Derivative Question And Answer

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Quiz Title: NISM Series VIII: Equity Derivatives Certification Examination Mock Test User Login: User Name: User E-mail: User Score: 60 Total Score: 100 Passing Score %: 60 The user spent 26:52 on this quiz has passed the quiz 1.[0/1] A penalty or suspension of registration of a stock broker from derivatives exchange/segment under SEBI (Stock Broker and Sub-broker) Regulations, 1992 can take place if ________ A. The Stock Broker fails to pay fees B. The Stock Broker is suspended by the Stock Broker C. The stock broker violates the conditions of registration D. In any of the above situations Answer: D 2.[0/1] Index options on the S&P CNX Nifty can be exercised ___________. A. upon maturity B. any time on or before maturity C. any time upto maturity D. on a date pre-specified by the trading member Answer: B 3.[0/1] The futures price is ________. A. price at which a futures contract trades in the market B. the price set by the exchange C. spot price plus cost of carry D. the price of a contract in the future Answer: C 4.[0/1] The initial margin amount is large enough to cover a one-day loss that can be encountered on ______% of the days. A. 95 B. 99 C. 90 D. 50 Answer: A 5.[1/1] In Indian context, derivative includes: A) A security derived from a debt instrument, share, loan whether secured or unsecured, risk instrument or contract for differences or any other form of security; B) A contract which derives its value from the prices, or index of prices, of underlying securities; A. A B. B C. Both of the above D. None of the above Answer: C 6.[1/1] The NEAT F&O trading system _____________. A. does not allow combination trades B. allows only a single order placement at a time C. allows one to enter combination trades 1 / 15

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D. none of the above Answer: C 7.[0/1] Initial margin in a futures contract is kept low A. TRUE B. FALSE Answer: B 8.[1/1] On expiry, the settlement price of an index futures contract is A. opening price of futures contract B. closing index value C. closing price of futures contract D. opening index value Answer: B 9.[1/1] Which of the following is not the duty of the trading member A. Filling of 'Know Your Client' form B. Execution of Client Broker Agreement C. Bringing risk factors to the knowledge of client D. Assisting the client to arrange for margins Answer: D 10.[1/1] June futures contract on WIPRO closed at Rs. 1153 on May 20 and at Rs. 1150 on May 21, 2002. Raju has a short position of 4000 in the June futures contract. On May 21, 2002, he sells 3000 units of 10-June-2002 expiring Put Options on WIPRO at strike price of Rs.1145 for a premium of Rs.28 per unit. What is his net obligation to / from the Clearing Corporation for May 21, 2002? A. Pay-in of Rs.32,000 B. Pay-in of Rs.72,000 C. Pay-out of Rs.96,000 D. Pay-out of Rs.32,000 Answer: B 11.[0/1] Cyrus is short 600 WIPRO July Puts at strike Rs. 1520 for a premium of Rs. 33 each on July 22, 2002. On July 25, 2002 (the expiration day of the contract), the spot price of WIPRO closes at Rs.1553, while the July futures on WIPRO close at 1555. Does Cyrus have an obligation to the Clearing Corporation on his positions, and how much, if any? A. Yes. Rs.18,900 pay-out B. Yes. Rs.19,800 pay-out C. Yes. Rs.18,900 pay-in D. No pay in or pay-out on expiration of contract Answer: D 12.[1/1] The spot price of TISCO is Rs. 2050 and the cost of financing is 10%. What is the fair price of a one month futures contract on TISCO? A. 2,085.15 B. 2,099.40 C. 2,082.80 D. 2,066.30 Answer: D 13.[0/1] You have bought a portfolio of securities on the exchange. To eliminate the risk arising out of market, you should _____. A. buy index futures 2 / 15

