Introduction

The ACI Dealing Certificate is a foundation program me that allows candidates to acquire a working knowledge of the structure and operation of the major foreign exchange and money markets as well as their core products (cash, forwards and derivatives), and the basic skills required for competent participation, including the ability to apply the fundamental mathematics used in these markets. Candidates should also be able to apply The Model Code to their situation.

• The ACI Dealing Certificate is a precursor to the ACI Diploma. The candidates will be expected to be up-to-date with the latest events and changes in the markets.

  The ACI Operations Certificate Candidates will become up-to-date with the latest developments that affect treasury operations. It also helps candidates to understand the front to end treasury flow, which improves the understanding between trading and operations staff.

  Learning Objectives

  After this training you can

  • • calculate present value and future value using the arithmetic techniques of discounting and compounding for both a money market instrument terminated at maturity and one that is rolled over at maturity
    • calculate simple interest rates using different day count and annual basis conventions
    • identify the day count and annual basis conventions for the euro, sterling, Swiss franc, US dollar and Japanese yen
    • fix same-day, next-day, spot and forward value date s, and maturities under the modified following business day convention and end/ end rule
    • fix the conventional frequency and timing of payments by cash money market instruments, including those with an original term to maturity of more than one year
    • calculate broken dates and rates through linear (straight line) interpolation
    • define EURIBOR, LIBOR and EONIA
    • convert interest rates and yields between the money market basis and bond basis in currencies for which there is a difference
    • convert interest rates and yields between annual and semi-annual compounding frequencies
    • calculate a forward-forward rate from two mismatched cash rates
    • calculate a cash rate from a series of forward-forward rates for consecutive periods
    • calculate the value of a discount-paying money mark et instrument from its discount rate (straight discount) and convert a discount rate directly into a true yield
    • plot a yield curve, describe its shape and the basic changes in its shape using market terminology, and outline how the Pure Expectations Theory, Liquidity Preference Theory and Market Segmentation Hypothesis explain the shape of the curve
  • define the money market
  • describe the main features of the basic types of cash money market instrument - i.e. interbank deposits, bank bills or bankers’ acceptances, treasury or central bank bills, commercial paper, certificates of deposit and repos - in terms of whether or not they are securitised, transferable or secured; in which form they pay return (i.e. discount, interest or yield); how they are quoted; their method of issuance; minimum and maximum terms; and the typical borrower/issuers and lenders/investors that use each type
  • use generally-accepted terminology to describe the cashflows of each type of instrument
  • understand basic dealing terminology as explained in The Model Code
  • distinguish between and define what is meant by domestic, foreign and euro- (offshore) money markets, and describe the principal advantages of euromarket money instruments
  • describe the differences and similarities of classic repos and sell/buy-backs in terms of their legal, economic and operational characteristics
  • define initial margin and margin maintenance
  • list and outline the main types of custody arrangements in repo
  • calculate the value of each type of instrument using quoted prices, including the secondary market value of transferable instruments
  • calculate the present and future cashflows of a repo given the value of the collateral and an agreed initial margin
  • define general collateral (GC) and specials
  • describe what happens in a repo when income is paid on collateral during the term of the repo, in an event of default and in the event of a failure by one party to deliver collateral
  • identify the base currency and the quoted currency in standard exchange rate notation
  • select which currency should be the base currency i n any currency pair
  • recognise the ISO codes for the currencies of the countries affiliated to ACI - The Financial Markets Association
  • distinguish between the “big figures” and the “points/pips”
  • apply a bid/offer spot exchange rate as price-maker and price-taker to convert either a base or quoted currency amount
  • select the best of several spot rates for the buyer or seller of an amount of base or quoted currency
  • understand basic spot FX dealing terminology as explained in The Model Code
  • calculate cross-rates from pairs of exchange rates where the common currency is the base currency in both rates, where the common currency is the base currency in only one rate and where the common currency is the base currency in neither rate
  • calculate and explain the reciprocal rate of an exchange rate
  • define the function of market-making and explain the incentives to make markets and the particular risks of market-making
  • outline what a voice-broker does and distinguish voice-brokers from principals
  • outline what an automatic trading system (ATS) or electronic broker does in spot FX
  • calculate a forward FX rate from a spot FX rate and interest rates
  • calculate an outright forward FX rate from a spot rate and the forward points, and vice versa
  • explain the relationship between the outright forward rate, the forward points, the spot rate and interest rates, including the concept of interest rate parity, and the possibility and concept of covered interest arbitrage
  • fix forward value dates for standard periods and list those periods
  • describe the structure and mechanics of an FX outright, and outline how an outright forward can be hedged with a spot transaction and deposits
  • describe the structure and mechanics of an FX swap, and outline how it can be used in place of deposits to hedge an FX outright and the advantages
  • use generally-accepted terminology to specify an FX swap
  • outline the applications of FX swaps in creating synthetic foreign currency asset and liabilities, and in covered interest arbitrage
  • describe forward-forward FX swaps,
  • outline the application of tom/next and overnight F X swaps in rolling over spot positions and hedging value-tomorrow and value- tod ay outright rates, and calculate a value-tomorrow rate from a spot rate and tom/next points, and a value-today rate from a spot rate, tom/next points and overnight points
  • calculate broken-dated forward FX rates through linear interpolation
  • calculate forward cross-rates
  • define an NDF and explain its rationale
  • describe the structure and the features of NDFs as well as their pricing and valuation
  • define a time option and explain its reasoning
  • list the commodities called precious metals (gold, silver, platinum and palladium) and give their ISO codes
  • describe the conventional method of quoting gold in the international market in US dollars per ounce
  • apply a bid/offer spot price as price-maker and price-taker to calculate the value of a given weight of precious metals
  • distinguish between precious metals trading for physical delivery and book entry
  • distinguish between the spot, forward and derivative markets in precious metals
  • outline the mechanics and role of the London gold price fixing
  • explain the role of gold lending/borrowing and define the gold offered forward rate or lease rate
    
