Educator-I.K.

TIWARI

NISM-Series-VIII: Equity
Derivatives Certification
Examination
50 SOLVE Question

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 Educator-I.K.TIWARI

 1. An index option is a __________________.

(a) Debt instrument

(b) Derivative product
(c) Cash market product
(d) Money market instrument

Answer :-(b) Derivative product

2. 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) Arbitrage
(c) Hedging
(d) Speculation

Answer :-(b) Arbitrage

 Educator-I.K.TIWARI

 3. Financial derivatives provide the facility for __________.

(a) Trading
(b) Hedging
(c) Arbitraging
(d) All of the above

Answer :- (d) 

 4. Operational risks include losses due to ____________.

(a) Inadequate disaster planning
(b) Too much of management control
(c) Income tax regulations
(d) Government policies

(e) Answer :-(a) 

 5. Impact cost is low when the liquidity in the system is poor.

(a) True
(b) False

Answer :-(b) 
 Educator-I.K.TIWARI
 6. 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) ‐15,600
(d) ‐16,600

Answer :-(b) 

7. 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 3600
(b) Buying 1 June XYZ futures contract at 3600 153
(c) Buying 1 June XYZ futures contract at 3200
(d) Selling 1 June XYZ futures contract at 3200

(e) Answer :-(c)

 Educator-I.K.TIWARI

 8. 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)
9. If you have sold a XYZ futures contract (contract multiplier 50) at 3100 and bought it back at
3300, what is your gain/loss?
(e) A loss of Rs. 10,000
(f) A gain of Rs. 10,000
(g) A loss of Rs. 5,000
(h) A gain of Rs. 5,000

Answer :-(a)
 Educator-I.K.TIWARI

10. 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)

11. 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?
(e) 10
(f) 7
(g) 3
(h) 17

Answer :-(c)

12. In an equity scheme, fund can hedge its equity exposure by selling stock index futures.
(i) True
(j) False
Answer :-(a)
 Educator-I.K.TIWARI
 13. 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)

14. When the near leg of the calendar spread transaction on index futures expires, the farther leg becomes a regular open
position. 154
(e) True
(f) False
Answer :-(a)

15. Selling short a stock means ___________.

(g) Seller does not own the stock he is supposed to deliver
(h) Seller has to deliver the stock within a short time
(i) Seller owns the stock he is supposed to deliver
(j) Seller has more than a year's time to deliver the stock which he sold

Answer :-(a)
 Educator-I.K.TIWARI

 16. The buyer of an option cannot lose more than the option premium paid.
(a) True only for European options
(b) True only for American options
(c) True for all options
(d) False for all options
Answer :-(c)

 17. 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)

 18. What role do speculators play in the futures market?

(a) They take delivery of the commodities at expiration
(b) They produce the commodities traded at futures exchanges
(c) They add to the liquidity in the futures markets
(d) They transfer their risk to the hedgers
Answer :-(c)
 Educator-I.K.TIWARI

 19. 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) 196
(b) 206
(c) 0
(d) 49
Answer :-(a)

 20. Current Price of XYZ Stock is Rs 286. Rs. 260 strike call is quoted at Rs 45. What is the Intrinsic Value?
(a) 19
(b) 26
(c) 45
(d) 0
Answer :-(b)

 21. 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. 155
(a) True
(b) False
Answer :-(b)
 Educator-I.K.TIWARI

 22. 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) Only the specified quantity (lot size of the option contract)
(c) The specified quantity or less than the specified quantity
(d) The specified quantity or more than the specified quantity
Answer :-(b)

 23. 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)

 24. An option with a delta of 0.5 will increase in value approximately by how much, if the underlying share price increases by Rs 2?
(a) Rs 1
(b) Rs 2
(c) Rs 4
(d) There would be no change
Answer :-(a)
 Educator-I.K.TIWARI

 25. Exchange traded options are _______________.

(a) Standardised options
(b) Always in‐the‐money options
(c) Customised options
(d) Always out‐of‐the money options
Answer :-(a)

 26. Higher the price volatility of the underlying stock of the put option, ______________.
(a) Higher would be the premium
(b) Lower would be the premium
(c) Nil (zero) would be the premium
(d) Volatility does not effect put value
Answer :-(a)

 27. 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 :-(b)
 Educator-I.K.TIWARI
 28. 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) Not to exercise the option
(c) May or may not exercise the option depending on whether he is in his hometown or not at that time
(d) May or may not exercise the option depending on whether he like the company S or not
Answer :-(b)

