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 CONTENTS

Chapter No. Chapter Topic Weights % Page No.

Chapter 1 Basics of Derivatives 8% 2

Chapter 2 Understanding Index 2% 8

Chapter 3 Introduction to Forwards and Futures 25% 13

Chapter 4 Introduction to Options 25% 25

Chapter 5 Option Trading Strategies 3% 33

Chapter 6 Introduction to Trading Systems 4% 41

Chapter 7 Introduction to Clearing and Settlement System 13% 48

Chapter 8 Legal and Regulatory Environment 15% 57

Chapter 9 Accounting and Taxation 3% 64

Chapter 10 Sales Practices and Investors Protection Services 3% 68

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 CHAPTER: 1
Basics of Derivatives

Q 1: The first use of derivatives contract was _____________.

(a) To manage price uncertainty

(b) For speculation

(c) For arbitrage

(d) None of the above

Q 2: Derivative is a product whose value is derived from the value of one or more basic

variables, called bases such as__________________.

(a) Underlying asset

(b) Index

(c) Reference rate

(d) All of the above

Q 3: The underlying asset can be _________.

(a) Equity

(b) Forex

(c) Commodity or any other asset

(d) All of the above

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 Q 4: The price of a derivative is driven by the _____.

(a) Future price of the underlying

(b) Past price of the underlying

(c) Spot price of the underlying

(d) None of the above

Q 5: Market Participants, who trade in the derivatives market, are _____.

(a) Hedgers

(b) Speculators

(c) Arbitrageurs

(d) All of the above

Q 6: Arbitrageurs are in business to take advantage of a _______.

(a) Similarity between prices in two different markets.

(b) Discrepancy between prices in two different markets

(c) Discrepancy between prices in two different securities

(d) Similarity between prices in two different securities

Q 7: Derivative products initially emerged as _________ against fluctuations in commodity

prices.

(a) Speculative devices

(b) Risky devices

(c) Hedging devices

(d) Volatile devices

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 Q 8: The first stock index futures contract was traded at ____________.

(a) Kansas City Board of Trade

(b) Chicago Board of Trade

(c) Chicago Mercantile Exchange

(d) Chicago Board Options Exchange

Q 9: First exchange to start trading financial futures_______________.

(a) Kansas City Board of Trade

(b) Chicago Board of Trade

(c) Chicago Mercantile Exchange

(d) Chicago Board Options Exchange

Q 10: The derivatives trading on the exchange commenced with S&P CNX Nifty Index futures

on ___________.

(a) June 12,1999

(b) June 12, 2001

(c) June 12, 2000

(d) June 12,2002

Q 11: The trading in index options commenced in ___________.

(a) June 4, 2001

(b) June 4,2000

(c) June 4, 2002

(d) June 4, 2003

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 Q 12: The trading in options on individual securities commenced in ________.

(a) July 2, 2001

(b) July 2, 2002

(c) July 2, 2003

(d) July 2, 2004

Q 13: Futures contracts on individual stocks were launched in _____________.

(a) November 9, 2004

(b) November 9, 2003

(c) November 9, 2002

(d) November 9, 2001

Q 14: Futures trading commenced first on_____________.

(a) Chicago Board of Trade

(b) Chicago Mercantile Exchange

(c) Chicago Board Options Exchange

(d) London International Financial Futures and Options Exchange

Q 15: The first exchange traded financial derivative in India commenced with the trading

of_________________.

(a) Index futures

(b) Index options

(c) Stock options

(d) Interest rate futures

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 Q 16: Over-the-counter market is not a physical marketplace but a collection of broker-

dealers scattered across the country.

(a) True

(b) False

Q 17: Over-the-counter options are standardized products. True or False?

(a) True

(b) False

Q 18: OTC derivatives are considered risky because_______________.

(a) The management of counter-party (credit) risk is decentralized

(b) There are no formal rules or mechanisms for risk management.

(c) There are no formal centralized limits on individual position and margining.

(d) All of the above

Q 19: The derivatives market helps in improving price discovery based on actual valuations

and expectations

(a) True

(b) False

Q 20: Derivatives market helps in the transfer of various risks from a hedger to speculator.

(a) True

(b) False

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 CHAPTER 1 ANSWERS

1 (a) 2 (d) 3 (d) 4 (c) 5 (d)

6 (b) 7 (c) 8 (a) 9 (c) 10 (c)
11 (a) 12 (a) 13 (d) 14 (a) 15 (a)
16 (a) 17 (b) 18 (d) 19 (a) 20 (a)

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 CHAPTER: 2
Understanding Index

Q 1: A good stock market index captures the behavior of the _______.

(a) Individual script
(b) Specified scripts
(c) Overall equity market
(d) None of the above

Q 2: An index is a portfolio of securities that represent a particular market or a portion of a

market.
(a) True
(b) False

Q 3: An index can be used as a benchmark for portfolio performance.

(a) True
(b) False

Q 4: A good index is a trade-off between __________

(a) Diversification and liquidity
(b) Diversification and profitability
(c) Liquidity and profitability
(d) None of the above

Q 5: In a market capitalization-weighted index, each stock in the index affects the index
value in proportion to the _________ of all shares outstanding.
(a) Face value
(b) Par value
(c) Present value
(d) Market value

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 Q 6: A market index can be used for which of following purpose_________.
(a) As a barometer for market behaviour & portfolio performance,
(b) As an underlying in derivative instruments like index futures,
(c) In passive fund management by index funds
(d) All of the above

Q 7: A good market index should have, which of the following attributes____________.

(a) It should capture the behavior of a large variety of different portfolios in the market.
(b) The stocks included in the index should be highly liquid.
(c) It should be professionally maintained.
(d) All of the above

Q 8: Which of following is true

(a) Impact cost is a Percentage degradation, which is experienced vis-à-vis the ideal price,
when shares are bought or sold.
(b) Impact cost is a Percentage upgradation, which is experienced vis-à-vis the ideal price,
when shares are bought or sold.

(c) Impact cost is a Percentage degradation effects the face value of a share.
(d) Impact cost is a most of time depend over it’s company management.

Q 9: Market impact cost is ________.

(a) Increasing the price of face value of the share.
(b) decreasing the price of face value of the share
(c) Percentage degradation of the ideal share price.
(d) Percentage up-gradation of the ideal share price..

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 Q 10: Nifty index is managed by ________________
(a) National Stock Exchange Limited (NSEL),
(b) Security Exchange Board of India (SEBI)
(c) India Index Services & Products Limited (IISL)
(d) Ministry of Corporate Affairs

Q 11: Nifty is which type of index?