    • describe the mechanics and explain the terminology of a forward-forward loan or Syllabus – ACI Dealing Certificate deposit, and the interest rate risk created by such instruments
    • explain how FRAs, money market futures and money market swaps are derivatives of forward-forward positions, and outline the advantages of derivatives
    • describe the mechanics and terminology of FRAs, use quoted prices, select the correct contract, decide whether to buy and sell, identify the settlement rate and calculate the settlement amount
    • explain how FRAs can be used to hedge interest rate risk
    • describe the mechanics and terminology of money market futures, use quoted prices, select the correct contract, decide whether to buy and sell, identify the settlement rate and calculate variation margin payments
    • explain how money market futures can be used to hedge interest rate risk
    • give the contract specifications of the Eurodollar, 3-month Euribor, short sterling, euro-Swiss franc and Japanese EuroYen futures
    • outline the principal differences between OTC instruments like FRAs and exchange- traded instruments like futures, and describe how a futures exchange and clearing house works
    • describe the mechanics and terminology of money market interest rate swaps, including overnight indexed swaps (OIS), use quoted prices, select the correct contract, decide whether to buy and sell, identify the settlement rate and calculate settlement amounts
    • explain how swaps can be used to hedge interest rate risk
    • explain how money market futures can be used to hedge and price FRAs and money market swaps
    • identify the overnight indexes (OI) for euro, sterling, Swiss francs and US dollars
  • define an option, and compare and contrast options with other instruments
  • define strike price, market price, the underlying, premium and expiry
  • calculate the cash value of a premium quote
  • describe how OTC and exchange-traded options are quoted, and when a premium is conventionally paid
  • define call and put options
  • explain the terminology for specifying a currency option
  • describe the pay-out profiles of long and short positions in call and put options
  • describe the exercise rights attached to European, American, Bermudan and Asian (average rate) styles of option
  • define the intrinsic and time values of an option, and identify the main determinants of an option premium
  • explain what is meant by in the money, out of the money or at the money
  • define the delta, gamma, theta, rho and vega
  • interpret a delta number
  • outline what is meant by delta hedging
  • outline how to construct long and short straddles and strangles, and explain their purpose
  • define the meaning and the general concepts of ALM • describe the impact of main risk factors on the asset and the liability side of the balance sheet: Impact of Interest Rate Risk, Currency Risk , Liquidity Risk and Credit Risk • understand the importance of an efficient and reliable organizational infrastructure delivering the necessary data with accuracy and frequency in order to manage ALM Risks • describe the organisational and infrastructure set up of ALM in a bank: - ALM information systems (Management Information System, Information availability and accuracy) - ALM organisation (Structure and responsibilities, ALM Committee, Role of Controlling, Level of top management involvement) - ALM process (Risk parameters, Risk identification, Risk measurement, Risk management, Risk tolerance levels) • understand the use of Gap management: interest and duration mismatches • explain Asset and liability management techniques: Cash Flow Management, Duration Management, Gap Limits • describe the use of different types of interest rate and FX derivatives for implementing hedging techniques against ALM risks • describe the use of Credit Risk Transfer Instruments for Balance Sheet Management: Credit Derivatives and Asset Securitizations • explain the impact of Basel III (Liquidity Coverage Ratio, Net Stable Funding Ratio, Leverage Ratio) on the structure of a bank’s balance sheet • explain the concept of funds transfer pricing as a means to ensure that funding and liquidity costs & benefits are transparently allocated to respective businesses and products • describe the interaction between bank capital and leverage and the role of economic and regulatory capital • describe the formulation of Liquidity Stress Test Scenarios and the use in ALM
    
