Mock 11

1/15/2019 Welcome to Pass4Sure
Q 1.
The Stock Exchanges and Stock Brokers decide the option premiums – True or False ?
True
False
WRONG ANSWER
CORRET ANSWER:
False
Explanation:
Stock Exchanges decide the rules and provide the platform for trading and Stock Brokers act as authorized
mediatories.
The option prices are decided by the buyers and sellers based on the spot price, time value, volatility and
many other factors.
Q 2.
The Indian Stock Future Markets deals in __________.
Swaps
Equity Cash
Equity Derivative
All of the above
WRONG ANSWER
CORRET ANSWER:
Equity Derivative
Explanation:
Swaps are series of forward contracts. Equity Cash is traded in the Spot Markets.
Equity Derivatives like Futures and Options are traded in the Stock Futures markets.
Q 3.
Usually as the level of risk rises, the expected rate of return on that investment should also rise -
True or False ?
True
False
WRONG ANSWER
CORRET ANSWER:
True
Explanation:
Higher the risk ( Eg. Equity Shares ) higher is the return
Lower the risk ( Eg. Bank Fixed Deposits ) lower is the return.
Q 4.
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 ?
True
False
file:///C:/Users/SARIPUTTA%20SARKAR/Desktop/NISM/PDF/12MOC_files/mocktest_attempt.html 1/27
WRONG ANSWER
CORRET ANSWER:
True
Q 5.
A short seller has the time of one week to deliver the stocks - True or False ?
True
False
WRONG ANSWER
CORRET ANSWER:
False
Explanation:
Selling Short means Seller does not own the stock he is supposed to deliver.
Even if a trader has stock he has to deliver the shares in T+2 days.
Q 6.
The total liquid assets comprise of at least 60% of the cash component and the rest is non cash
component - True or False ?
True
False
CORRECT ANSWER
Explanation:
The total liquid assets comprise of at least 50% of the cash component and the rest is non cash component.
Q 7.
In the accounting system of open options as on Balance Sheet day, the "Provision for Loss on
Equity Index/ stock Option Account" is shown as deduction from "Equity Index/ stock Option
Premium" which is shown under ________________.
Current Assets
Current Liabilities
Short term Debts
None of the above
CORRECT ANSWER
Q 8.
Operational risks include losses due to ____________.
Inadequate disaster planning
Too much of management control
Government policies
Income tax regulations
WRONG ANSWER
CORRET ANSWER:
Inadequate disaster planning
Explanation:
An operational risk is defined as a risk incurred by an organisation's internal activities. So losses due to
fraud, inadequate documentation, inadequate disaster management, improper execution are all Operational
risks.
Q 9.
A tax which is clearly mentioned in the Contract Note is _______
Long Term Capital Gain Tax
Short Term Capital Gain Tax
Both 1 and 2
Securities Transaction Tax (STT)
CORRECT ANSWER
Q 10.
______________ refers to when securities professionals making unnecessary and excessive trades
in customer accounts for the sole purpose of generating commissions.
Hedging
Arbitrage
Churning
Broking
WRONG ANSWER
CORRET ANSWER:
Churning
Q 11.
What role do speculators play in the Futures Market ?
They sell futures and buy it back when price rises to make a profit
They buy futures and sell it back when the price rises to make a profit
They sell futures and also sell in the cash market to create a hedge
None of the above
CORRECT ANSWER
Q 12.
As per the L.C.Gupta Committee recommendations a separate Investor Protection Fund must be
created for derivatives segment - True or False ?
True
False
CORRECT ANSWER
Q 13.
An index option is a Money Market Instrument - True or False ?
True
False
CORRECT ANSWER
Explanation:
An index option is a Derivative Product.
Q 14.
Option which gives buyer a right to sell the underlying asset, is called _____ option
Call
Put
American
European
WRONG ANSWER
CORRET ANSWER:
Put
Explanation:
Option, which gives buyer a right to buy the underlying asset, is called Call option and the option which gives
buyer a right to sell the underlying asset, is called Put option.
Q 15.
If there is not much price movement, the OTM option will be beneficial to _____.
Buyer of Call Option
Seller of Call Option
Buyer of Put Option
None of the above
WRONG ANSWER
CORRET ANSWER:
Seller of Call Option
Explanation:
There is no Intrinsic Value in OTM (Out of the Money) option but only Time Value. So a buyer of an option
will pay the premium and the seller will receive it.
