Introduction
The ACI Dealing Certificate is a foundation programme that allows candidates to acquire the basic knowledge and skills utilised within the Foreign Exchange and Money Markets together with their associated derivatives. Candidates should also be able to apply The Model Code as it stands today. As such, it demonstrates the skills required for participation in the market, and the ability to use and manipulate the fundamental mathematics used in the markets. The programme is designed for anyone whose effectiveness would be enhanced by explanations of the market, its products and operation, and is a precursor to the ACI Diploma. In particular, the course is designed for the following groups:

• new entrants and junior dealers (0-18 months experience) in the dealing room
• middle office and operations personnel
• auditors and compliance officers

The ACI Dealing Certificate aims to test candidates’ knowledge and the application of that knowledge in the core products of the market place and their interrelationships.


Background
Overall Objective: To explain the historical context within which markets currently operate, and for candidates to list the significant Market features. In addition, this section will include an outline of the role played by ACI and the National ACI Associations. At the end of this section, candidates will be able to:

• explain the evolution of the Foreign Exchange and Money Markets, and why they exist
• explain the operation of ACI and ACI National Associations

Basic Interest Rate Calculations
Overall Objective: To provide a basic knowledge of the maths of interest rates and the calculations that form the basis for evaluation of short term investment opportunities. This will include explanations of the underlying rationales for different yield curve shapes. At the end of this section, candidates will be able to:

• calculate simple interest rates on different day bases
• demonstrate the principles of time value of money, present & future value, discounting & compounding
• calculate broken dates through interpolation
• explain the difference between money market basis and bond market basis
• calculate the yield on money market instruments on both a true yield and discount to yield basis
• construct a yield curve and explain the possible causes of its shape
• manipulate core formulae correctly

Money Market Products
Overall Objective: To list the differences and similarities between the major products and key interest rates in the money markets in order to calculate how they satisfy the varying requirements of borrowers and investors. At the end of this section, candidates will be able to:

• explain the main features of a broad range of money market products, eg cash deposits, treasury bills etc
• calculate the yields on key instruments
• explain the rationale for differing returns from differing products
• list the advantages and disadvantages of the products
• explain the interrelationship between the products
• list the different types of repos
• explain the terminology of the repo market, why they are used, and the main characteristics of repos

Interest Rate Swaps, Forward Rate Agreements, Futures & Options
Overall Objective: To explain the derivations of forward rates, the use of interest rate protection products and the mechanics of their trading At the end of this section, candidates will be able to:

• list the driving forces behind the development of the derivatives markets
• explain the derivation of forward/forward interest rates, Forward Rate Agreements (FRAs) and short term interest rate futures
• explain the basics of options and their main characteristics
• explain the concept of Interest Rate Swaps (IRS), and their main characteristics
• describe the trading practices in the derivatives markets

The Spot Foreign Exchange Market
Overall Objective: To describe the trading practices in the spot market in the major currencies, make rate selections based on market principles, and to calculate cross rates. At the end of this section, candidates will be able to:

• identify main markets, their size and location
• interpret market practices successfully
• explain the difference between base currencies and quoted currencies
• calculate and use spot rates as market maker and market taker
• calculate cross rates correctly
• identify the mechanics and methods of trading
• identify the mechanics of market making
• explain the importance of liquidity

Forward Foreign Exchange -Outrights and Swaps
Overall Objective: To explain the mechanics of trading using outrights and swaps, and to explain their use in creating synthetic currency assets and liabilities alongside the calculations involved At the end of this section, candidates will be able to:

• explain the role of spot and interest rate differentials and the concept of arbitrage
• list the features of an FX outright and FX swap
• describe the derivation of forward rates using the basic equation for calculating points
• calculate broken dates through interpolation
• calculate complex rates such as forward crosses and forward broken dates
• explain the role of FX outrights and FX swaps in the money markets
• list the trading periods
• explain the use of FX outrights and FX swaps to hedge outright forwards and to create synthetic asset and liabilities
• list the basics of foreign exchange options

Position Keeping
Overall Objective: To explain the importance and practice of accurate record keeping At the end of this section, candidates will be able to:

• explain the role of the dealer’s blotter and the process of keeping a position
• explain the process of revaluation and mark to market
• calculate an average book rate, a net position and profit/loss

Role of Settlements
Overall Objective: To identify the role and responsibilities of the back office and to explain the importance of timely and accurate settlement At the end of this section, candidates will be able to:

• explain the need for separation of dealing function from settlement function
• explain the use of Nostro accounts and reconciliation
• describe the workflow of a typical transaction and state the responsibilities of the back office
• calculate settlement amounts correctly

The Risk Environment
Overall Objective: To identify the different types of risk in the markets, and to describe the use of limits to mitigate risks At the end of this section, candidates will be able to:

* price risk in currency and interest rates * explain the difference between transaction, translation and economic risk * explain counterparty, delivery and related risks * describe a limit structure, and how it works

The Model Code
Overall Objective: For candidates to have a thorough knowledge of the Model Code and market practices that regulate our markets, with particular emphasis on dispute procedures At the end of this section, candidates will be able to:

• explain the purpose of the Model Code, and its application within the industry
• list the general principles of professional conduct
• explain market terminology
• explain the procedures for disputes
• list the market practices covering
• Foreign exchange
• Money market
• Derivatives
• Securities
• Dealer-broker relationships
• Dealer-customer relationships

Examination Procedure
Format: The examination consists of a single paper of 2 hours duration. There is a total of 80 multiple-choice questions out of which 30 questions relate to The Model Code. Candidates will be required to pass The Model Code section of this examination. The minimum pass levels for each topic in the ACI Dealing certificate has been set by the Board of Education as follows:

• Risk Management & Control 1 correct out of 4 25.0%
• Foreign Exchange 3 correct out of 7 42.8%
• Foreign Exchange Calculations 3 correct out of 8 37.5%
• Money Markets 3 correct out of 7 42.8%
• Money Markets Calculations 2 correct out of 6 33.3%
• Derivatives 3 correct out of 7 42.8%
• Repo Market 2 correct out of 6 33.3%
• Market Conv. & Env. 2 correct out of 5 40.0%
• The Model Code 15 correct out of 30 50.0%

Source by: www.aciforex.com