(a) Market capitalization weighted index
(b) Free-Float Market Capitalization Index
(c) Price-Weighted Index
(d) Equal Weighted Index

Q 12: The market impact cost on a trade of Rs.3 million of the full Nifty works out to be
about 0.5%. This means that if Nifty is at 2000, a buy order will go through at roughly
(a) 2010
(b) 2050
(c) 2500
(d) None of the above

Q 13: IISL is a joint venture of ________________

(a) Standard & Poor’s, National Stock Exchange and SEBI
(b) Standard & Poor’s, Reserve Bank of India (RBI) and SEBI
(c) National Stock Exchange, Bombay Stock Exchange and SEBI
(d) Standard & Poor’s, National Stock Exchange and CRISIL

Q 14: An index can be used for ________________

(a) To understand the overall market direction
(b) To create index fund
(c) To create exchange traded funds
(d) All of the above

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 Q 15: An index generates the __________ return
(a) Similar or higher return
(b) Similar return
(c) Similar or lower return
(d) None of the above

Q 16: The first ETF in Indian Securities Market was

(a) Nifty BeES
(b) SPIcE
(c) CNX Midcap
(d) None of the above

Q 17: The first ETF in India, based on S&P CNX Nifty, was launched in _________.
(a) November 2001
(b) Novemver 2000
(c) December 2000
(d) December 2001

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 CHAPTER 2 ANSWERS

1 (c) 2 (a) 3 (a) 4 (a) 5 (d)

6 (d) 7 (d) 8 (a) 9 (c) 10 (c)
11 (b) 12 (a) 13 (d) 14 (d) 15 (b)
16 (a) 17 (d)

Calculations:
Q 12: 0.5% of 2000 works out to be 10. Hence a buy order will go through at 2010.

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 CHAPTER: 3
Introduction to Forwards and Futures

Q 1: A forward contract is a _________ contract between two entities, where settlement takes
place on a specific date in the future at today’s pre-agreed price.
(a) Customized
(b) Standardized
(c) Legal
(d) None of the above

Q 2: Futures contracts are___________ exchange-traded contracts.

(a) Customized
(b) Standardized
(c) Legal
(d) None of the above

Q 3: A forward contract ____________

(a) A contract between two parties

(b) Terms are fixed on the day of entering into the contract

(c) Alteration in the terms of the contract is possible if both parties agree to it

(d) All of the above

Q 4: Limitations of forward markets are ____________.

(a) Lack of centralization of trading,
(b) Illiquidity,
(c) Counterparty risk
(d) All of the above

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 Q 5: _________, The price at which an asset trades in the cash market.
(a) Future price
(b) Strike price
(c) Option price
(d) Spot price

Q 6: __________, The price at which the futures contract trades in the futures market.
(a) Strike price
(b) Option price
(c) Spot price
(d) Futures price

Q 7: The futures contracts on the NSE have __________expiry cycles.

(a) One-month
(b) Two-months
(c) Three-months
(d) All of the above

Q 8: _______ can be defined as the futures price minus the spot price.
(a) Basis
(b) Spread
(c) Basic
(d) Difference

Q 9: The amount that must be deposited in the margin account at the time a futures
contract is first entered into is known as _________
(a) Initial margin
(b) Initial deposits
(c) Base capital
(d) Minimum capital

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 Q 10: In the futures market, at the end of each trading day, the margin account is adjusted
to reflect the investor's gain or loss depending upon the futures closing price. This is called
_______
(a) Initial margin
(b) Additional margin
(c) Marking-to-market
(d) Maintenance margin

Q 11: The day on which a derivative contract ceases to exist.

(a) Delivery date
(b) Due date
(c) Expiry date
(d) None of the above

Q 12: _________is minimum move allowed in the price quotations.

(a) Strick price
(b) Spot price
(c) Tick price
(d) Base price

Q 13: How to calculate the future contract value?

(a) Price of future x Lot size
(b) Price of future x Spot value
(c) Spot price x Lot size
(d) Spot price x Index

Q 14: The basis may become negative or positive during the life of the contract.
(a) True
(b) False

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 Q 15: The basis becomes _____________ at the expiry of a future contract.
(a) Highest
(b) Lowest
(c) Zero
(d) None of the above

Q 16: At the time of expiry of a future contract, the difference between spot price and
future price is zero.
(a) True
(b) False

Q 17: The initial margin depends on the underlying asset's price movement. Exchange
charges a higher initial margin on higher volatile securities.
(a) True
(b) False

Q 18: The total number of outstanding contracts(long/short) at any point in time is called
the __________.
(a) Due interest
(b) Outstanding interest
(c) Open interest
(d) None of the above

Q 19: The price range within which a contract is permitted to trade during a day is known as
____.
(a) Price band.
(b) Contract range
(c) Open and Closing price
(d) None of the above

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 Q 20: What is a long position?
(a) An outstanding sell position in a contract.
(b) An outstanding buy position in a contract.
(c) Both of the above
(d) Generating profit in a position

Q 21: If a person in a short position means he has _______.

(a) Sold the future contract.
(b) Bought the future contract.
(c) Both of the above
(d) None of the above

Q 22: Only an unsettled long position in various derivative contracts is called “Open
Position”.
(a) True
(b) False

Q 23: The risk that cannot be controlled by diversification of portfolio is _____.

(a) Systematic Risk .
(b) Unsystematic risk.
(c) Operational Risk
(d) Company-specific risk

Q 24: Mr. Ajay is an investor. He has a stock portfolio. He is bearish about the stock market.
How will he hedge his portfolio?
(a) He can sell portfolio.
(b) He will buy a index future.
(c) He will sell index futures
(d) He will watch and wait.

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 Q 25: A trader sells a futures contract and the price goes upside. The trader will make a loss
- State true of false.
(a) True
(b) False

Q 26: Mr. Ajay thinks that the market is bearish, so he sell 5 lots of index futures at 3200. His
predictions come true and the index falls and Mr. Ganesh buys back the futures contract at
3110. What is the profit Mr. Ganesh has made if one lot of index is of 100.
(a) 35000
(b) 45000
(c) 55000
(d) 65000

Q 27: A client has bought a February series contract on ABC future without having any
position in the spot market. This position is known as ___________.
(a) Short position
(b) Naked position
(c) Buy position
(d) None of the above

Q 28: A client Mr. A has bought February series contract and another client Mr. B has sold a
March series contract on Nifty futures. This has been done through the same broker. Will
this qualify as a calendar spread?
(a) Yes
(b) No

Q 29: The combination of one long position in near month future contract and one short
position in far month future contract is known as __________.
(a) Short position
(b) Custom position
(c) Calendar spread
(d) 2 future contract

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 Q 30: At a price level of Rs. 5600, what will be the value of one lot of ABC futures contract
(contract multiplier 100)?
(a) Rs. 10000
(b) Rs. 650000
(c) Rs. 560000
(d) None of above

Q 31: A person sells a future contract of March month. What could be the maximum loss in
this case?
(a) Fixed
(b) Unlimited

Q 32: A short position in a Future contract can be closed by_______.