If there is not much price movement, the seller will earn the premium received.
Q 16.
A Trading member can either clear his trades or use the services of Professional Clearing members -
True or False ?
True
False
WRONG ANSWER
CORRET ANSWER:
False
Explanation:
A Trading member cannot clear his trades. Only a Trading cum Clearing members can clear their own trades.
Q 17.
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 ?
True
False
WRONG ANSWER
CORRET ANSWER:
True
Explanation:
In addition to their registration as brokers of existing stock exchanges, Derivative brokers/dealers and
clearing members are required to seek registration from SEBI.
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 ?
True
False
CORRECT ANSWER
Q 19.
As per J.R.Verma Committee recommendations, Volatility should be calculated based on
____________ of logarithmic daily returns.
Variance
Delta
Standard Deviation
CAGR
WRONG ANSWER
CORRET ANSWER:
Standard Deviation
Q 20.
Impact cost is low when ____________.
volume/ liquidity is low
volume/ liquidity is high
the scrip is trading at a all time high
the scrip is trading at a all time low
WRONG ANSWER
CORRET ANSWER:
volume/ liquidity is high
Explanation:
Impact cost is said to be low when large orders can be executed without moving the prices in a big way.
So when volumes will be high the impact cost will be low.
Q 21.
**In the Options segment, if you buy a CALL, you expect the market / scrip to move _____
Down
Up
One cannot buy a Call in options market
Remain range bound
WRONG ANSWER
CORRET ANSWER:
Up
Explanation:
A buyer of a CALL Option has a bullish view - so he will expect the market / script to move up to make a
profit.
Q 22.
An investor who is less risk averse would like to have greater exposure to equity and other risky
investments compared to fixed income instruments - State True or False ?
False
True
CORRECT ANSWER
Explanation:
Although Equity Markets can give good returns but they are quiet risky to invest. So only an less risk averse
investor would prefer to invest in equity.
A more risk-averse investor would prefer investments that are more secure and thus would have higher
portfolio allocations to debt and fixed income instruments.
Q 23.
**Forward contracts are OTC contracts - True or False ?
True
False
WRONG ANSWER
CORRET ANSWER:
True
Explanation:
The forward contracts are negotiated between two parties, the terms and conditions of contracts are
customized as per their requirements. These are OTC contracts.
Q 24.
You are bullish on a stock but unsure of the overall market. The action you should take is :
Buy Stock futures and sell Index futures
Sell Index futures
Buy Stock Futures
None of the above
WRONG ANSWER
CORRET ANSWER:
Buy Stock futures and sell Index futures
Q 25.
A trader sells 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 _______ .
Bearish Spread
Bullish Spread
Long term Investment
Butterfly
WRONG ANSWER
CORRET ANSWER:
Bearish Spread
Explanation:
A bear call spread is a limited profit, limited risk option strategy that can be used when the options trader is
moderately bearish on the underlying security.
It is entered by buying call options of a certain strike price and selling the same number of call options of
lower strike price (in the money) on the same underlying security with the same expiration month.
Q 26.
The Over the counter options are ____________ .
calculated based on the delta.
standardised options
customised options
always in the money options
WRONG ANSWER
CORRET ANSWER:
customised options
Explanation:
Over the Counter options are made as per the needs of the trading parties - so they are customised.
Future options are standardised as per the rules of stock exchange.
Q 27.
Financial Derivatives are used for -
Speculation
Hedgeing
Arbitrage
All of the above
WRONG ANSWER
CORRET ANSWER:
All of the above
Q 28.
**If you buy a PUT option at premium of Rs 20 at the Strike Price of Rs 250, lot is of 400 shares, then
the maximum possible loss is ______
Rs 5000
Rs 8000
Rs 20,00,000
Unlimited
WRONG ANSWER
CORRET ANSWER:
Rs 8000
Explanation:
When you buy an option, either Call or Put - the maximum loss is the premium you have paid.
In this case the premium paid is Rs 20 x 400 shares = Rs 8000.
Q 29.
The future contracts are custom designed and hence each contract is different as per the terms of
the contracting parties.
False
True
CORRECT ANSWER
Explanation:
Future contracts are standardised and forward contracts are custom designed.
Q 30.
Which risks can be managed by selling Index Futures ?
