Cash, Money Markets and the Foreign Exchange Market

Question 1

What day count conventions do the UK and the US use?

Answer 1

UK use ACTUAL/365 and US use ACTUAL/360

Question 2

What instrument can be used as a benchmark for bonds in Europe?

Answer 2

The yields from bunds

Question 3

What does a cap rate do?

Answer 3

The cap represents the maximum return the investor can receive

Question 4

What does the participation rate do?

Answer 4

The participation rate is the percentage of the deposit that is exposed to any gains in the index the structured deposit is based upon.

Question 5

Why are t-bills issued at a discount?

Answer 5

They are zero coupon

Question 6

Outside of the US, what is the most common term bucket for commercial paper?

Answer 6

1-3 months

Question 7

What is the name given to weekly UK T-bill auctions?

Answer 7

Tenders

Held weekly by the DMO, usually on a Friday,

Question 8

When do UK T-Bills settle?

Answer 8

T+1

Bids must be settled T+1. Minimum bids are £500,000 and above that must be in multiples of £50,000

Question 9

What is standard spot settlement for FX trades?

Answer 9

T+2

Question 10

Who regulates T-bill primary participants?

Answer 10

The FCA & the PRA

Question 11

If an investor buys £500,000 of a 3-month T bill yielding 3.4%, how much would the investor pay?

Answer 11

£495,786

If the annual yield is 3.4%, then the 3 month yield is 3.4%/4 = 0.85%.

£500,000 / 1.0085 = £495,786

Question 12

What is a cross rate?

Answer 12

A non-US dollar foreign exchange rate between two countries