    
  • Understand the following aspects of Market Risk: o Types of market risk (Interest Rate, Equity, Currency, Commodity) o Market Risk in the Trading Book : How it arises and accounting impact o The use of Risk Measures: key concepts of Value at Risk (holding periods, confidence levels, VaR calculation, Limitations of VaR, Expected Shortfall) o the use of quantitative techniques (Risk Factors and Loss Distributions, Variance-Covariance Method, Historical Simulation , Monte Carlo) o Limit structures in the dealing room o Capital treatment of market risk under Basel III • Understand the following aspects of Credit Risk: o Categories of credit risk: lending, issuer, settlement, counterparty credit risk o Managing credit risk: Limits and safeguards, Credit approval authorities and transaction approval process, Aggregating exposure limits by customers, sectors and correlations o Credit mitigation techniques: collateral; termination clauses, re-set clauses, cash settlement, netting agreements o Documentation: covenants, ISDA / CSA and other collateral o Fundamentals of credit risk capital measurement: probability of default (PD), exposure at default (EAD), loss given default (LGD) and correlation o Capital treatment of credit risk under Basel III (Standardised approach, Foundation and advanced internal ratings based approaches, Regulatory capital treatment for derivatives) • Understand the following aspects of Operational Risk: o Sources of operational risk; systems, people, processes and external events o Reasons for banks to control operational risk: legal and regulatory requirements o Best practice management procedures • Understand the following aspects of Legal, Regulatory and Reputation Risk: o Sources of reputation risk and relationship to other risk groups • Understand the following aspects of Liquidity Risk: o Objectives and importance of a funding strategy o Lessons learned from crises in liquidity risk management; Off-balance sheet contingencies, complexity, collateral valuation, intra-day liquidity risks and cross-border liquidity, Measuring and managing stress scenarios, Early warning indicators of liquidity risk o Liquidity coverage ratio and Net stable funding ratio Syllabus – ACI Dealing Certificate Examination

  Target Group

  • Recent entrants and junior dealers (0-18 month’s experience) in the dealing room
  • Middle office and operations personnel
  • Compliance and risk officers

  Course Overview

  • This 4-day course gives a clear in-depth view on operational processes, including derivatives and use in hedging, trading and speculation.
  • Using case studies and exercises, delegates will intuitively understand the mechanics
  • The roles of each participant within the financial market will be explained and provides an understanding of the risk management context of Trading, Sales, Middle-Office and Operations.
  • It gives an understanding of how the whole transaction process management flows as well as the importance of providing quality, customer-orientated service to internal and external clients.
  • To acquire an in-depth knowledge of the requirements of the Model Code’s FX Best Practices Operations with an emphasis on professionalism and integrity.

  • Basic Interest Rate Calculations

  • Cash Money Markets

  • Foreign Exchange

  • Forward-forwards, FRAs and Money Market Futures & Swaps

  • Options
    
    
  • Principles of Asset & Liability Management
    
    
  • Principles of Risk

  Methodology

  • The attendants will receive an English written reader of about 200 pages, which they are required to study before the course begins.
  • During the course each subject area will be covered by a Power Point presentation. This is followed by a session answering multiple-choice questions similar to the ACI exam questions.
  • At the end of the course the attendants can take a practice exam consisting of 85 multiple-choice questions. This exam will be discussed for everyone’s  benefit.
  • The home-study material will consist of the course reader with the presentations,.
  • Together with the studybook a CD with 5 times access to a database of hundreds of “exam like” multiple choice questions can be purchased. This access can be extended to 45 times access. The requirements of set-up, utilization and registration will be discussed during the training.

  Exam

  The examination lasts 2 hours and consists of 85 multiple-choice questions. Some questions might require the use of a basic calculator. The latter will be provided on screen.