Mark to Market risks

Time value risks
Systematic Risks
Unsystematic Risks
CORRECT ANSWER
Explanation:
Unsystematic Risk Specific risk or unsystematic risk is the component of price risk that is unique to particular
events of the company and/or industry. This risk is inseparable from investing in the securities. This risk
could be reduced to a certain extent by diversifying the portfolio.
Systematic Risk An investor can diversify his portfolio and eliminate major part of price risk i.e. the
diversifiable/unsystematic risk but what is left is the non-diversifiable portion or the market risk-called
systematic risk. Variability in a security’s total returns that are directly associated with overall movements in
the general market or economy is called systematic risk. Thus, every portfolio is exposed to market risk. This
risk is separable from investment and tradable in the market with the help of index-based derivatives. When
this particular risk is hedged perfectly with the help of index-based derivatives, only specific risk of the
portfolio remains.
Q 31.
**A buyer of Put Option –
Has the obligation to take delivery of asset
Has the right to buy the underlying asset
Has the right to sell the underlying asset
Has the obligation to give delivery of asset
WRONG ANSWER
CORRET ANSWER:
Explanation:
Put Option is an option contract giving the owner the right, but not the obligation, to sell a specified amount
of an underlying security at a specified price within a specified time. This is the opposite of a call option,
which gives the holder the right to buy shares.
So an Option, which gives buyer a right to buy the underlying asset, is called Call option and the option which
gives buyer a right to sell the underlying asset, is called Put option. There is no obligation when you buy an
option.
Q 32.
A long position in a CALL option can be closed by taking a short position in PUT option.
False
True
CORRECT ANSWER
Explanation:
A long position in any option can be closed by selling that option and not in any other way.
So a long position in a CALL option can be closed by selling that CALL option.
Q 33.
If a stock has very low volatility then it would have a lower option premium.
True
False
WRONG ANSWER
CORRET ANSWER:
True
Explanation:
Lower the volatilty lower the risk and so lower the premium.
The stocks which are highly volatile will have comparitively higher option premiums as there involves a lot of
risk trading in such stocks.
Q 34.
In index futures, if the near leg of the calender spread transaction expires then the farther leg
becomes a regular open position.
True
False
CORRECT ANSWER
Explanation:
Calendar spread means an options or futures spread established by simultaneously entering a long and short
position on the same underlying asset but with different delivery months.
In the above question, lets assume a trader has gone long in index options in current month and short in index
options in third month. Incase he does not close his position by the end of current month, his current month
option will expire and the third month option contract will become an open position as there is no opposite
option contract in his account.
Q 35.
In the derivatives market, all the margins are collected by ___________ .
Margin House
SEBI
Clearing House
Clearing Banks
WRONG ANSWER
CORRET ANSWER:
Clearing House
Q 36.
A ____________ is created by shorting a call and a put option of same strike and same expiry.
Long Straddle
Short Straddle
Bullish spread
None of the above
WRONG ANSWER
CORRET ANSWER:
Short Straddle
Explanation:
A Short Stradlle strategy carried out by holding a short position in both a call and a put that have the same
strike price and expiration date. He sells a call and a put so that he can profit from the premiums.The
maximum profit is the amount of premium collected by writing the options.
The short straddle is a risky strategy an investor uses when he or she believes that a stock's price will not
move up or down significantly. Because of its riskiness, the short straddle should be employed only by
advanced traders due to the unlimited amount of risk associated with a very large move up or down.
Q 37.
Theta is the rate of change in option premium for a change in the price of the underlying asset.
True
False
CORRECT ANSWER
Explanation:
Delta is the rate of change in option premium for a change in the price of the underlying asset.
Theta is the change in option price given a one-day decrease in time to expiration. It is a measure of time
decay.
Q 38.
When a call option is ‘ In The Money ‘ – the _______________.
Strike Price is lower than Spot Price
Strike Price is higher than Spot Price
Strike Price is same as Spot Price
None of the Above
WRONG ANSWER
CORRET ANSWER:
Strike Price is lower than Spot Price
Explanation:
An In the money (ITM) option would give holder a positive cash flow, if it were exercised immediately.
A call option is said to be ITM, when spot price is higher than strike price. And, a put option is said to be
ITM when spot price is lower than strike price. In our examples, call option is in the money
Q 39.
Delta is the change in option price given a one-day decrease in time to expiration - State True or
False ?