http://www.prepcafe.in . Date 10 April, 2014, 00:05

B. buy stock futures C. sell index futures D. sell stock futures Answer: D 14.[0/1] Futures differs from forwards in the sense that A. settlement of contract takes place in the future B. both parties are bound to give/take delivery C. positions are marked-to-market everyday D. contracts are custom designed Answer: B 15.[1/1] Which of the following is the duty of the trading member? A. Sending the periodical statement of accounts to clients B. Maintaining unique client codes C. Ensuring timely pay-in and pay-out of funds D. All of the above Answer: D 16.[1/1] VaR methodology seeks to measure the amount of value that a portfolio may stand to lose within a certain horizon time period due to potential changes in ______________. A. underlying exposures B. underlying stock volatility C. underlying asset spot price D. underlying index volatility Answer: A 17.[0/1] Ms. Shetty has sold 300 calls on WIPRO at a strike price of Rs.1503 for a premium of Rs.28 per call on April 1, 2002. The closing price of equity shares of WIPRO is Rs. 1553 on that day. If the call option is assigned against her on that day, what is her net obligation on April 01, 2002? A. Pay-out of Rs.13,400 B. Pay-out of Rs. 21,600 C. Pay-in of Rs.15,000 D. Pay-in of Rs.6,600 Answer: D 18.[1/1] Initial margin is collected to __________. A. provide for losses that have already occurred B. make good daily losses C. safeguard against potential losses on outstanding positions D. square-off a position on the expiry of the contract Answer: C 19.[1/1] Which of the following are derivatives? A. Futures B. Options C. Forwards D. All of the above Answer: D 20.[1/1] A market index is very important for its use ___________. A. in portfolio management B. as a benchmark of portfolio performance 3 / 15

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C. as a barometer for market behavior D. All of the above Answer: D 21.[1/1] Immediate or cancel is an order which will automatically __________ in F&O segment of NSEIL A. get stored in the system for matching, if not executed immediately B. be matched because it being a preferential order C. cancel the unmatched portion of the order quantity D. be cancelled if it is not matched immediately and in its entirety Answer: D 22.[1/1] Which of the following statements is true? A. F&O Segment has a Basket trading facility. B. Basket trading has been discontinued in the F&O Segment. C. NSE does not allow basket trading in it's F&O Segment. D. Basket trading is illegal in India. Answer: A 23.[0/1] _______ order allows the user to execute a contract as soon as it is entered into the system, failing which the order is immediately cancelled from the system. A. GTD B. GTC C. IOC D. Limit Answer: D 24.[1/1] Each user of the trading member in F&O segment of NSEIL is assigned a unique _________ ID A. trading member B. user C. branch D. exchange Answer: A 25.[0/1] What is displayed in the NEAT Trading System Ticker Screen A. The electronic display that continuously shows only the stock symbol, volume and price at which each successive trade occurs. B. The electronic display that continuously shows only the price at which each successive trade occurs. C. The electronic display that continuously shows only the stock symbol and volume at each successive trade occurs D. None of the above Answer: B 26.[1/1] Daily Mark to Market settlement of futures takes place on ________ basis . A. T+0 B. T+5 C. T+3 D. T+1 Answer: D 27.[1/1] An investor owns one thousand shares of Reliance. Around budget time, he gets uncomfortable with the price movements. One contract on Reliance is equivalent to 100 shares. Which of the following will give him the hedge he desires? A. Buy 5 Reliance futures contracts 4 / 15