(a) Buying a Call option
(b) Selling a Put option
(c) Buying a Future of the same contract
(d) None of above

Q 33: Forward contracts are more liquid then future contracts – True or False?
(a) True
(b) False

Q 34: An arbitrager earns a risk-free profit by purchasing an asset cheaply in one market and
selling it in another market at a higher price. Is it True or False?
(a) True
(b) False

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 Q 35: What the important role is played by the speculator in the Future Market?
(a) They take delivery of the commodities at expiration
(b) They add to the liquidity in the futures markets
(c) They transfer their risk to the hedgers
(d) They produce risk free profit in the market

Q 36: How to calculate the open position of a Trading Member?

(a) By adding up all his clients net outstanding positions
(b) By adding up all his proprietary positions
(c) By adding up his proprietary open positions and all his client’s net outstanding positions
(d) By multiplying the proprietary position with a contract size

Q 37: After entering into a Future Contract, the price of underlying rises. Which of the
following is correct in this situation?
(a) A short position become unprofitable
(b) A short position become profitable
(c) A long position becomes profitable
(d) There will be no effect of price change in the underlying asset

Q 38: Which of the following is the correct sentence?

(a) A Forward contract is more liquid than a Future contract.
(b) Future and Forward both are tradable at the exchange.
(c) A Future contract is riskier than a Future contract.
(d) A Future contract is more liquid than a Forward contract.

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 Q 39: Initial margin to be paid in derivatives is set up taking into account the volatility of the
underlying market. Generally ___
(a) Lower the volatility, higher the initial margin
(b) Higher the volatility, lower the initial margin
(c) Higher the volatility, higher the initial margin
(d) Equal initial margin at any volatility

Q 40: The futures contracts have a maximum of ___month expiration cycles.

(a) One
(b) Two
(c) Three
(d) Six

Q 41: A new contract is introduced on the next trading day following the expiry of the
_______ contract.
(a) Far month
(b) Near month
(c) Middle month
(d) All of the above

Q 42: Nifty includes the _____ most liquid stocks that trade on NSE.
(a) 30
(b) 50
(c) 100
(d) 500

Q 43: The price of a future contract is not decided by the exchange. State – true or false.
(a) True
(b) False

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 Q 44: In the futures market, who decides all the terms of the future contract?
(a) SEBI
(b) Exchange
(c) IRDA
(d) Central government

Q 45: The lot size of future contract is decided by the SEBI. State – true or false.
(a) True
(b) False

Q 46: The contract size for future is different for each stock and indies and can be modified
by the exchange. State – true or false.
(a) True
(b) False

Q 47: There is a trading holiday on last Thursday i.e. 28 December; the future contract will
expire on ______________.
(a) 26 December
(b) 27 December
(c) 28 December
(d) 29 December

Q 48: _______is minimum move allowed in the price quotations.

(a) Bid Price
(b) Ask Price
(c) Tick Price
(d) Market Price

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 Q 49: In futures contract the tick size is determined by __________.
(a) SEBI
(b) Company
(c) Seller
(d) Exchange

Q 50: The price of a security is Rs. 351. What will be the next minimum upward price? (The
tick size is Rs.0.05.)
(a) 351.05
(b) 352
(c) 351.10
(d) 355

Q 51: What is the tick size for Nifty futures?

(a) 0.01
(b) 0.05
(c) 0.10
(d) 01.00

Q 52: The exchange calculates the daily settlement price of the futures contracts, on the
basis of ______.

(a) The last traded price of that futures contract.

(b) The weighted average price of current day trading of that future contract.
(c) The weighted average price of spot price of underlying asset.
(d) The last half-an-hour weighted average price of that futures contract

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 CHAPTER 3 ANSWERS

1 (a) 2 (b) 3 (d) 4 (d) 5 (d)

6 (d) 7 (d) 8 (a) 9 (a) 10 (c)
11 (c) 12 (c) 13 (a) 14 (a) 15 (c)
16 (a) 17 (a) 18 (c) 19 (a) 20 (b)
21 (a) 22 (a) 23 (a) 24 (c) 25 (a)
26 (b) 27 (b) 28 (b) 29 (c) 30 (c)
31 (b) 32 (c) 33 (b) 34 (a) 35 (b)
36 (c) 37 (c) 38 (d) 39 (c) 40 (c)
41 (b) 42 (b) 43 (a) 44 (b) 45 (b)
46 (a) 47 (b) 48 (c) 49 (d) 50 (a)
51(b) 52 (d)

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 CHAPTER: 4
Introduction to Options

Q 1: _________ are options on individual stocks.

(a) Stock options

(b) Index options

(c) Futures& options

(d) Index futures

Q 2: _________ the one who receives the option premium and is thereby obliged to sell/ buy the
asset if the buyer exercises on him.

(a) The buyer

(b) The receiver

(c) The operator

(d) The writer

Q 3: The price which the option buyer pays to the option seller _______.

(a) Spot price

(b) Future price

(c) Option price

(d) Margins

Q 4: ___________ are options that can be exercised at any time upto the Expiration date.

(a) American options

(b) European options

(c) Both of the above

(d) None of the above

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 Q 5: The underlying asset for a derivative contract can be

(a) Equity

(b) Commodities

(c) Interest rate

(d) Any of the above

Q 6: The futures and options trading system of NSE, called _______.

(a) F&O trading system

(b) NEAT system

(c) NEAT trading system

(d) NEAT-F&O trading system

Q 7: In the case of a call, the call is _______if the index is below the strike price.

(a) ITM

(b) ATM

(c) OTM

(d) ZERO

Q 8: In the case of a put, the put is _______if the index is above the strike price.

(a) ITM

(b) ATM

(c) OTM

(d) ZERO

Q 9: If the call is OTM, its intrinsic value is ______

(a) ITM

(b) ATM

(c) OTM

(d) ZERO

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 Q 10: ________is the difference between its premium and its intrinsic value.

(a) The time value of an option

(b) The call value of an option

(c) The money value of an option

(d) The basis

Q 11: The profits , as well as losses for the buyer and the seller of a futures contract, are ________.

(a) Unlimited

(b) Limited

(c) Zero

(d) Positive

Q 12: The profit/ loss that the buyer makes on the option depends on the _________.

(a) Spot price of the underlying.

(b) Future price of the underlying

(c) Option price

(d) Strike price

Q 13: Which of the following cannot be an underlying asset for a financial derivative contract?

(a) Equity index

(b) Commodities

(c) Interest rate

(d) Foreign exchange

Q 14: Which of the following exchanges was the first to start trading financial futures?

(a) Chicago Board of Trade

(b) Chicago Mercantile Exchange

(c) Chicago Board Options Exchange

(d) London International Financial Futures and Options Exchange

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 Q 15: In an options contract, the option lies with the __________.

(a) Buyer

(b) Seller

(c) Both

(d) Exchange

Q 16: Two persons agree to exchange 100 gms of gold at Rs.400/gm three months later. This is an
example of a___________.

(a) Futures contract

(b) Forward contract

(c) Spot contract

(d) None of the above

Q 17: A call option at a strike of Rs.176 is selling at a premium of Rs.18. At what price will it break
even for the buyer of the option?