True
False
CORRECT ANSWER
Explanation:
The most important of the ‘Greeks’ is the option’s is “Delta”. This measures the sensitivity of the option value
to a given small change in the spot price of the underlying asset. It may also be seen as the speed with which
an option moves with respect to price of the underlying asset.
Q 40.
**_______is minimum move allowed in the price quotations.
Theta
Ask Price
Tick Size
Bid Price
CORRECT ANSWER
Explanation:
Tick size is the minimum price movement of a trading instrument.
Exchanges decide the tick sizes on traded contracts as part of contract specification. The exchange informs
the lot size and the tick size for each of the contracts traded on F&O segment from time to time. Tick size
for Nifty futures is 5 paisa.
Q 41.
**In the Options segment, if you buy a PUT, you expect the market / scrip to move _____
Up
Down
Range bound
One cannot buy a PUT in options market.
WRONG ANSWER
CORRET ANSWER:
Down
Explanation:
A buyer of a PUT option has a negative / bearish view and so he expects the market / script to move down to
make a profit.
Q 42.
Arbitrage activities would ensure that the prices of futures contract is aligned with the prices of the
underlying assets. True or False ?
False
True
WRONG ANSWER
CORRET ANSWER:
True
Explanation:
Arbitrage occupies a prominent position in the futures world as a mechanism that keeps the prices of futures
contracts aligned properly with prices of the underlying assets.
When ever the prices are not aligned, the arbitrageurs will step in to use the price difference to make
profits.
Q 43.
In futures contract the lot size is determined by __________.
The Stock Exchange
Professional Clearing Member
The Company
SEBI
WRONG ANSWER
CORRET ANSWER:
The Stock Exchange
Explanation:
Its the duty of the stock exchange to inform of the lot size and the tick size for each of the contracts
traded on F&O segment from time to time.
Q 44.
As the expiry / maturity of a futures contract approaches, the spot price and future price tend to
become same. This is known as ___________.
Covariance
Cosetting
Convergence
Corelation
WRONG ANSWER
CORRET ANSWER:
Convergence
Q 45.
If you buy a PUT option at premium of Rs 37 at the Strike Price of Rs 260, then the maximum
possible loss on this position is ______
Unlimited
Rs 37
Rs 297
Rs 223
WRONG ANSWER
CORRET ANSWER:
Rs 37
Explanation:
The maximum possible loss for a buyer of any option is the premium paid. Here you have paid Rs 37 as
premium to buy a put option, so the maximum possible loss is Rs 37.
More Explanation - Buying a PUT means expecting the price to fall. When the price falls, the premium rises
and you make a profit. When price rises, the premium falls so the buyer of put makes a loss. In above case
the premium can technically fall from Rs 37 to zero, so the maximum loss is Rs 37.
Q 46.
A low level of initial margin increases the possibility of defaults of a stock broker - State True or
False ?
True
False
WRONG ANSWER
CORRET ANSWER:
True
Explanation:
A broker collects the initial margins from his clients as per their positions and pays to the exchange.
A low level of initial margin collected from clients can lead to defaults of clients in case of major movement of
stock prices. So if clients defaults, it also increases the chances of the broker defaulting.
Q 47.
A calendar spread contract in index futures attracts higher margin than sum of two independent
legs of futures contract.
False
True
WRONG ANSWER
CORRET ANSWER:
False
Explanation:
A calendar spread contract in index futures attracts LOWER margin than sum of two independent legs of
futures contract. This because the risk is very less on calender spreads.
Q 48.
An American Put option gives the buyer the right to sell the underlying asset at a specified price on
or before the expiry / maturity date - State True or False ?
False
True
CORRECT ANSWER
Explanation:
Europeon Options can be exercised only on maturity but American Options can be exercised on or before
maturity.
Q 49.
**If futures price are lower than spot price of an asset, market participants may expect the spot price
to come down in future. This situation is called –
Contango
Reverse System
Backwardation
Impact costs
WRONG ANSWER
CORRET ANSWER:
Backwardation
Explanation:
As per the Expectancy Model of Future Pricing - If future prices are higher than spot prices (over the normal
cost of carry) we can expect the spot prices to go up in future. This is called as Contango.
Similarly, if the future prices are lower than spot prices, we can expect the spot prices to go down and this
is called as Backwardation.
Q 50.
When the strike price decreases, the premium on call option increases.
True
False
WRONG ANSWER
CORRET ANSWER:
True
Explanation:
The lower strike price would have a higher call option premiun because the intrinsic value increases.