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B. Sell 10 Reliance futures contracts C. Sell 5 Reliance futures contracts D. Buy 10 Reliance futures contracts Answer: B 28.[0/1] An investor is bearish about Tata Motors and sells ten one-month ABC Ltd. futures contracts at Rs.6,06,000. On the last Thursday of the month, Tata Motors closes at Rs.600. He makes a ________ . (assume one lot = 100) A. Profit of Rs. 6,000 B. Loss of Rs. 6,000 C. Profit of Rs. 8,000 D. Loss of Rs. 8,000 Answer: B 29.[0/1] In case a Future Contract is not traded in a day, which of the following prices is reckoned for daily mark to market settlement? A. Theoretical price B. Closing price of the last traded day C. Closing price of the futures contract D. Closing price of the underlying Answer: D 30.[0/1] To be eligible for options trading, the market wide position limit in the stock should not be less than Rs. ___________ A. 100 crore B. 300 crore C. 500 crore D. 250 crore Answer: C 31.[1/1] A stock is currently selling at Rs. 70. The put option to sell the stock at Rs. 75 costs Rs. 12. What is the time value of the option? A. Rs. 5 B. Rs. 2 C. Rs. 4 D. Rs. 7 Answer: D 32.[1/1] Weekly options trading commenced on NSE in _______ A. 2-Jun-05 B. NSE does not trade in Weekly options C. 4-Jul-05 D. 4-Jun-05 Answer: B 33.[0/1] Value-at-risk measures ___________. A. Credit rating of an investor B. Value of proprietary portfolio C. Risk level of a financial portfolio D. Networth of an investor Answer: B 34.[1/1] Mark-to-market margins are collected ___________. 5 / 15

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A. On a weekly basis B. Every 2 days C. Every 3 days D. On a daily basis Answer: D 35.[0/1] Clients' positions cannot be netted off against each other while calculating initial margin on the derivatives segment. A. FALSE B. TRUE Answer: A 36.[1/1] A defaulting member's clients positions could be transferred to ____________ by the Clearing Corporation. A. Another solvent member B. The Exchange C. A suspense account D. Error account Answer: B 37.[1/1] A member has two clients C1 and C2. C1 has purchased 800 contracts and C2 has sold 900 contracts in August XYZ futures series. What is the outstanding liability (open position) of the member towards Clearing Corporation in number of contracts? A. 800 B. 1700 C. 900 D. 100 Answer: B 38.[0/1] Is it possible to place a limit buy order for 100 contracts of XYZ at Rs.770 per contract A. Yes B. No Answer: B 39.[0/1] A trader has bought 100 shares of XYZ at Rs.780 per share. He expects the price to go up up but wants to protect himself if the price falls. He does not want to lose more than Rs.1000 on this long position in XYZ. What should the trader do? A. Place a limit sell order for 100 shares of XYZ at Rs.770 per share B. Place a stop loss sell order for 100 shares of XYZ at Rs.770 per share C. Place a limit buy order for 100 shares of XYZ at Rs.790 per share D. Place a limit buy order for 100 shares of XYZ at Rs.770 per share Answer: D 40.[1/1] On the derivative exchanges, all the orders entered on the Trading System are at prices exclusive of brokerage. A. FALSE B. TRUE Answer: B 41.[0/1] If an investor buys a call option with lower strike price and sells another call option with higher strike price, both on the same underlying share and same expiration date, the strategy is called ___________. A. Bearish spread B. Bullish spread 6 / 15

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C. Butterfly spread D. Calendar spread Answer: C 42.[1/1] If you sell a put option with strike of Rs. 245 at a premium of Rs.40, how much is the maximum gain that you may have on expiry of this position? A. 140 B. 40 C. 80 Answer: B 43.[1/1] Which is the ratio of change in option premium for the unit change in interest rates? A. Vega B. Rho C. Theta D. Gamma Answer: B 44.[1/1] Three Call series of XYZ stock - January, February and March are quoted. Which will have the lowest Option Premium (same strikes)? A. March B. February C. January D. All will be equal Answer: C 45.[1/1] Mr. X purchases 100 put option on stock S at Rs. 30 per call with strike price of Rs. 280. If on exercise date, stock price is Rs. 350, ignoring transaction cost, Mr. X will choose _____________. A. To exercise the option B. May or may not exercise the option depending on whether he is in his hometown or not at that time C. May or may not exercise the option depending on whether he like the company S or not D. Not to exercise the option Answer: D 46.[0/1] In which option is the strike price better than the market price (i.e., price difference is advantageous to the option holder) and therefore it is profitable to exercise the option? A. Out-of the money option B. In-the -money option C. At-the-money option D. Higher-the-money option Answer: C 47.[1/1] Higher the price volatility of the underlying stock of the put option, ______________. A. Lower would be the premium B. Higher would be the premium C. Nil (zero) would be the premium D. Volatility does not effect put value Answer: B 48.[0/1] Exchange traded options are _______________. A. Always in-the-money options B. Standardised options C. Customised options 7 / 15