(a) Rs.196

(b) Rs.204

(c) Rs.187

(d) Rs.194

Q 18: Typically option premium is

(a) Less than the sum of intrinsic value and time value

(b) Greater than the sum of intrinsic value and time value

(c) Equal to the sum of intrinsic value and time value

(d) Independent of intrinsic value and time value

Q 19: Spot value of S&P CNX Nifty is 2140. An investor bought a one-month S&P CNX Nifty 2157 call
option for a premium of Rs.7. The options is

(a) In-the-money

(b) At-the-money

(c) Out-of-money

(d) None of the above

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 Q 20: A put option gives the _______the right but not the obligation to __________the underlying
asset at a specified price.

(a) Seller, buy

(b) Seller, sell

(c) Owner, buy

(d) Owner, sell

Q 21: An in-the-money option contract would generate upon exercise for the buyers.

(a) Positive cash flow

(b) Pre-determined amount of cash flow

(c) No cash flow

(d) Negative cash flow

Q 22: By buying index futures one can make .

(a) Unlimited profits or loss since market may go up or down

(b) Limited profit but unlimited losses

(c) Limited profits or losses

(d) Unlimited profit but limited loss

Q 23: An index put option at a strike of Rs. 1176 is selling at a premium of Rs. 36. At what index level
will it break even for the buyer of the option ?

(a) Rs. 1,870

(b) Rs. 1,140

(c) Rs. 1,212

(d) Rs. 1,940

Q 24: A stock currently sells at 120. The put option to sell at strike price 134 costs Rs.18. The time
value of the option is ________.

(a) Rs.18

(b) Rs.4

(c) Rs.14

(d) Rs.12

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 Q 25: Time value of an option is the difference between ___________.

(a) Spot price and premium

(b) Strike price and premium

(c) Premium and spot price

(d) Premium and intrinsic value

Q 26: The option premium is decided by the Stock Exchanges – True or False?

(a) TRUE

(b) FALSE

Q 27: ______ is the ratio of change in option premium for a unit change in volatility.

(a) Rho

(b) Theta

(c) Delta

(d) Vega

Q 28: A trader has taken a long position in a PUT option. This position can be closed by taking a
short position in CALL option.

(a) True

(b) False

Q 29: Any trader can sell the stock future, whether he holds stock or not.

(a) True

(b) False

Q 30: ________ Option which gives buyer a right to sell the underlying asset.

(a) Call

(b) Put

(c) American

(d) European

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 Q 31: The longer the time to expiry of an option, the higher will be time value

(a) TRUE

(b) FALSE

Q 32: Intrinsic value is always positive for in-the-money options and negative for out-of-the money
options - State True or False?

(a) True

(b) False

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 CHAPTER 4 ANSWERS

1 (a) 2 (d) 3 (c) 4 (a) 5 (d)

6 (d) 7 (c) 8 (c) 9 (d) 10 (a)
11 (a) 12 (a) 13 (b) 14 (b) 15 (a)
16 (b) 17 (d) 18 (c) 19 (c) 20 (d)
21 (a) 22 (a) 23 (b) 24 (b) 25 (d)
26 (b) 27 (d) 28 (b) 29 (a) 30 (b)
31 (a) 32 (b)

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 CHAPTER: 5
Strategies using Equity futures and Equity options

Q 1: A trade has taken long position in October month future contact and short position in
December month future contact. Combination of these two positions is also known as
____________.

(a) Long strategy

(b) Calendar spread

(c) Naked position

(d) Short strategy

Q 2: When one of contract of calendar spread expires, a calendar spread becomes a _________
position.

(a) Long position

(b) Hedged position

(c) Naked position

(d) Short position

Q 3: Option spreads involves combining options, in such a way that there is limited profit or limited
loss - State True or False ?

(a) True

(b) False

Q 4: Option Spreads involve combining options on the same underlying and of same type (call/ put)
but with different strikes and maturities. - State True or False ?

(a) True

(b) False

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 Q 5: Which of the following options will result in the creation of a BEAR SPREAD ?

(a) One long put with a higher strike price and one short put with a lower strike price

(b) Buying one put and buying one call at the same strike

(c) Selling one call and buying two puts at the same strike

(d) None of the above

Q 6: Which of the following spread is used to generate profit if the price goes down ________?

(a) Hedge Spread

(b) Arbitrage Spread

(c) Bull Spread

(d) Bear Spread

Q 7: A trader is bearish on the market so he short a lower strike price CALL option and buys a higher
strike price CALL option, both of the same scrip and same expiry date. This strategy is called _______
.

(a) Bullish Spread

(b) Bearish Spread

(c) Long term Investment

(d) Butterfly

Q 8: Mr. Ashok take a long position in a PUT option of a higher strike price and shorts position
another PUT option of a lower strike price, of the same scrip and same expiry. This strategy is called
_______ .

(a) Bullish Spread

(b) Bearish Spread

(c) Calendar spread

(d) Straddle

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 Q 9: The _________ strategy is used to generate extra income from existing holdings in the cash
market..

(a) Covered call

(b) Protective put

(c) Naked call

(d) Naked put

Q 10: Writing a covered call is more risky than writing a naked call. - State True or False?

(a) True

(b) False

Q 11: An arbitrage is a risk free strategy. - State true or false?

(a) True

(b) False

Q 12: A strategy is created by shorting a call and a put option of same strike and same expiry, known
as ___________.

(a) Short Straddle

(b) Long Straddle

(c) Vertical spread

(d) None of the above

Q 13: A trader buys a put option on a stock that he owns, the strategy opted by him is
_____________ .

(a) Calender spread

(b) Protective put

(c) Covered call

(d) Short Straddle

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 Q 14: Buying a call and a put option of same strike price and same expiry. This strategy is known as
_________ .

(a) Protective Call

(b) Bull Spread

(c) Calendar Spread

(d) Long Straddle

Q 15: A Bearish Spread is when a trader buys a put option with a higher strike price and sells a put
option with a lower strike price, both of the same underlying- State true or false?

(a) True

(b) False

Q 16: An investor buys a call option and a put option of same strike and same expiry date. This
strategy is known as ________?

(a) Bullish spread

(b) Long Straddle

(c) Bearish spread

(d) Butterfly spread

Q 17: A long straddle is, when trader sales a call option and a put option of same strike and same
expiry date- State true or false?

(a) True

(b) False

Q 18: In a short straddle position, investor sales a call option and a put option of same strike and
same expiry date- State true or false?

(a) True

(b) False

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 Q 19: A trader buys a put option with a higher strike price and sells another a put option with a
lower strike price, both of the same underlying. This strategy is known as ________ .

(a) Butterfly spread

(b) Bullish Spread

(c) Long Straddle

(d) Bearish Spread

Q 20: 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) Butterfly spread

(c) Bullish spread

(d) Long Straddle

Q 21: Which of the following strategy is similar to straddle strategy in outlook but different in the
implementation, aggression and cost.

(a) Bullish Spread

(b) Covered Call

(c) Butterfly

(d) Strangle

Q 22: Which of following is a risk free strategy?