For eg - If the market price is Rs 200 and the 180 strike price call option has a premium of Rs 25 (Rs 20
intrinsic value and Rs 5 time value), then the 160 call option will have a premium of appx Rs 45 ( Rs 40
intrinsic value and Rs 5 time value)
Q 51. In BID-ASK price, the bid price is the price at which ____________ .
the trader is willing to buy the asset
the trader is willing to sell the asset
the trader is willing to either buy or sell the asset
All of the above
WRONG ANSWER
CORRET ANSWER:
the trader is willing to buy the asset
Explanation:
Bid price is the price buyer is willing to pay and ask price is the price seller is willing to sell.
For eg - If the price of State Bank of India as seen on the trading screen is Rs 200 - 201, this means Rs
200 is the bid price and Rs 201 is the ask price.
Q 52.
The major reason for collecting high initial margin is to improve the solvency of the clearing
corporations.
True
False
WRONG ANSWER
CORRET ANSWER:
True
Explanation:
Higher the margins, lower the risks of client or broker defaulting. This improves the solvency of the Clearing
Corporations.
Q 53.
**A Clearing member is required to provide liquid assets and these liquid assets should be at least
75% in cash, bank FD’s etc and balance 25% in non cash assets. True or False ?
False
True
CORRECT ANSWER
Explanation:
The total liquid assets should comprise of at least 50% ( and not 75% ) of the cash component and the rest is
non cash component.
Q 54.
Beta is the change in option price given a one percentage point change in the risk-free interest rate.
True
False
CORRECT ANSWER
Explanation:
Rho is the change in option price given a one percentage point change in the risk-free interest rate.
Beta a measure of systematic risk of a security that cannot be avoided through diversification.
Q 55. In futures market, basis is referred to as ___________ .
Beta of the future stock
Volatility of the market
Price difference between Spot and Future price
The Bid-Ask price
CORRECT ANSWER
Explanation:
The difference between the spot price and the futures price is called basis.
If the futures price is greater than spot price, basis for the asset is negative. Similarly, if the spot price is
greater than futures price, basis for the asset is positive.
Q 56.
**An option which would give a zero cash flow to its holder if it were exercised immediately is know
as _______ .
At the money option
Out of the money option
In the money option
None of the above
WRONG ANSWER
CORRET ANSWER:
At the money option
Explanation:
A situation where an option's strike price is identical to the price of the underlying security. Both call and put
options will be simultaneously "at the money." For example, if XYZ stock is trading at 75, then the XYZ 75
call option is at the money and so is the XYZ 75 put option.
At the money option would lead to zero cash flow if it were exercised immediately. Therefore, for both call
and put ATM options, strike price is equal to spot price.
Q 57.
When a clearing member / broker make unnecessary transactions in his clients account with the
sole aim of making commissions, this is known as ________.
Technical Trading
Stop Loss Trading
Churning
Portfolio Planning
WRONG ANSWER
CORRET ANSWER:
Churning
Q 58.
You have sold one lot of JSW Steel futures for Rs 900 (lot size 250) expecting that this share will go
down. But you also wants to protect yourself against any loss of more than Rs 2000. What should
you do ?
Place a limit order to buy at Rs 908
Place a stop loss buy order at Rs 892
Place a limit sell order at Rs 908
WRONG ANSWER
CORRET ANSWER:
Q 59.
A buyer of Call Option –
Has the obligation to take delivery of asset
Has the obligation to give delivery of asset
WRONG ANSWER
CORRET ANSWER:
Explanation:
CALL OPTION : An agreement that gives an investor the right (but not the obligation) to buy a stock, bond,
commodity, or other instrument at a specified price within a specific time period.
It may help you to remember that a call option gives you the right to "call in" (buy) an asset. You profit on a
call when the underlying asset increases in price.
Q 60.
You are interested in creating a perfect hedge for your portfolio. For this you need to sell index
futures and the index futures sold should be equal to __________.
Value of your portfolio + Beta of your portfolio
Value of your portfolio / Beta of your portfolio
Value of your portfolio * Beta of your portfolio
Value of your portfolio - Beta of your portfolio
WRONG ANSWER
CORRET ANSWER:
Value of your portfolio * Beta of your portfolio
Explanation:
To get a hedge, one has to multiply the beta of his portfolio with the value of the portfolio and them sell
that value of index futures.