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D. Always out-of-the money options Answer: C 49.[1/1] An in-the-money option is _____________. A. An option with a negative intrinsic value B. An option which cannot be profitably exercised by the holder immediately C. An option with a positive intrinsic value D. An option with zero time value Answer: C 50.[1/1] A put option gives the buyer a right to sell how much of the underlying to the writer of the option? A. Any quantity B. The specified quantity or less than the specified quantity C. Only the specified quantity (lot size of the option contract) D. The specified quantity or more than the specified quantity Answer: C 51.[0/1] A european call option gives the buyer the right but not the obligation to buy from the seller an underlying at the prevailing market price "on or before" the expiry date. A. FALSE B. TRUE Answer: B 52.[1/1] Current Price of XYZ Stock is Rs. 286. Rs. 260 strike call is quoted at Rs. 45. What is the Intrinsic Value? A. 25 B. 19 C. 26 D. 24 Answer: B 53.[1/1] You sold a Put option on a share. The strike price of the put was Rs.245 and you received a premium of Rs.49 from the option buyer. Theoretically, what can be the maximum loss on this position? A. 206 B. 196 C. 49 Answer: B 54.[1/1] What role do speculators play in the futures market? A. They produce the commodities traded at futures exchanges B. They take delivery of the commodities at expiration C. They add to the liquidity in the futures markets D. They transfer their risk to the hedgers Answer: C 55.[1/1] Cost of carry model states that ______________. A. Price of Futures = Spot + Cost of Carry B. Price of Futures = Spot - Cost of Carry C. Price of Futures = Spot Price D. Price of Futures = Cost of Carry Answer: A 56.[0/1] The buyer of an option cannot lose more than the option premium paid. 8 / 15

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A. True only for European options B. True only for American options C. True for all options D. False for all options Answer: A 57.[1/1] Selling short a stock means ___________. A. Seller has to deliver the stock within a short time B. Seller does not own the stock he is supposed to deliver C. Seller owns the stock he is supposed to deliver D. Seller has more than a year's time to deliver the stock which he sold Answer: B 58.[1/1] When the near leg of the calendar spread transaction on index futures expires, the farther leg becomes a regular open position. A. FALSE B. TRUE Answer: B 59.[1/1] Margins in 'Futures' trading are to be paid by _______. A. Only the buyer B. Only the seller C. Both the buyer and the seller D. The clearing corporation Answer: C 60.[0/1] In an equity scheme, fund can hedge its equity exposure by selling stock index futures. A. FALSE B. TRUE Answer: A 61.[1/1] Client A has purchased 10 contracts of December series and sold 7 contracts of January series of the NSE Nifty futures. How many lots will get categorized as regular (non-spread) open positions? A. 11 B. 3 C. 5 D. 15 Answer: B 62.[1/1] A calendar spread contract in index futures attracts ___________. A. Same margin as sum of two independent legs of futures contract B. Lower margin than sum of two independent legs of futures contract C. Higher margin than sum of two independent legs of futures contract D. No margin need to be paid for calendar spread positions Answer: B 63.[1/1] If you have sold a XYZ futures contract (contract multiplier 50) at 3100 and bought it back at 3300, what is your gain/loss? A. A gain of Rs. 10,000 B. A loss of Rs. 5,000 C. A loss of Rs. 10,000 D. A gain of Rs. 5,000 Answer: C 9 / 15