 29. Three Call series of XYZ stock ‐ January, February and March are quoted. Which will have the lowest Option Premium (same strikes)?
(a) January
(b) February
(c) March
(d) All will be equal
Answer :-(a)

 30. Which is the ratio of change in option premium for the unit change in interest rates?
(a) Vega
(b) Rho
(c) Theta
(d) Gamma
(e) Answer :-(b)
 Educator-I.K.TIWARI

 31. 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) 285
(b) 40
(c) 0
(d) 205
Answer :-(b)

 32. 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) Bullish spread
(b) Bearish spread
(c) Butterfly spread
(d) Calendar spread
Answer :-(a)

 33. On the derivative exchanges, all the orders entered on the Trading System are at prices exclusive of brokerage.
(a) True
(b) False
Answer :-(a)
 Educator-I.K.TIWARI
 34. A trader has bought 100 shares of XYZ at Rs 780 per share. He expects the price to go 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 :-(b)

 35. Trader A wants to sell 20 contracts of August series at Rs 4500 and Trader B wants to sell 17 contracts of September series at Rs 4550. Lot size is 50 for both these
contracts. The Initial Margin is fixed at 6%. How much Initial Margin is required to be collected from both these investors (sum of initial margins of A and B) by the
broker?
(a) 2,70,000
(b) 5,02,050
(c) 2,32,050
(d) 4,10,000

Answer :-(b)

 36. 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)
 Educator-I.K.TIWARI

 37. 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 :-(a)

 38. Clients' positions cannot be netted off against each other while calculating initial margin on the derivatives segment.
(a) True
(b) False

Answer :-(a)

 39. Mark‐to‐market margins are collected ___________.

(a) On a weekly basis
(b) Every 2 days
(c) Every 3 days
(d) On a daily basis

Answer :-(d)
 Educator-I.K.TIWARI

 40. Value‐at‐risk measures ___________.

(a) Value of proprietary portfolio
(b) Risk level of a financial portfolio
(c) Net‐worth of an investor
(d) Credit rating of an investor
Answer :-(b)

 41. A penalty or suspension of registration of a stock broker from derivatives exchange/ segment under the SEBI (Stock Broker and
Sub‐broker) Regulations, 1992 can take place if _______________.
a) The stock broker fails to pay fees
b) The stock broker violates the conditions of registration
c) The stock broker is suspended by the stock exchange
d) In any of the above situations
Answer :-(d)

 42. Clearing corporation on a derivatives exchange becomes a legal counterparty to all trades and be responsible for guaranteeing
settlement for all open positions.
(a) True
(b) False
Answer :-(a)
 Educator-I.K.TIWARI

 43. Initial margin collection is monitored by the _________.

(a) RBI
(b) Clearing Corporation
(c) SEBI
(d) Margin Office
Answer :-(b)

 44. Liquid Assets maintained by Mr A (Clearing Member) are higher than that maintained by Mr B (Clearing
Member). Which of the following statements is true?
(a) Mr A can enjoy higher exposure levels in futures than Mr B
(b) Mr B can enjoy higher exposure levels in futures than Mr A
(c) Both Mr A and Mr B enjoy the same exposure levels
(d) No need to maintain liquid assets for exposure in derivatives markets
Answer :-(a)

 45. On the Clearing Council of the Clearing Corporation of the derivatives segment, broker‐members are allowed.
(a) True
(b) False
Answer :-(b)
 Educator-I.K.TIWARI

 46. The main objective of Trade Guarantee Fund (TGF) at the exchanges is _________________.
(a) To guarantee settlement of bonafide transactions of the members of the exchange
(b) To inculcate confidence in the minds of market participants
(c) To protect the interest of the investors in securities
(d) All of the above
Answer :-(d)

 47. Value‐at‐risk provides the ______________.

(a) Expected maximum loss, which may be incurred by a portfolio over a given period of time and specified confidence level
(b) Value of securities which are very risky
(c) Value of speculative stocks
(d) Theoretical value of illiquid stocks in a portfolio
Answer :-(a)

 48. Who is eligible for clearing trades in index options?

(a) All Indian citizens
(b) All members of the stock exchange
(c) All national level distributors
(d) Only members, who are registered with the Derivatives Segment as Clearing Members
Answer :-(d)
 Educator-I.K.TIWARI

 49. If price of a futures contract decreases, the margin account of the buyer of this
futures contract is debited for the loss.
(a) True
(b) False
Answer :-(a)

 50. When establishing a relationship with a new client, the trading member takes
reasonable steps to assess the background, genuineness, beneficial identify,
financial soundness of such person and his investment/trading objectives.
(a) True
(b) False
Answer :-(a)
 Educator-I.K.TIWARI

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