Q 61.
The holder of an option has _______ .
the obligation but no right
the right but no obligation
some rights but more obligations
no rights and no obligations
CORRECT ANSWER
Q 62.
The intrinsic value is the difference between Market Price and Strike Price of the option and it can
never be negative.
True
False
WRONG ANSWER
CORRET ANSWER:
True
Q 63. The risk return profile of an option contract is ____________ .
symmetric
asymmetric
like treasury bond
like mutual funds
WRONG ANSWER
CORRET ANSWER:
asymmetric
Explanation:
Asymmetric basically means not identical on both sides.
When one trades in Options, the gains when the share moves in one direction is significantly different from
the losses when the share moves in the opposite direction.
For eg - If one buys a call option and the share prices go down the loss will be limited ie. restricted to the
premium paid. But if the share prices move up, the profits can be huge/unlimited. This is known a asymmetric
return.
On the contrary in futures or cash market, the returns are symmetric ie. equal value of profits or loss is
possible.
Q 64.
Arbitrage is a tool used to protects ones portfolio against any downturn by going short in index.
True or False ?
True
False
CORRECT ANSWER
Explanation:
To protect ones portfolio against any downturn by going short in index is called Hedgeing.
Arbitrage is a tool to use price differences in different markets to make a profit.
Q 65.
When a person buys a call option, he has an –
Mixed View
Slightly Long term view
Bullish view
Bearish view
WRONG ANSWER
CORRET ANSWER:
Bullish view
Q 66.
**In the Option segment, if you buy a CALL at a premium of Rs 35 at the Strike Price of Rs 400, lot is
of 200 shares, then the maximum possible Profit is ______
Rs 400
Rs 7000
Rs 43000
Unlimited
CORRECT ANSWER
Explanation:
When you buy a CALL option, your losses are limited to the extent of premium paid, but your profits,
theoritically can be unlimited as the price of the underlying can rise to any levels.
When the price of an underlying rises, the price of an CALL option will also rise and so you can have unlimited
profits.
Q 67.
**In the Straddle Strategy both options have same strike price but in Strangle strategy, the strike
price are different and are mostly out of the money options- True or False ?
False
True
WRONG ANSWER
CORRET ANSWER:
True
Explanation:
In the case of Straddle, the view is that the market will move substantially in either direction, but while in
straddle, both options have same strike price, in case of a strangle, the strikes are different. Also, both the
options (call and put) in this case are out-of-the-money and hence the premium paid is low.
Q 68.
When compared to cash market, there are more chances that an investor does not properly
understand the risks involved in the derivatives market. True or False ?
True
False
WRONG ANSWER
CORRET ANSWER:
True
Explanation:
Derivatives market and mainly the options market are difficult to understand when compared to cash markets.
Q 69.
**Hedgeing is a tool used to protects ones portfolio against any downturn by going short in index.
True or False ?
True
False
CORRECT ANSWER
Explanation:
Hedgeing basically means making an investment to reduce the risk of adverse price movements in an asset.
Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract.
In the above question, if an investor own 30-40 stocks and feels the market (and so his stocks) will go down
due to a upcoming event, he will short the index to minimise his losses.
Investors use this strategy when they are unsure of what the market will do.
Q 70.
**The spot price of ABC share is Rs 500, the call option of Strike Price Rs 500 is –
In the money
Out of the money
At the money
None of the above
WRONG ANSWER
CORRET ANSWER:
At the money
Explanation:
At the Money - A situation where an option's strike price is identical to the price of the underlying security.
Both call and put options will be simultaneously "at the money."
For example, if XYZ stock is trading at 100, then the XYZ 100 call option is at the money and so is the XYZ
100 put option. An at-the-money option has no intrinsic value, but may still have time value. Options trading
activity tends to be high when options are at the money.
Q 71.
A client G1 has bought 1 contract of ABC futures May series at Rs 3240. The closing price of this
share when the market closed on last Thursday of May was Rs 3188. What is his Profit (+) or Loss (-)
? (Market lot 100)
-3240
-5188
5600
-5200
WRONG ANSWER
CORRET ANSWER:
-5200
Explanation:
Purchase Price - Rs 3240
Sale Price - Rs 3188
So there is a loss : 3240 - 3188 = -52 x 100 = -5200
Q 72.
When a trader buys a put option, he has an –
Mixed view
Bearish view
Bullish view
Confused view
WRONG ANSWER
CORRET ANSWER:
Bearish view
Q 73.