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64.[1/1] Which of the following is closest to the forward price of a share, if Cash Price = Rs.750, Forward Contract Maturity = 6 months from date, Market Interest rate = 12%? A. 772.5 B. 795 C. 840 D. 940.8 Answer: B 65.[1/1] You have taken a short position of one contract in June XYZ futures (contract multiplier 50) at a price of Rs. 3,400. When you closed this position after a few days, you realized that you made a profit of Rs. 10,000. Which of the following closing actions would have enabled you to generate this profit? (You may ignore brokerage costs.) A. Selling 1 June XYZ futures contract at 3200 B. Buying 1 June XYZ futures contract at 3600 C. Buying 1 June XYZ futures contract at 3200 D. Selling 1 June XYZ futures contract at 3600 Answer: C 66.[1/1] You sold one XYZ Stock Futures contract at Rs. 278 and the lot size is 1,200. What is your profit (+) or loss (-), if you purchase the contract back at Rs. 265? A. 16,600 B. -15,600 C. -16,600 D. 15,600 Answer: D 67.[0/1] Impact cost is low when the liquidity in the system is poor. A. TRUE B. FALSE Answer: A 68.[0/1] Operational risks include losses due to ____________. A. Too much of management control B. Income tax regulations C. Government policies D. Inadequate disaster planning Answer: A 69.[0/1] Financial derivatives provide the facility for __________. A. Speculation B. Hedging C. Arbitraging D. All of the above Answer: C 70.[1/1] The purchase of a share in one market and the simultaneous sale in a different market to benefit from price differentials is known as ____________. A. Mortgage B. Hedging C. Arbitrage D. Speculation Answer: C 10 / 15

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71.[1/1] An index option is a __________________. A. Debt instrument B. Derivative product C. Cash market product D. Money market instrument Answer: B 72.[0/1] A trading member allowed to clear his own trades only is known as _________. A. Trading member - clearing member B. Trading members are not allowed to clear their own trades C. Professional clearing member D. Self clearing member Answer: A 73.[1/1] NISM stands for ___________. A. National Institute of Stock Markets B. National Integrated Stock Market C. National Institute of Securities Markets D. National Institution of Security Market Answer: C 74.[1/1] A stock broker applies for registration to SEBI _________. A. directly B. through association of members C. through Ministry of Finance D. through stock exchange(s) of which he or she is admitted as a member Answer: D 75.[1/1] Santosh is bearish about ABC Ltd.and sells ten one-month ABC Ltd.futures contracts at Rs.2,96,000. On the last Thursday of the month, ABC Ltd.closes at Rs.310. He makes a _________. (assume one lot = 100) A. profit of Rs. 7,000 B. loss of Rs. 7,000 C. profit of Rs. 14,000 D. loss of Rs. 14,000 Answer: D 76.[1/1] Hedging with index futures means ___________. A. long security, short security B. long security, short index futures C. long security, long index futures D. long index futures, short index futures Answer: B 77.[1/1] At the balance sheet date, the balance in the `initial margin equity index futures account' should be shown separately under the head A. outstanding balance B. current assets C. prepaid expenses D. current liabilities Answer: B 78.[0/1] If the annual risk free rate is 10%, then the `r' used in the Black Scholes formula should be ______. A. 0.1398 11 / 15

