ACI Dealing Certificate Prep Course
 Price category: Category F
LAUNCH DATE: 1st of March 2018
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 C ode to their situation.
The programme is designed for the following groups:
 Recent entrants and junior dealers (018 month’s ex perience) in the dealing room
 Middle office and operations personnel
 Compliance and risk officers
The ACI Dealing Certificate is a precursor to the A CI Diploma. In addition to the topics outlined below, candidate s will be expected to be uptodate with the latest events and changes in the markets.
1. Basic Interest Rate Calculations
Overall Objective:
To understand the principles of the time value of money.
To be able to calculate shortterm interest rates and yields, including forwardforward rates, and to use these interest rates and yields to calculate payments and evaluate alternative shortterm funding and investment opportunities. Candidates should know what information is plotted in a yield curve, the termin ology describing the overall shape of and basic movements in a curve, and the classic the ories which seek to explain changes in the shape of a curve. They should also know how to plot a forward curve and understand the relationship between a yield curve a nd forward curves. At the end of this section, candidates will be able to:
 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 sameday, nextday, 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 paymen ts 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 (st raight 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 an d semiannual compounding frequencies
 calculate a forwardforward rate from two mismatche d cash rates
 calculate a cash rate from a series of forwardforw ard rates for consecutive periods
 calculate the value of a discountpaying money mark et instrument from its discount rate (straight discount) and convert a discount rat e directly into a true yield
 plot a yield curve, describe its shape and the basi c changes in its shape using market terminology, and outline how the Pure Expectations Theory, Liquidity Preference Theory and Market Segmentation Hypothesis explain t he shape of the curve
2. Cash Money Markets
Overall Objective:
To understand the function of the money market, the differences and similarities between the major types of cash money market instrument and how they satisfy the requirements of different types of borrower and lender.
To know how each type of instrument is quoted, the quotation, value date, maturity and payment conventions that apply and how to perform standard calculations using quoted prices. Given the greater inherent complexity of repo, a good working knowledge is required of its nature and mechanics. At the end of this section, candidates will be able to:
 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 generallyaccepted 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 principa l advantages of euromarket money instruments
 describe the differences and similarities of classic repos and sell/buybacks in terms of their legal, economic and operational characteri stics
 define initial margin and margin maintenanc
 list and outline the main types of custody arrangem ents 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
3. Foreign Exchange
Overall Objective:
To understand and be able to apply spot exchange ra te quotations.
To understand basic spot FX dealing terminology and the role of specialist types of intermediary.
To recognise the principal risks in s pot and forward FX transactions.
To calculate and apply forward FX rates, and understan d how forward rates are quoted.
To understand the relationship between forward rates and interest rates.
To understand time options.
To be able to describe the mechanics of outright forwards, FX swaps and forwardforward FX swaps, explain the use of outrig ht forwards in taking currency risk and explain the use of FX swaps in rolling spot pos itions, hedging outright forwards, creating synthetic foreign currency assets and liabilities, and in covered interest arbitrage.
To display a good working knowledge and understanding of the rationale for NDFs.
To be able to recognise and use quotes for precious metals, and demonstrate a basic understanding of the structure and operation of the international market in precious metals.
At the end of this section, candidates will be able to:
 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 c ountries affiliated to ACI  The Financial Markets Association
 distinguish between the “big figures” and the “poin ts/pips”
 apply a bid/offer spot exchange rate as pricemaker and pricetaker 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 exp lained in The Model Code
 calculate crossrates from pairs of exchange rates where the common currency is the base currency in both rates, where the common c urrency is the base currency in only one rate and where the common currency is t he base currency in neither rate
 calculate and explain the reciprocal rate of an exc hange rate
 define the function of marketmaking and explain th e incentives to make markets and the particular risks of marketmaking
 outline what a voicebroker does and distinguish vo icebrokers from principals
 outline what an automatic trading system (ATS) or e lectronic 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 r ate and the forward points, and vice versa
 explain the relationship between the outright forwa rd 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 arbitra ge
 fix forward value dates for standard periods and li st those periods
 describe the structure and mechanics of an FX outri ght, and outline how an outright forward can be hedged with a spot transaction and d eposits
 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 th e advantages
 use generallyaccepted terminology to specify an FX swap
 outline the applications of FX swaps in creating sy nthetic foreign currency asset and liabilities, and in covered interest arbitrage
 describe forwardforward FX swaps,
 outline the application of tom/next and overnight F X swaps in rolling over spot positions and hedging valuetomorrow and value tod ay outright rates, and calculate a valuetomorrow rate from a spot rate and tom/next points, and a valuetoday rate from a spot rate, tom/next points and overnight poi nts
 calculate brokendated forward FX rates through lin ear interpolation
 calculate forward crossrates
 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 pricemaker and pri cetaker to calculate the value of a given weight of precious metals
 distinguish between precious metals trading for phy sical delivery and book entry
 distinguish between the spot, forward and derivativ e markets in precious metals
 outline the mechanics and role of the London gold p rice fixing
 explain the role of gold lending/borrowing and defi ne the gold offered forward rate or lease rate
4. Forwardforwards, FRAs and Money Market Futures & Swaps
Overall Objective:
To understand the mechanics of and how to use money market interest rate derivatives to hedge interest rate risk.
At the end of this section, candidates will be able to:
 describe the mechanics and explain the terminology of a forwardforward loan or Syllabus – ACI Dealing Certificate deposit, and the interest rate risk created by such instruments
 explain how FRAs, money market futures and money ma rket swaps are derivatives of forwardforward positions, and outline the advan tages of derivatives
 describe the mechanics and terminology of FRAs, use quoted prices, select the correct contract, decide whether to buy and sell, i dentify 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 mar ket futures, use quoted prices, select the correct contract, decide whether to buy and sell, identify the settlement rate and calculate variation margin paym ents
 explain how money market futures can be used to hed ge interest rate risk
 give the contract specifications of the Eurodollar, 3month Euribor, short sterling, euroSwiss franc and Japanese Euroyen futures
 outline the principal differences between OTC instr uments 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 mar ket 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 rat e risk
 explain how money market futures can be used to hed ge and price FRAs and money market swaps
 identify the overnight indexes (OI) for euro, sterl ing, Swiss francs and US dollars
5. Options
Overall Objective:
To understand the fundamentals of options.
To recognise the principal classes and types, and understand the ter minology, how they are quoted in the market, how their value changes with the price of the underlying asset and the other principal factors determining the premium, how the risk on an option is measured and how they are delta hedged.
To recognise basic option strategies and understand their purpose.
At the end of this section, candidates will be able to:
 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 exchangetraded options are qu oted, and when a premium is conventionally paid
 define call and put options
 explain the terminology for specifying a currency o ption
 describe the payout profiles of long and short pos itions 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 m oney 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 a nd strangles, and explain their purpose

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