**In a Derivatives Market, the person who takes the risk are _______
Arbitrageus
Speculators
Hedgers
None of the Above
WRONG ANSWER
CORRET ANSWER:
Speculators
Explanation:
Hedgers use derivatives to manage risks, Arbitrageurs use Cash market and Derivative market to make money
by using the price differences. Speculators take open positions and take the risks.
Q 74.
The difference between the bid price and the ask price is know as _______.
basis
bid-ask spread
tick
premium
WRONG ANSWER
CORRET ANSWER:
bid-ask spread
Explanation:
The difference between the best buy and the best sell orders is called bid-ask spread.
For eg - If the price of a stock is Rs 100 and 100.50, then 0.50 paise is the bid-ask spread.
Q 75.
A Trading Member can also be a Clearing Member – True or False ?
True
False
WRONG ANSWER
CORRET ANSWER:
True
Explanation:
A Trading Member can also be a Clearing Member by meeting additional requirements. There can also be only
clearing members.
Q 76.
The option premium paid by the option buyer remains with the exchange till the time it is closed out
or expired.
True
False
WRONG ANSWER
CORRET ANSWER:
False
Explanation:
The Option premium is collected by the exchange but is given to the seller of option.
Q 77.
**Higher the interest rate, higher will be the option premium - True or False ?
True
False
WRONG ANSWER
CORRET ANSWER:
True
Explanation:
Higher interest rates will lead to higher future price / higher option premium as the cost of carry ie. cost of
financing increases.
Q 78.
A major recommendation of L.C.Gupta Committee was that a separate Investor Protection Fund
must be created for derivatives segment - State True or False ?
True
False
WRONG ANSWER
CORRET ANSWER:
True
Q 79.
**A short seller ___________.
Must own the share
Must own at least 75% of the shares
Need not own the shares
None of the above
WRONG ANSWER
CORRET ANSWER:
Need not own the shares
Explanation:
Short Selling means the selling of a security that the seller does not own.
Short sellers assume that they will be able to buy the stock at a lower amount than the price at which they
sold short.
Q 80.
Position limits have been designed to _______ .
prevent the markets from being wrongly influenced by Government policies
support the market and determine its movements
stop the markets being wrongly influenced by the trading activities of investor(s)
all of the above
WRONG ANSWER
CORRET ANSWER:
stop the markets being wrongly influenced by the trading activities of investor(s)
Q 81.
The mark to mark debits for stock futures are done on a –
Daily basis
Weekly basis
Monthly basis
Hourly basis when markets are very volatile
WRONG ANSWER
CORRET ANSWER:
Daily basis
Explanation:
In the futures market, profits and losses are settled on day-to-day basis – called mark to market (MTM)
settlement.
The exchange collects these margins (MTM margins) from the loss making participants and pays to the gainers
on day-to-day basis.
Therefore all futures postions - for both Index and Stocks are marked to market on a daily basis.
Q 82.
Derivatives market helps shift of speculative trades from unorganized market to organized market.
True or False ?
True
False
CORRECT ANSWER
Explanation:
In the unorganized markets, there is a huge risk of counter party default etc. In the organized markets for
derivatives the Clearing Corporation guarantees the clearing and settlement of all trades even if there is a
default of any participant.
Q 83.
If you have a long position in futures contract, you can square up it by _________ .
Buying a call option of that security
Selling the same futures contract
Selling the far month future contract so that you have more time and can earn more
Buying a put option of that security
WRONG ANSWER
CORRET ANSWER:
Selling the same futures contract
Explanation:
A future contract can be squared up by selling the same contract and in no other way.
Q 84.
The Ask price is always greater than Bid price. True or False ?
True
False
WRONG ANSWER
CORRET ANSWER:
True
Explanation:
Bid price is the price buyer is willing to pay and ask price is the price seller is willing to sell.
For example the prices as seen on the screen will be – Reliance Inds 900 – 901, where 900 is the bid price
and 901 is the ask price.
So the Ask price is always greater than Bid price.
Q 85.
An investor who is risk averse will invest more in Fixed Income and Debt instruments than to equity
market related investments.
True
False
WRONG ANSWER
CORRET ANSWER:
True
Explanation:
A risk-averse investor ie. an investor who wants to play safe and not take risks, will prefer investments that
are more secure and thus would have higher portfolio allocations to debt and fixed income instruments.