(a) Arbitrage

(b) Covered call

(c) Bullish spread

(d) Long strangle

Q 23: Which of the following strategy is a hedged strategy?

(a) Short straddle

(b) Short strangle

(c) Covered call

(d) Protective put

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 Q 24: Covered calls carry greater risk then Naked Calls – True or False ?

(a) True

(b) False

Q 25: A butterfly spread is an extension of __________ strategy.

(a) Covered call

(b) Long straddle

(c) Short straddle

(d) Long Strangle

Q 26: Mr. Dinesh buy a put option on a stock he owns, this strategy opted by him is known as
_____________ .

(a) Straddle

(b) Protective put

(c) Covered put

(d) Writing a covered call

Q 27: Mr. Sharma buys a put and a call option, both on the same share and same expiration. The
strategy opted by him is known as _________.

(a) Bearish Spread

(b) Bullish Spread

(c) Calendar Spread

(d) Straddle

Q 28: If a trader buys a put option with a higher strike price and sells a put option with a lower strike
price, both of the same underlying. This strategy is known as ________ .

(a) Bullish Spread

(b) Bearish Spread

(c) Butterfly spread

(d) Straddle

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 Q 29: What is a covered call?

(a) This strategy is used to generate extra income from existing holdings in the cash market.

(b) This is a strategy to buy and sell calls at various strike prices but having a same expiry.

(c) Through this strategy buyer of call can generate maximum profit.

(d) The combination of buying and selling a call option of different strikes .

Q 30: Ms. Ajay shorts a low strike call with a high premium and also goes long a higher strike call
costing a smaller premium. This strategy is called _______ .

(a) Bullish Spread

(b) Bearish Spread

(c) Straddle

(d) Calendar spread

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 CHAPTER 5 ANSWERS
1 (b) 2 (c) 3 (a) 4 (a) 5 (a)

6 (d) 7 (b) 8 (b) 9 (a) 10 (a)

11 (a) 12 (a) 13 (b) 14 (d) 15 (a)

16 (b) 17 (b) 18 (a) 19 (d) 20 (c)

21 (d) 22 (a) 23 (d) 24 (b) 25 (c)

26 (b) 27 (d) 28 (b) 29 (a) 30 (b)

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 Chapter 6 Trading Mechanism

Q1: A self clearing member can clear and settle his own trades as well as trades of other trading

member- Stare true or false.

(a) True

(b) False

Q2: Which of following is not Trading Member of the exchange but clears the trades of his associate

Trading Member?

(a) Trading cum Clearing Member

(b) Professional clearing member

(c) Self Clearing Member

(d) Trading associated member

Q3: A Trading member–cum–clearing member is a trading member and can clear and settle only

their own proprietary trades as well as their clients' trades but cannot clear and settle trades of

other Trading Members. - State True or False ?

(a) True

(b) +False

Q4: ‘Corporate manager’ is the __________level, in a corporate hierarchy of a trading firm.

(a) Highest level

(b) Middle level

(c) Lowest level

(d) None of the above

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 Q5: The branch manager can perform and view order and trade related activities for _________.

(a) All dealers under all branches

(b) All dealers under that branch

(c) Only one dealer of each branch

(d) Only one dealer under that branch

Q 6: A Dealer can perform view order and trade related activities only for ___________.

(a) All dealers under that branch

(b) Only one dealer of each branch

(c) Only one dealer under that branch

(d) Oneself

Q 7: Which of following is the highest level in a trading firm?

(a) Corporate Manager

(b) Branch Manager

(c) Dealer

(d) Client

Q 8: Dealer is at the lowest level of the user hierarchy.

(a) True

(b) False

Q 9: An order is valid for a single day known as ___________?

(a) Time order

(b) Day order

(c) Immediate or cancel

(d) Market order

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 Q 10: Which of following order is cancels by the trading system automatically at the end of the day,
if not executed?

(a) Time order

(b) Day order

(c) Immediate or cancel

(d) Limit order

Q 11: The orders for which No price is specified at the time of entering order, known as
__________?

(a) Stop loss order

(b) Market order

(c) Auction order

(d) Immediate or cancel order

Q12: Mr. Das placed an order to buy a contract and specified a specific price; this order is known as
__________?

(a) Day order

(b) Market order

(c) Limit order

(d) Stop loss order

Q 13: “Immediate or cancel order”, is an order condition where unmatched portion of placed order
cancels automatically.

(a) True

(b) False

Q14: Price band is not applicable in derivative segment

(a) True

(b) False

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 Q 15: Which of the following is the duty of the trading member?

(a) Giving tips to clients to buy and sell

(b) Ensuring timely pay-in and pay-out of funds

(c) Funding losses of the clients

(d) All of the above

Q 16: ____________ is at the lowest level of hierarchy of a trading firm.

(a) Regional Manager

(b) Branch Manager

(c) Dealer

(d) Speculator

Q 17: The adjustment factor for a stock which issues a Bonus in the ratio A : B is _______.

(a) (A + B) x B

(b) (A – B) / B

(c) ( A – B ) X A

(d) (A + B) / B

Q 18: In India, futures and options on individual stocks are allowed on__________.

(a) A few selected stocks only

(b) Only those stocks which are simultaneously listed on all the stock exchange in India

(c) All stocks listed on any of the exchanges

(d) All stocks with stock price of more than Rs.100 or Rs 50 in A and B group resp.

Q 19: Which of following is / are the stock selection criteria for derivatives trading

(a) The stock shall be chosen from amongst the top 500 stocks in terms of average daily market
capitalization and average daily delivery value in the cash market shall more than Rs 10 crores.

(b) The stock’s median quarter-sigma order size over the last six months, shall not be less than Rs
25 Lakhs.

(c) The market wide position limit (MWPL) in the stock shall not be less than Rs 500 crores.

(d) All of the above.

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 Q 20: A stock which is excluded from derivatives trading cannot eligible again.

(a) True

(b) False

Q 21: The adjustment factor for Splits and Consolidations of share of ratio A : B is _______.

(a) ( A +B ) / B

(b) ( A - B ) / A

(c) ( A +B ) / A

(d) A / B

Q 22: The market price of XYZ India Ltd is Rs 220, has declared dividend for Rs. 3 per share. This
dividend would be considered as deemed to be ordinary dividends.

(a) True

(b) False

Q 23: There is need to adjust strike price, whenever a company declares a dividend, whether it is
ordinary or extraordinary dividend.

(a) True

(b) False

Q 24: There is no adjustment in the strike price would be made for ordinary dividends

(a) True

(b) False

Q 25: Transaction charges are charged by which of following?

(a) Broker

(b) Sub-broker

(c) Exchange

(d) Government

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 Q 26: The index on which dreivative contracts are permitted shall be required to comply with the
eligibility criteria on a continuous basis. If the index fails to meet the eligibility criteria for _______
consecutive months, then no fresh contract shall be issued on that index.

