ACI Dealing Certificate flashcards
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32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Primary market
- The market in which new securities are issued and sold for the first time, raising fresh capital for the issuer, as opposed to trading among investors.
- Money market
- Market for short-term debt instruments with maturities of one year or less, such as Treasury bills, commercial paper, certificates of deposit and repos.
- Bid-offer spread
- The difference between the price at which a dealer will buy (bid) and sell (offer); it compensates the market-maker for risk and liquidity provision.
- SOFR
- Secured Overnight Financing Rate, the US dollar risk-free reference rate based on overnight Treasury repo transactions, replacing USD LIBOR.
- Inverted yield curve
- A curve where short-term yields exceed long-term yields, often interpreted as a signal of expected rate cuts or an approaching economic slowdown.
- Central counterparty
- A clearing house that interposes itself between trade counterparties, becoming buyer to every seller and seller to every buyer, and collecting margin.
- Systemic risk
- The risk that the failure of one institution or market propagates through interbank exposures and payment systems, threatening the wider financial system.
- Base currency
- In a currency pair, the first currency quoted; it is the currency being bought or sold against the second (quote or term) currency.
- Direct quote
- A quotation expressing the price of one unit of foreign currency in units of the domestic currency, e.g. 1.10 USD per EUR for a US-based observer.
- Forward points
- The difference between the forward and spot exchange rate, quoted in pips; it reflects the interest rate differential between the two currencies.
- Interest rate parity
- Theory that the forward premium or discount equals the interest rate differential between two currencies, preventing risk-free arbitrage.
- FX swap
- A simultaneous spot purchase and forward sale (or vice versa) of one currency against another, used to roll positions or fund currency needs.
- Cross rate
- An exchange rate between two currencies derived from their respective rates against a common third currency, typically the US dollar.
- Spot settlement T+2
- Standard convention under which most foreign exchange spot transactions settle two business days after the trade date; USD/CAD settles T+1.
- Purchasing power parity
- The proposition that exchange rates should adjust so that identical baskets of goods cost the same across countries, linking rates to relative price levels.
- Forward rate formula
- F = S × (1 + r_quote × d/360) / (1 + r_base × d/360), giving the forward rate from spot and the two currencies' interest rates.
- Day-count convention
- The rule defining how many days are counted in an interest period and the year basis used, such as actual/360 or actual/365.
- Discount pricing
- Method for pricing bills and commercial paper: Price = Face value × (1 − discount rate × days/360), with the discount deducted upfront.
- Modified duration
- A measure of a bond's price sensitivity to yield changes; the percentage price change approximately equals minus modified duration times the yield change.
- Forward rate agreement
- A contract fixing an interest rate for a future period on a notional amount, settled in cash against a reference rate at the fixing date.
- Interest rate swap
- An agreement to exchange fixed and floating interest payments on a notional principal over a set term; the fixed rate is set at zero initial value.
- Bond price-yield relationship
- Bond prices and yields move inversely: when market yields rise, the present value of fixed coupons and principal falls, lowering the price.
- Money market yield
- The yield equivalent of a discount rate, calculated as discount rate divided by (1 − discount rate × days/360), reflecting return on funds actually invested.
- Interest rate futures
- Exchange-traded contracts fixing a future interest rate, marked to market daily with margin, unlike over-the-counter forward rate agreements.
- Front-running
- Trading on advance knowledge of a client's or firm's pending order to profit from the expected price impact; a prohibited market abuse practice.
- Insider dealing
- Trading or encouraging others to trade on material non-public information about a security or issuer, prohibited under market abuse rules.
- Spoofing
- Placing orders with the intention of cancelling them before execution, creating a false impression of supply or demand; a form of market manipulation.
- Best execution
- The obligation to take all sufficient steps to obtain the best possible result for client orders, considering price, cost, speed and settlement likelihood.
- Chinese walls
- Internal information barriers separating teams such as corporate advisory from sales and trading, preventing the flow of confidential price-sensitive information.
- Conflicts of interest
- Situations where a firm's or employee's interests may harm a client; they must be identified, disclosed and managed under conduct rules.
- Wash trade
- A transaction where both buyer and seller are the same beneficial owner, creating artificial volume without a genuine change of ownership; prohibited manipulation.
- Record retention
- The regulatory requirement to keep communications, order and transaction records for a defined period, commonly five to seven years.