Trading in Currencies — practice questions

Correct answer: B. Clause 2/1/2: The countervalues of the same currency must be of equal amount, even if one of them is paper money and the other is coin of the same country (for example, a note of one pound for a coin of one pound). Appendix (B) explains that currencies of the same kind require equality in amount plus possession of both countervalues before the parties separate. Paper and coin of one country are one kind of currency, so a difference in amount or a ‘handling fee’ would introduce an unjustified excess, and deferring delivery would breach Clause 2/1/1.

Correct answer: D. Clauses 2/2 and 2/3: Forward currency contracts are prohibited, whether effected through the exchange of deferred transfers of debt or through a deferred contract in which both countervalues are not concurrently possessed by both parties. Clause 2/3 adds that dealing in the forward currency market is prohibited even if the purpose is hedging against loss on a currency expected to decline. Clause 2/1/5 likewise bars currency transactions on the forward or futures market. Security for the deferred leg does not cure the absence of possession (Clause 2/1/1).

Correct answer: A. Clause 2/4/1: The Institution may hedge by executing back-to-back interest-free loans in different currencies without receiving or giving any extra benefit, provided the two loans are not contractually connected to each other. Clause 2/4/2 adds the sale of goods on credit or by Murabahah in the currency of the exposure where the exposure is an account payable. Swaps with repurchase promises and binding bilateral promises are prohibited (Clauses 2/9/1 and 2/9/2), and futures are prohibited under Clauses 2/1/5 and 2/3.