(a) One consecutive month

(b) Two consecutive months

(c) Three consecutive months

(d) Six consecutive months

Q 27: An index is excluded from the derivatives trading. This index could be reintroduced for
derivative trading after ______ months. If completes the eligibility again.

(a) One month

(b) Two month

(c) Three month

(d) Six month

Q 28: What charges are covers under s statutory charges?

(a) Securities Transaction Tax (STT), Goods and Services tax (GST)

(b) Securities Transaction Tax (STT), Stamp Duty

(c) Securities Transaction Tax (STT), Goods and Services tax (GST), Stamp Duty and SEBI

(d) Securities Transaction Tax (STT), Goods and Services tax (GST), Stamp Duty and SEBI Turnover
fees

Q 29: Which of the following costs is not actually paid by the market participants but arises due to
lack of liquidity?

(a) Securities Transaction Tax

(b) Impact cost

(c) SEBI charges

(d) Brokerage

Q 30: Impact cost is low when the liquidity in the system is poor

(a) True

(b) False

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 CHAPTER 6 ANSWERS
1 (b) 2 (b) 3 (b) 4 (a) 5 (b)

6 (d) 7 (a) 8 (a) 9 (b) 10 (b)

11 (b) 12 (c) 13 (a) 14 (a) 15 (b)

16 (c) 17 (d) 18 (a) 19 (d) 20 (b)

21 (d) 22 (a) 23 (b) 24 (a) 25 (c)

26 (c) 27 (d) 28 (d) 29 (b) 30 (b)

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 Chapter: 7
Introduction to Clearing and Settlement System

Q 1: Which of following act as a legal counter party counterparty to all trades on Future and Option
market segment?

(a) NSCCL

(b) NSEIL

(c) NSDL

(d) Broker

Q 2: Clearing Corporation guarantees of financial settlement of trades on F&O market segment –

True or False ?

(a) True

(b) False

Q 3: The Clearing Corporation becomes the central counterparty to all trades that take place on the
exchange’s derivatives platform. This is the principle of ________.

(a) Centralization

(b) Dematerialization

(c) Novation

(d) None of above

Q 4: Only specific clearing members are required to open a separate bank account with designated
clearing bank for F&O segment.

(a) True

(b) False

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 Q 5: What is the net worth requirement for Clearing Membership who clears and settles his own
trades?

(a) 100 Lakhs

(b) 200 Lakhs

(c) 300 Lakhs

(d) 50 Lakhs

Q 6: A member has three clients C1, C2 and C3. C1 has purchased 500 contracts and sold 250, C2
has sold 350 contracts and C3 has bought 450 contracts in October ABC futures series. What is the
open position of the member towards Clearing Corporation in number of contracts?

(a) 850

(b) 350

(c) 1550

(d) 1050

Q 7: The minimum Net worth for clearing members of the Future and Option Market segment
_____ .

(a) Rs. 1 crore

(b) Rs. 3 crore

(c) Rs. 5 crore

(d) Rs. 7 crore

Q 8: The implementation of interoperability function has increased the cost of trading for members
True or False? .

(a) True

(b) False

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 Q 9: The Mark-to-Market margins are collected on a _______ basis.

(a) Daily basis

(b) Weekly basis

(c) Alternative basis

(b) Monthly basis

Q 10: Clearing Corporation on a derivative exchange becomes a legal counterparty to all trades and
is responsible for guaranteeing settlement for all open positions – True or False ?

(a) True

(b) False

Q 11: The mark-to-market (MTM) settlement happens on continuous basis at the end of each day –
True or False?
(a) True

(b) False

Q 12: The daily settlement of open futures contract is called Mark to Market settlement – True or
False?

(a) True

(b) False

Q 13: Daily Mark to Market settlement of futures takes place on ________ basis.

(a) T + 2

(b) T + 5

(c) T + 3

(d) T + 1

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 Q 14: Mr. Ankur is long in 4 Nifty contracts at Rs. 6725. Nifty future closes at 6685. What is the mark
to market for Mr. Ankur ?( Nifty contract is of 50 )

(a) 5000

(b) -8000

(c) NIL

(d) 8000

Q 15: In case of future contract settlement price is computed by

(a) Last 30 minutes volume weighted average price

(b) Last trading price of contract

(c) Closing price of underlying asset

(d) Last trading price of underlying assets

Q 16: A future contract is not traded during a day, the settlement price is computed by _________.

(a) Previous day closing price

(b) Closing price of underlying assets

(c) Theoretical price

(d) None of above

Q 17: theoretical daily settlement price is computed as:_________.

(a) F = R * est

(b) F = S * ert

(c) F = T * ert

(d) F = P * ert

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 Q 18: A client Mr. C of clearing member XYZ has a long position in one lot of a stock futures contract
e expiry date of the contract. Lot size is 2000. The final settlement price is Rs. 425. The previous
day’s settlement price was Rs. 442. What is the settlement obligation?

(a) 85000

(b) 88400

(c) 17000

(d) 34000

Q 19: A client holds a call option on an index with a strike price of 17200 and the index closes at
17500 on the expiry day. Lot size is 50. What is the settlement obligation?

(a) 12000

(b) 10000

(c) 15000

(d) 17000

Q 20: The amount that must be deposited in the margin account at the time a futures contract is
first entered into is known as _________

(a) Initial margin

(b) Initial deposits

(c) Base capital

(d) Minimum capital

Q 21: In the futures market, at the end of each trading day, the margin account is adjusted to reflect
the investor's gain or loss depending upon the futures closing price. This is called _______

(a) Initial margin

(b) Additional margin

(c) Marking-to-market

(d) Maintenance margin

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 Q 22: The initial margin depends on the underlying asset's price movement. Exchange charges a
higher initial margin on higher volatile securities.

(a) True

(b) False

Q 23: Initial margin to be paid in derivatives is set up taking into account the volatility of the
underlying market. Generally ___

(a) Lower the volatility, higher the initial margin

(b) Higher the volatility, lower the initial margin

(c) Higher the volatility, higher the initial margin

(d) Equal initial margin at any volatility

Q 24: Initial margin in the F&O segment is computed by _________ upto Client level for open
positions of CMs/TMs.

(a) NSE

(b) Trading member

(c) NSCCL

(d) clearing member

Q 25: Initial Margin are required to be paid up-front on ________ basis at individual client level for
client positions and on _____basis for proprietary positions.

(a) Gross , net

(b) Net, gross

(c) Net, net

(d) Gross, gross

Q 26: Assignment margin is required to be paid on assigned positions of ____________ towards

interim and fi nal exercise settlement obligations for option contracts on individual securities.

(a) Trading members

(b) Clients

(c) Clearing Members

(d) All of the above

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 Q 27: Assignment margin is charged at___________.

(a) Client level

(b) Trading member level

(c) Clearing member level

(d) Institution level

Q 28: Initial margin is collected to____________.

(a) Make good losses on the outstanding position

(b) Make good daily losses

(c) Safeguard against potential losses on outstanding positions

(d) None of the above

Q 29: The initial margin amount is large enough to cover a one-day loss that can be encountered
on__________.