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B. 1.1 C. 0.095 D. None of the above Answer: A 79.[1/1] Swaptions are: A. Options to roll over a swap B. Options on futures C. Options to buy or sell a swap D. None of the above Answer: C 80.[0/1] Around 60% of the trading volume on the American Stock Exchange is from A. Index Funds B. Index Futures C. Index Options D. ETFs Answer: B 81.[0/1] A writer of a call option is a person who _____________. A. Has the right to buy the underlying asset B. Has the obligation to sell the underlying asset C. Has the right to sell the underlying asset D. Has the obligation to buy the underlying asset Answer: A 82.[0/1] Which of the following is required for personnel working in the industry in order to dispense quality intermediation? A. To possess requisite skills and knowledge. B. To have a proper understanding of the business and skills to help it remain competitive. C. To follow certain code of conduct. D. All of the above Answer: C 83.[1/1] The clearing member/trading member is required to disclose to the clearing corporation details of any person(s) acting in concert who together own _____% or more of the open interest of all futures and options contracts on a particular underlying index on the stock exchange. A. 12 B. 20 C. 15 D. 25 Answer: C 84.[0/1] Which of the following should be disclosed separately for long and short positions, in respect of each series of equity index futures as of the balance sheet date? A. The daily settlement price B. Number of equity index futures contracts having open position C. Number of units of equity index futures pertaining to the contracts D. All of the above Answer: B 85.[1/1] A dealer sold one January Nifty futures contract for Rs.250,000 on 15th January. Each Nifty futures contract is for delivery of 50 Nifties. On 25th January, the index closed at 5100. How much profit/loss did he 12 / 15

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make? A. Profit of Rs. 9000 B. Loss of Rs. 8000 C. Loss of Rs. 9500 D. Loss of Rs. 5000 Answer: D 86.[1/1] Spot Price = Rs. 100. Call Option Strike Price = Rs. 98. Premium = Rs. 4. An investor buys the Option contract. On Expiry of the Option the Spot price is Rs. 108. Net profit for the Buyer of the Option is ___. A. Rs. 6 B. Rs. 5 C. Rs. 2 D. Rs. 4 Answer: A 87.[1/1] ETFs can be ________. A. bought on an exchange but sold only directly to the mutual fund B. bought and sold only directly with a mutual fund C. bought and sold on an exchange like shares D. None of the above Answer: C 88.[0/1] The Black-Scholes option pricing model was developed in ____ . A. 1923 B. 1973 C. 1887 D. 1987 Answer: C 89.[1/1] A stock broker is allowed to buy, sell or deal in securities __________. A. only on being admitted as a member of a stock exchange B. on submission of document with stock exchange for admission C. only on having a certificate of registration granted by SEBI D. on submission of document with SEBI for registration Answer: C 90.[1/1] The beta of Nifty is _______. A. 1.7 B. 1 C. -1 Answer: B 91.[1/1] The intrinsic value of a call option is the amount the option is A. at-the-money B. above-the-money C. in-the-money D. out-of-the-money Answer: C 92.[0/1] Transaction tax is payable by the __________ of the derivative instrument. A. designer B. buyer C. originator 13 / 15

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D. seller Answer: B 93.[0/1] NSCCL's on-line position monitoring system monitors open position of _____________on a real time basis. A. dealer only B. trading member only C. clearing member only D. clearing member and trading member Answer: D 94.[0/1] An 'authorised person' in the Futures & Options segment is ___________. A. any person who is acting in any capacity on behalf of the trading member or a participant for any activity relating to the trades done and executed B. a person authorised by the exchange as an approved user of a trading member C. an approved user of a participant D. All of the above Answer: C 95.[1/1] Futures trading first emerged in the exchanges located in ________. A. London B. Chicago C. Singapore D. Frankfurt Answer: B 96.[1/1] The maximum brokerage chargeable by a trading member in relation to trades effected in the contracts admitted to dealing on the F&O segment of NSEIL is fixed at ______ of the contract value, exclusive of statutory levies. A. 1.50% B. 2.50% C. 0.75% D. 3% Answer: B 97.[0/1] Derivatives can be used for which of the following? A. Hedging B. Arbitrage C. Speculating D. All of the above Answer: B 98.[0/1] An option to buy or sell a swap, that becomes operative at the expiry of the option, is called a ______ A. swaption B. futures C. basket option D. Warrants Answer: C 99.[0/1] ______ is a form of basket options. A. Equity index futures B. Equity index options C. Swaptions 14 / 15

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D. Warrants Answer: C 100.[1/1] Seller of a put option expects ___________. A. Decrease in the price of underlying asset B. Increase in the price of underlying asset C. No change in the price of underlying asset D. Both (2) and (3) Answer: B

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