position to sell.
D. Lacking the derivative entirely.
48. The maximum risk of selling a futures contract is:
A. Limited to the contract price.
B. Limited to the initial margin deposit.
C. Limited to the tick value.
D. Unlimited.
49. Which one of the following is the best definition of basis?
A. The difference between the strike price and the current market price of the
underlying asset of an option.
B. The difference between the future’s price and the cash price, when the latter is
greater.
C. The difference between the price of a future and an option on the same underlying
asset.
D. The difference between the future’s price and the cash price of the underlying asset.
50. Which one of the following is the best description of ‘volume’ in relation to the trading
of derivatives?
A. A figure given in a contract for the quantity of the underlying.
B. A limit placed on contract size imposed by the exchange.
C. A document stating the number of contracts in a given trade.
D. A running total number of contracts sold that day.
Foreign Exchange
1. Which ONE of the following would you settle if your traders sold EUR 10,000,000 at
1.3025?
A Receive USD 10,000,000
B Pay EUR 1,302,500
C Pay USD 10,000,000
D None of these
2. What determines whether a currency trades at a discount or premium on the forward
points?
A. the level of the spot
B. the maturity date
C. the interest differential
D. the market expectation about the future spot
3. The forward points represent the
A. difference between the current spot and the expected forward rate at the maturity of
the forward deal.
B. interest rate differential of the two currencies for the period of the deal
C. interest rate of the base currency as a percentage of the spot for the period of the deal
D. spot plus a fixed percentage
4. Spot USDJPY is 105.20/30 and four month forward points are 48/43. Are:
a. USD rates higher than JPY rates
b. JPY rates higher than USD
c. USD rates the same as JPY
d. USD yield curve inverted
5. You want to make a spot USD JPY price to a customer. You believe he is a buyer of JPY.
What is the most profitable price for you?
a. 104.25/35
b. 104.50/50
c. 104.45/55
d. 104.60/70
6. Spot EURUSD is quoted at 1.3555-60 and spot GBPUSD at 1.6475-80. What is the
EURGBP cross-rate?
a. 1.2150-58
b. 0.8227-28
c. 0.8225-30
d. 1.2154-53
7. A dealer makes the following spot EURUSD transactions:
Buy EUR 10,000,000 at 1.3650
Buy EUR 25,000,000 at 1.3675
Sell EUR 20,000,000 at 1.3690
If the end-of-day revaluation rate is 1.3655, what is his profit or loss?
a. USD 25,000 profit
b. USD 44.286 loss
c. USD 44,286 profit
d. USD 25,000 loss
8. You need to buy USD 5,000,000 against the GBP and receive two quotes from different
banks: 1.6344/49 and 1.6348/53. At which rate would you trade?
a. 1.6344
b. 1.6348
c. 1.6349
d. 1.6353
9. You quote a price to a counterparty EURUSD 1.3250/60. They say “10 mine”. You have:
a. Sold USD 10m at 1.3260
b. Bought USD 10m at 1.3250
c. Sold EUR 10m at 1.3260
10. You purchase USD 5,000,000 against the CHF at 1.6500. At close of trade the market is
trading at 1.6515/20. What will your profit/loss be if you can square your position off at
this rate?
a. profit of 15 points on USD 5,000,000
b. profit of 20 points on USD 5,000,000
c. loss of 15 points on USD 5,000,000
d. loss of 20 points on USD 5,000,000
11. If you are quoted USDCHF spot rate of 1.5770/75 and a 3-month forward outright of
1.5970/75, what would this imply?
a. USD interest rates are higher than CHF
b. CHF interest rates are higher than USD
c. The USD and CHF interest rates are the same
d. not enough information provided to decide
12. If 3 month forward USD/LKR is quoted as 320/325 points and the LKR interest rates fall
by 0.50%, then which of the following would you expect to happen?
a. the forward points would increase
b. the forward points would decrease
c. the points will not be effected
d. to little info provided
13. If one month forward USD/LKR is quoted 33/30 and then narrows to 26/23, which of the
following might have caused this?
a. USD interest rates down
b. LKR interest rates up
c. A major change in the USDLKR exchange rate
d. any of these above
14. You bought 10 million GBP against USD at 1.5400 on January 02, 2014 (Thursday) on
spot basis. January 06, 2014 (Monday) is a holiday in United Kingdom. What will be the
settlement date
a. January 03, 2014 (Friday)
b. January 08, 2014 (Wednesday)
c. January 06, 2014 (Monday)
d. January 07, 2014 (Tuesday)
15. The 4-year spot rate is 9.45%, and the 3-year spot rate is 9.85%. What is the 1-year
forward rate three years from today?
a. 8.258%.
b. 9.850%.
c. 11.059%.
d. 6.258%
16. If AUDUSD is 0.8012/17 and USDCHF is 1.5289/01 what would you quote AUDCHF
to a customer based on those quotes which incorporates a 1 point profit for yourself on
both sides of the price?
a. 1.2248/68
b. 1.2258/66
c. 1.9093/97
d. 1.9092/98
17. A Sri Lankan importer has purchased vehicles worth of JPY 200 million from Japan.
Current exchange rates are USDJPY = 103.50-55 and USDLKR=130.00-80. When he
inquires his bank following 3 month forward points are quoted.
For USDLKR 1.00/1.20 and USDJPY 0.50/0.30
i. If he wants to pay the Japanese exporter today how much LKR he has to pay
to the bank in order to buy the required JPY amount?
ii. What are the three month forward rates (both bid and offer) for USDJPY and
USDLKR?
iii. If the vehicle importer has an invoice which needs to be paid in 90 days with
foreign currency, and wishes to remove currency risk, what are the products
you recommend to use?
iv. If he wants to pay the Japanese exporter in 3 month how much LKR he has to
pay to the bank in order to buy the required JPY amount?
Markets and Products
1. Bank A sells securities to Bank B, and at the same time and as part of the same
transaction, commits to repurchase equivalent securities on a specified future date (or at
call), at a specified price. Which ONE of the following best describes the transaction
undertaken by Bank A?
A. Reverse Repo
B. Forward Rate Agreement
C. Repo
D. Interest Rate Swap
2. Exchange traded products are those?
A. Exchanged in equal amounts
B. That can be directly exchanged between counterparties
C. That can be exchanged for cash
D. That are traded on a recognised exchange
3. A reverse repo implies:
A. Buying bonds to sell back later.
B. Lending cash on a collateralized basis.
C. Selling bonds to buy back later.
D. None of the above
18. The difference between a dealers bid and offer is known as
A. The margin
B. The profit
C. The gap
D. The spread
Risk
1. Settlement risk is the risk that:-
A. A bank makes its payment but does not receive the funds due to it.
B. Exchange rates move against the bank’s position.
C. A counterparty defaults on a contract and a bank has to replace the contract at
adverse rates.
D. A disaster disables a bank’s trading floor
2. Which of the following is not market risk?
A. Interest rate risk
B. currency risk
C. settlement risk
D. all of the above
Code of Conduct
1. You discover that one of your colleagues is using drugs. You should
A. report it to your superior
B. tell your colleagues
C. report it to the money laundering officer
D. keep it to your self
2. You are in a pub with a friend who works at a competitor bank. He asks you about the
volume of FX deals you are doing with a mutual client. You should
A. Tell him as the client is a mutual client of both your banks
B. Report it to your superior
C. Tell him nothing
D. Ask him to buy you another drink before you tell him