(a) 99% of the days.

(b) 90% of the days.

(c) 95% of the days.

(d) None of the above

Q 30: Initial margin applicable to the total ______________ at any given point of time of all trades
cleared through the clearing member.

(a) Gross open positions

(b) Net open positions

(c) All positions

(d) None of the above

Q 31: In order to manage risk efficiently in the Indian securities market, SPAN (Standard Portfolio
Analysis of Risk) is adopted by exchange.

(a) True

(b)- False

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 Q 32: The formula is used for calculating initial margins on the various positions of market
participants.

(a) Black-Scholes

(b) SPAN

(c) Theta

(d) Delta

Q 33: When different Clearing Members clear for client/entities in Cash and Derivatives segments
they are required to enter into necessary agreements for availing cross margining benefit - True or
False ?

(a) True

(b) False

Q 34: The objective of SPAN is to identify overall potential risk in a portfolio- True or False ?

(a) True

(b) False

Q 35: All the trades and open positions on a derivative exchange are guaranteed by the Clearing
Corporation and it becomes a legal counter party.

(a) True

(b) False

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 CHAPTER 7 ANSWERS
1 (a) 2 (a) 3 (c) 4 (b) 5 (a)
6 (d) 7 (b) 8 (b) 9 (a) 10 (a)
11 (a) 12 (a) 13 (d) 14 (b) 15 (a)
16 (c) 17 (b) 18 (d) 19 (c) 20 (a)
21 (c) 22 (a) 23 (c) 24 (c) 25 (a)
26 (c) 27 (c) 28 (c) 29 (a) 30 (a)
31 (a) 32 (b) 33 (a) 34 (a) 35 (a)

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 Chapter: 8
Legal and Regulatory Environment
Q 1: A client can use cross margining across Cash and Derivatives segment - True or False ?

(a) True

(b) False

Q 2: The Exchange should have a minimum of 50 members.- True or False ?

(a) True

(b) False

Q 3: Value-at-risk calculations are done on the basis of __________ .

(a) Best possible market conditions

(b) Ideal market conditions

(c) Volatility

(d) 90 % risk parameter

Q 4: As per the L.C.Gupta Committee recommendations a separate Investor Protection Fund must
be created for derivatives segment - True or False ?

(a) True

(a) False

Q 5: The minimum networth for clearing members of the derivatives clearing corporation/house
shall be _________.

(a) Rs. 100 Lakh

(b) Rs. 200 Lakh

(c) Rs.300 Lakh

(d) Rs.500 Lakh

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 Q 6 : The networth of clearing members does not include -

(a) Bad Deliveries

(b) Doubtful Debts

(c) Unlisted Securities

(d) All of the Above

Q 7: The minimum contract value shall not be less than _____.

(a) Rs. 2 Lakh

(b) Rs.3 Lakh

(c) Rs. 4 Lakh

(d) Rs. 5 Lakh

Q 8: A clearing member’s minimum liquid net worth must be at least _________ at any point of
time.

(a) Rs.5 lakh

(b) Rs.50 lakh

(c) Rs.100 lakh

(d) Rs.500 lakh

Q 9: Brokers and dealers of derivative exchanges have also to be registered with SEBI in addition to
their registration with stock exchange - State whether True or False?

(a) True

(b) False

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 Q 10: The members of Capital Market segment of the exchange would automatically become the
members of derivative segment - True or False ?

(a) True

(b) False

Q 11: Networth criteria for Clearing Members has been decided by ______

(a) RBI

(b) Central government

(c) NSEIL

(d) SEBI

Q 12: Trading Members are required to maintain trade confirmation slips for a period of ______

(a) 2 years

(b) 3 years

(c) 5 years

(d) 7 years

Q 13: In what time the clearing members are required to submit auditor's certificate of net worth to
the exchange.

(a) Every 3 months

(b) Every 6 month

(c) Every 1 year

(d) Every 5 year

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 Q 14: Trade Guarantee Fund (TGF) is maintained for -

(a) Protecting the interests of investors

(b) Inculcating confidence in the minds of investors and brokers

(c) Guaranteeing the settlement of trades (Your answer is incorrect)

(d) All of the above (This is the correct answer)

Q 15: In the event of default by the broker member, the Clearing Corporation may transfer the
client's positions to any other member. - True or False ?

(a) True

(b) False

Q 16: A Broker or Dealer who is already registered with an existing stock exchange will have to get
additional registration for the Derivative Exchange - True or False ?

(a) True

(b) False

Q 17: As per the regulations, the minimum contract value of a futures contract shall not be less than
Rs. 2 Lakh - True or False ?

(a) True

(b) False

Q 18: The cash component of Liquid Securities can include Units of money market mutual fund and
Gilt funds where applicable haircut is 10%. – True or False ?

(a) True

(b) False

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 Q 19: The committee established to recommend measures for risk containment in derivatives
market in India, under chairmanship of _________?

(a) Dr. L. C. Gupta

(b) Prof. J. R. Verma

(c) Governor of RBI

(d) Finance minister

Q 20: Prof. J.R. Verma Committee report calls for strict implementation of the "know your
customer" rule and requires that every customer be registered with a derivatives broker.

(a) True

(b) False

Q 21: A stock exchange may be recognized by the Central Government under the Securities
Contracts (Regulation) Act 1956.

(a) True

(b) False

Q 22: Position limits for the entire market and Clearing Members and investors are defined by
______.

(a) Stock Exchange

(b) SEBI

(c) Central Government

(d) None of above

Q 23: A Clearing member is required to provide liquid assets. These liquid assets comprise of at least
60% of the cash component and the rest is non-cash component.

(a) True

(b) False

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 Q 24: Which of following function is not perform by the Clearing Member.

(a) Risk Management

(b) Clearing

(c) Settlement

(d) Trading

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 CHAPTER 8 ANSWERS
1 (a) 2 (a) 3 (c) 4 (a) 5 (c)
6 (d) 7 (d) 8 (b) 9 (a) 10 (b)
11 (d) 12 (c) 13 (b) 14 (d) 15 (a)
16 (a) 17 (b) 18 (a) 19 (b) 20 (b)

21 (b) 22 (b) 23 (b) 24 (d)

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 Chapter 9
Accounting and Taxation

Q 1: A trader enters into option contracts. He buys 5 Call option of strike price 1620 when the spot
price was 1600 at a premium of Rs 40. What STT will be paid by him?

(a) Rs. 1012.5

(b) Rs. 1000

(c) Rs. 1010.5

(d) No STT will be paid

Q 2: STT is applicable on all _______ transactions for both futures and option contracts.

(a) Buy

(b) Sell

(c) Both buy and sell

(d) Only on selected purchases

Q 3: A trader has a buy position in index future contract. He made payment for Daily Settlement. In
which account this amount will be credited?

(a) Daily Settlement Account

(b) Equity Index/Stock Option Premium Account

(c) Mark-to-Market Margin –Index Futures account

(d) None of above

Q 4: What SST will be paid on the sale of an option in securities?

