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ACI operations > Chapter 1 Financial Markets > Flashcards

Chapter 1 Financial Markets Flashcards

1
Q

Money market

A

The market where financial instruments are traded with a shortterm (<1 yr), all related to interest rates. Such as deposits, repo’s and short term bonds

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2
Q

Capital market - Fixed income

A

Financial instruments with a long term (>1 yr), all related to interest rates.

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3
Q

Capital market - Equities

A

Market where shares are traded

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4
Q

FX Market

A

Market where principals in one currency are traded against principals in another currency

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5
Q

Cash istruments

A

Principal is exchanged

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6
Q

Derivative instruments

A

No exchange of principal amount

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7
Q

Sell-side

A

Side that is involved in the creation, promotion of financial instruments. Usually the bank.

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8
Q

Buy-side

A

The side that tend to buy financial instruments. Such as pension funds and other investment firms.

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9
Q

Exchange broker

A

Party that has entrance to the stock exchange.

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10
Q

Interdealer broker / prime broker

A

Intermediary parties who want to bring 2 parties (banks) together, looking for a party to act as a counterparty for a specific transaction.

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11
Q

Market maker

A
  1. To serve their clients: opening a position on their behalf
  2. To pick up bid-ask spreak
  3. To acquire information about what is happening in the market
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12
Q

OTC

A

Two market parties enter into a transaction bilaterally. Sometimes a intermediary (broker) is used to bring parties together.

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13
Q

Stock exchange

A

Euronext

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14
Q

Derivative exchange

A

ICE

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15
Q

If a transaction is concluded on an exchange. Who is the legal counterparty.

A

CCP (Central Clearing Counterparty)

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16
Q

Domestic markets

A

Transactions concluded in the local currency

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17
Q

Euro markets

A

Transactions concluded in a currency different from the local currency

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18
Q

Liquid markets

A

Active markets such as commodities

19
Q

Illiquid markets

A

Not so active markets such as real estate and very domestic currencies

20
Q

Volatile markets

A

Prices move dramatically

21
Q

Quiet markets

A

Prices don’t move dramatically. Such as bond-market Euro

22
Q

Hedging

A

Taking away your risk by making a different transaction (usually the opposite transaction)

23
Q

Risk

A

Opening a position

24
Q

Bid price

A

The highest price a buyer is willing to pay for a security

25
Q

Spread

A

The delta between bid and ask

26
Q

Ask price

A

The lowest price a seller is willing to accept for a security

27
Q

Off-market rate deals

A

Transactions that are concluded at obvious wrong prices

28
Q

Spot date

A

Two working days after the trade is conducted

29
Q

Regular dates

A

Fixed dates; usual terms for transactions.

30
Q

Following (short dates)

A

Maturity date is postponed to the next business day. Used for contracts < 1 month

31
Q

Modified following

A

Maturity date is set on the next business day except when the adjusted maturity date would fall in the next month

32
Q

Modified preceding

A

Maturity date is set on the preceding business day unless that day is in the previous month

33
Q

End of month

A

Last trading day of that month

34
Q

Front office Sales & Trading

A

Negotiating deals and completing deal tickets

35
Q

Sales

A

On behalf of clients

36
Q

Trading

A

Managing the position of the bank

37
Q

Backoffice

A
  1. Verification
  2. Sending confirmation
  3. Confirmation matching
  4. Sending settlement instructions
  5. Position keeping
  6. Sweeping between nostro accounts
38
Q

Middle office

A
  1. Prevention of missed, failed trades

2. Detecting market manipulation

39
Q

Risk management

A
  1. Determining valuation practices
  2. Setting limits
  3. Approving limit violations
40
Q

Internal audit

A

Checking whether all procedures are carried out correctly

41
Q

Authorization table (limit control sheet)

A
  1. General dealing policy
  2. Instruments to be dealt in
  3. Persons authorized to deal
  4. Limits on open positions
  5. Information/communication duties
42
Q

Customer Due Dilligence (CDD)

A
  1. Identification
  2. Defining the risk profile
  3. Verification of identity of legal persons
  4. Verification of authorized signatures
43
Q

Client on-boarding

A
  1. Client contacts
  2. SSI
  3. Confirmation method
  4. Credit limits incl global settlement limits
44
Q

Transaction routing

A
  1. Check the credit line
  2. Consume transaction: phone, electronic
  3. Enter trade details in FO-system
  4. Enter trade details in BO-system
  5. Enter in cashmanagement sytem for nostro account management
    6a. External confirmation via Swift
    6b. Internal confirmation for confirmation matching
  6. Trade repository (such as RRS)
  7. Counterparty sends confirmation
  8. Matching
  9. Queue of unmatched trades to BO-system
    11a. Send payment instruction to central bank or corresponding bank
    11b. Check in FATF if it is not on a list of suspicious entities
    11c. Shadow account system (for nostro recon)
  10. Balance statement (MT 940/950) from corresponding bank collected in nostro recon. system
  11. Nostro recon checks if all payment instructions are processed correctly
  12. ECB valuation rated entered into FO-system, valuing positions
  13. Position information is used to calculate overall market risk

ACI operations (11 decks)

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