The ACI Dealing Certificate is a base program 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.
- Recent Entrants and Junior Dealers in The Dealing Room
- Middle Office and Operations Personnel
- Compliance and Risk Officers
- Persons who want to gain great knowledge to improve their career
At the end of this course the participants will be able to:
- Understand the principles of the time value of money
- Calculate short-term interest rates and yields, including forward-forward rates
- Understand the function of the money market, the differences and similarities between the major types of cash market instrument and how they satisfy the requirements of different types of borrower and lender
- Understand and be able to apply spot exchange rate quotations
- Understand basic spot FX dealing terminology and the role of specialist types of intermediary
- Understand the mechanics of and how to use money market interest rate derivatives to hedge interest rate risk
- Understand the fundamentals of options
- Recognize the principal classes and types, and understand the terminology
- Understand the fundamentals of Asset & Liability Management as a practice of managing and hedging risks that arise due to mismatches between the asset side and the liability side of the balance sheets of a bank
- Understand why risk is inherent in banks business models and why effective risk management is a key driver for banks success
- Financial Markets Environment
- Foreign Exchange
- Rates (Money and Interest Rate Markets)
- FICC (Fixed Income, Currency and Commodities) Derivatives
- Financial Markets Applications
Unit 1: Basic Interest Rate Calculations:
- Calculate the 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 the conventional frequency and timing of payments by cash 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.
- 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 market 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 Hypothesisexplain the shape of the curve.
Unit 2: Cash Money Markets:
- Define the money market.
- Describe the main features of the basic types of cash market instrument -i.e.interbank deposits, bank bills or bankers’ acceptances, treasury or central bank bills, commercial paper, certificates of deposit -in terms of whether or not they are securitized, 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 borrowers/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.
- 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.
- Define general collateral (GC) and specials.
Unit 3: Foreign Exchange:
- Identify the base currency and the quoted currency in standard exchange rate notation.
- select which currency should be the base currency in any currency pair.
- Recognize 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 a price-maker and price-taker to convert either a base or quoted currency amount.
- 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.
- Distinguish between precious metals trading for physical delivery and book entry.
Unit 4: Forward- Forwards, FRAs, and Money Market Futures & Swaps:
- Describe the mechanics and explain the terminology of a forward-forward loan or 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.
Unit 5: Options:
- 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.
Unit 6: Principles of Asset & Liability Management:
- 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 to manage ALM Risks.
- 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
Unit 7: Principles of Risk:
- Understand the aspects of Market Risk.
- Understand the aspects of Credit Risk.
- Understand the aspects of Operational Risk.
- Understand the aspects of Legal, Regulatory and Reputation Risk.
- Understand the aspects of Liquidity Risk.