(a) 0.017%

(b) 0.05%

(c) 0.125%

(d) 0.01%

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 Q 5: Loss on derivative transactions can be carried forward for a period of how many assessment
years?
(a) 3 Years

(b) 5 Years

(c) 8 Years

(d) 10 Years

Q 6: What SST will be paid by the option buyer?

(a) 0.017%

(b) 0.01%

(c) 0.125%

(d) No SST will be paid

Q 7: Loss on derivative transactions could be set off against salary income

(a) True

(b) False

Q 8: The profit earned by Foreign Portfolio Investors from derivatives transactions on a recognized
stock exchange is taxable under the head ‘Capital Gains’.
(a) True

(b) False

Q 9: Mr. Amit purchases 2 future contracts. Will he have to pay STT?

(a) Yes

(b) No

Q 10: What SST will be paid on the Sale of futures in securities?

(a) 0.017%

(b) 0.05%

(c) 0.125%

(d) 0.01%

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 Q 11: The balance in the "Initial Margin - Equity Index/Equity Stock Futures Account' should be
shown separately under the head 'Currency Assets'.
(a) True

(b) False

Q 12: A person incurred a loss on derivatives transactions. This loss can be carried forward for a
period of 12 assessment years - State True or False?

(a) True

(b) False

Q 13: What STT is paid by a Call buyer, when he exercise the call option?

(a) 0.017%

(b) 0.05%

(c) 0.125%

(d) 0.01%

Q14: Profits from derivatives transactions in a recognized stock exchange taxed as: __________.
(a) Speculative income under the head ‘profits and gains of business or profession’
(b) Short term capital gains under the head ‘capital gains’
(c) Non-speculative income under the head ‘income from other sources’
(d) Non-speculative income under the head ‘profits and gains of business or profession’

Q 15: When the price of a future contract rises, the margin account __________ .

(a) of the buyer is credited for the gain

(b) of the seller is debited for the loss

(c) Both (a) and (b)

(c) of the buyer is debited for the gain

Q 16: At the year-end, any balance in the "Deposit for Mark-to-Market Margin Account" should be
shown as a deposit under the head "Current Assets" - True or False ?

(a) True

(b) False

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 CHAPTER 9 ANSWERS
1 (d) 2 (b) 3 (c) 4 (b) 5 (c)
6 (d) 7 (b) 8 (a) 9 (b) 10 (d)
11 (a) 12 (b) 13 (c) 14 (d) 15 (c)
16 (a)

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 Chapter 10
Sales Practices and Investors Protection Services
Q 1: If a stock broker advising a senior citizen to deal in futures, options, or penny stocks, it is a very
good recommendation. State - true or false.
(a) True
(b) +False

Q 2: As the level of risk rises, the expected rate of return should also rise. State - true or false.
(a) +True
(b) False

Q 3: SCORES is __________.
(a) Exchange’s Margin Reporting System
(b) Collateral Reporting System of Clearing Corporation
(c) +SEBI’s web-based complaints redressal system
(d) Customer Due Diligence and e-KYC system

Q 4: The risk of moving stock prices in an unfavorable direction is known as _______

(a) +Market risk
(b) System risk
(c) Counterparty risk
(d) Liquidity risk

Q 5: Churning means _____________.

(a) A specialized arbitrage between Futures and Options
(b) +Excessive unwarranted trading by brokers for generating commissions
(c) Delta Hedging using Rho and Theta
(d) Specialized Portfolio Management

Q 6: If mark-to-market margin amount is not deposited within the stipulated time, the broker may
close out the client’s position. State - true or false
(a) +True
(b) False

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 Q 7: When a client finds it difficult to close the position due to low volumes in equity future, this risk
is known as ________________
(a) Market risk
(b) System risk
(c) Counterparty risk
(d) +Liquidity risk

Q 8: Under the Anti-Money Laundering (AML) and Combating of Financial Terrorism (CFT)
regulations, suspicious transactions must be reported to ___________.
(a) Securities and Exchange Board of India
(b) Central Vigilance Commission
(c) Reserve Bank of India
(d) +Financial Intelligence Unit – India

Q 9: In the KYC process, Politically Exposed Persons are termed as:

(a) +Clients of Special Categories
(b) High Networth Clients
(c) Institutional Clients
(d) High Risk Clients

Q 10: SEBI's centralized web based complaints redress system which provides online access 24 x 7 is
called ____________.
(a) SERA
(b) SEBI COMPSYS (Your answer is incorrect)
(c) SWCOMP
(d) SCORES (This is the correct answer)

Q 11: The system of SEBI which enables investors to lodge and follow up their complaints and track
the status of redressal of such complaints from anywhere is called SCORES – True or False ?

(a) True (Your answer is correct)

(b) False

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 Q 12: A person is opening a trading account with a broker, which of following document is required
by the trading member?
(a) SEBI rules and regulations
(b) NSEIL laws
(c) +Risk disclosure document
(d) None of above

Q 13: The system of SEBI which enables investors to lodge and follow up their complaints and track
the status of redressed of such complaints from anywhere is called SCORES True or False ?
(a) False
(b) True (Your answer is correct)

Q 14:There are some products in market which give risk free returns — state true or false.
(a) True
(b) +False

Q 15: ______________ refers to when securities professionals making unnecessary and excessive
trades in customer accounts for the sole purpose of generating commissions.
(a) Hedging
(b) Arbitrage
(c) +Churning
(d) Broking

Q 16: As the level of risk rises, the expected rate of return ______
(a) +Increases
(b) Decreases
(c) Remains the same
(d) No change in risk

Q 17: Mr. Rakesh, a risk-averse investor where should he invest more?

(a) Equities
(b) Derivatives
(c) +Debt securities
(d) Penny stocks

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 Q 18: While on-boarding any client by a broker, it is necessary to get a copy of the Risk Disclosure
Document signed by their clients- State True or False?
(a) +True
(b) False

Q 19: Which of the following complaints can be taken up by the exchange for redressal ?
(a) Claims for notional loss, opportunity loss for the disputed period or trade
(b) Complaints pertaining to trades not executed on the Exchange by the complainant
(c) Claims of sub-broker/authorized persons for private commercial dealings with the trading
member
(d) +Excess Brokerage charged by Trading Member / Sub-broker

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 CHAPTER 10 ANSWERS
1 (b) 2 (a) 3 (c) 4 (a) 5 (b)
6 (a) 7 (d) 8 (d) 9 (a) 10 (d)

11 (a) 12 (c) 13 (b) 14 (b) 15 (c)

16 (a) 17 (c) 18 (a) 19 (d)

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 Why This Book

• This book is excellent medium to

complete the study in a short time.
• This book covers all the chapters of ‘NISM
Equity Derivative series IIIV’.
• The book contains all the questions that
can be asked in the examination of ‘NISM
Equity Derivative series IIIV’.
• This book is useful to all those candidates
who are going to appear for the
examination.
• Must read this book to ensure success in
the examination.

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