3I0-013 Questions and Answers

Currency risk, interest rate risk and swap risk

Settlement risk, delivery risk and replacement cost

Operational risk

Settlement risk and swap risk

The maximum daily price change permissible on the futures exchange

A temporary suspension of trading at a futures exchange

The initial margin requirements at a futures exchange

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

E-mail

Fax or letter

MTn99 Swift message

MT670/671 Swift message

The counterparty would cancel the deal

The bilateral limit with the counterparty would have to be adjusted

The counterparty would demand interest on the late payment

There are no adverse financial consequences

He/she should report this to his/her supervisor

He/she should respond to the questions

He/she should avoid the dealer

He/she should refuse to answer the questions

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

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

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

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

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

CLS minimizes the settlement risk

CLS reduces operational banking costs

CLS eliminates the settlement risk but reduces operational efficiency

On a monthly basis with senior management and operations

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

Quarterly with senior management and on a monthly basis within operations

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

3.20%

3.21%

3.23%

3.30%

London Interbank Overseas Rate

London Interbank Offered Rate

Lending Interbank Offered Rate

Leading Interbank Offered Rate

Market-price-risk and replacement risk

Market-price-risk and delivery risk

Replacement risk and delivery risk

Replacement risk and basis risk

Flat

Negative or inverse

Positive

Neutral

Specification of the applicable law

The value date

The brokerage cost

The name of the person(s) originating the deal

USD 1,000,000.00

USD 998,104.17

USD 992,500.00

USD 998,130.14

The maintenance margin is a predetermined fraction of initial margin

The initial margin is a predetermined fraction of maintenance margin

The maintenance margin represents the brokerage costs

The maintenance margin represents management fees

Currency futures

Forward FXs

Currency options

Forward rate agreements (FRA)

CHF 9,300,000.00

CHF 10,770,059.24

CHF 9,285,000.00

USD 10,000,000.00

SWIFT

CHAPS

Euro Link System (ELS)

TARGET2

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

They must rely on the execution venue to resolve disputes.

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

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

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

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

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

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

Front office and back office should have different management reporting lines

Confirmation discrepancies should be investigated within 48 hours

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

Money market and FX dealers should have different management reporting lines

Same day value payment in JPY

Same day value payment in EUR

Value tomorrow payment in AUD

Value tomorrow payment in NZD

An option traded in USD

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

An option based on any US dollar instrument

An option which can be exercised only on its expiry date

An account held with another bank

An account another bank holds with you

A trust account

A suspense account

It gives the counterparty more time to cancel a deal

It reduces errors and costs

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

It reduces the number of trades

USD 38,250,000.00

USD 38,262,500.00

GBP 25,000,000.00

USD 16,339,869.28

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

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

The BIC-address helps you to reconcile the open items

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

The loss of the entire principal amount of the deal

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

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

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

Denmark and Finland

Latvia and Lithuania

The Czeck Republic and the United Kingdom

Bulgaria and Romania

It helps the risk manager to adjust the limits

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

It is essential in determining compensation arrangements at a later date

The auditors require these logs for their statistics

SWIFT MT 300

SWIFT MT 292

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

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

3 months, 6 months and 9 months

1 month only

Up to 2 years

1 month, 3 months, 6 months and 12 months

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

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.

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

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

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

A unique identification code for European financial institutions

The short form of the IBAN-code

A unique access-code to SWIFT-platforms

A request for financial institution transfer

A general financial institution transfer

A financial institution transfer for its own account

A notice to receive

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

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

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

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

Accounting

Adjustment of bilateral limits

Netting

Nostro reconciliation

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

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

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

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

To confirm the accuracy of counterparties' mailing addresses

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

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

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

The Federation of Bankers Associations

The International Foreign Exchange Market Practices Committee

The G7 Committee of Central Banks

ACI - The Financial Markets Association

a 270-day tenor

a 360-day tenor

a 365-day tenor

a 366-day tenor

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

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

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

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

Are commonly used to register off-balance sheet movements

Are used to book internal tax related items

Generally mirror the nostro statements

Are reserved for audit and compliance purposes only

A higher volume on settlement

Government borrowing to fall

Bond prices to rise in response to higher interest rates

Bond prices to fall

Fixed rate notional

Forward rate note

Fixed rate note

Floating rate note

Market and loss

Market and money

Market and credit

Market and unavailability

Is based on the interest rate differential between the two currencies

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

Is based on linear interpolation

Is based on the calculation of compound interest rates

ACT/360

ACT/ACT

360/360

ACT/365

Sales / trading staff

Operations staff

Nostro staff

Front office staff

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

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

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

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

If the counterparty's fees are higher than yours

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

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

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

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

It should also be confirmed directly between the two counterparties

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

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