On the other hand an investor who is less risk averse would like to have greater exposure to equity and other
risky investments.
Q 86.
**A stock broker has two clients P and Q. P has purchased 200 contracts and Q has sold 300
contracts in May Tata Steel futures series. What is the outstanding liability (open Position) of the
member towards Clearing Corporation in number of contracts?
100
200
300
500
CORRECT ANSWER
Explanation:
While calculating the outstanding liability of a member, the total of all clients open postion is taken into
account. The positions cannot be netted against two clients.
So in the above case the total open position is 200 + 300 = 500 contracts.
Q 87.
**Impact Cost is the measure of liquidity – True or False ?
False
True
WRONG ANSWER
CORRET ANSWER:
True
Explanation:
Impact cost basically means what additionally a trader must pay because of the order size ie. due to price
increase if there it is a big buy order and price decrease if there is a big sell order.
If the scrip is very liquid ie. there are huge buyers and sellers, the impact cost will be very low.Therefore, if
the liquidity is high - the impact cost is low and if the liquidity is poor, the impact cost are high.
Q 88.
The difference between the spot price and the futures price is called tick.
False
True
CORRECT ANSWER
Explanation:
The difference between the spot price and the futures price is called BASIS.
Q 89.
**In the Options segment, if you sell a PUT, you expect the market / scrip to move _____
Either up or down as you profit in both directions.
One cannot sell a PUT in the options market
Up
Down
WRONG ANSWER
CORRET ANSWER:
Up
Explanation:
A seller of a PUT option has a positive / bullish view and he expects the market / script to go up to make a
profit.
Q 90.
A put option gives the buyer the right to ___________ .
Buy the underlying at market price
Buy the underlying at set price
Sell the underlying at market price
Sell the underlying at set price
WRONG ANSWER
CORRET ANSWER:
Sell the underlying at set price
Explanation:
A put option is a financial instrument that gives the buyer the right, but not an obligation, to sell a set
quantity of a security at a set strike price at some time on or before expiration.
In easy terms - what ever may be the market price, the buyer of put opton will be able to sell security at
the set price or strike price as he has paid a premium for it.
Q 91.
**A person sells a put option of Strike Price 265, market lot 1000, at a premium of Rs 40, the
maximum profit he can make is _____.
Rs 25,000
Rs 2,65,000
Rs 40,000
Unlimited
CORRECT ANSWER
Explanation:
The maximum profit for a seller of an option is the premium he receives. In this case he has received Rs 40.
The Lot size is 1000.
So the maximum profit he can make is 40 x 1000 = Rs 40,000.
Q 92.
____________ pays the initial margin when entering into a futures contract.
The Buyer
The Seller
Both Buyers and Sellers
None of the above
WRONG ANSWER
CORRET ANSWER:
Both Buyers and Sellers
Explanation:
In futures both buyer and seller pays the margin as both are heavily exposed to market risks.
In options, only the seller has to pay the margin as buyers have a limited risk.
Q 93.
The Clearing Corporation has the power to charge special margin if it may think fit.
True
False
WRONG ANSWER
CORRET ANSWER:
True
Q 94.
The right to buy an asset for a certain price on or before a specified date is the characteristics of a
_____________.
American Put Option
American Call Option
European Put Option
European Call Option
WRONG ANSWER
CORRET ANSWER:
American Call Option
Q 95.
**Contract month is the month in which futures contract –
Expires
Are at the lowest price
Are at its highest price
None of the above
CORRECT ANSWER
Explanation:
Contract month is the month in which futures contract expires.
At the expiry of the nearest month contract, a new contract with 3 months maturity will start. Thus, at any
point of time, there will be 3 contracts available for trading.
Q 96.
**Derivative markets mostly comprises of –
Long term investors
Speculators
Hedgers
Both 2 & 3
WRONG ANSWER
CORRET ANSWER:
Both 2 & 3
Explanation:
Long term investors buy stocks in the Spot / Cash market and take their delivery and keep it for long term.
The active participants in Derivative markets are Hedgers, Speculators, Arbitageurs etc.
Q 97.
**Liquid Assets offered by a Clearing Member to the Clearing Corporation can include Mutual Fund
Units and Bank Gaurantees. True or False ?
False
True
CORRECT ANSWER
Explanation:
Clearing member is required to provide liquid assets to cover various margins and liquid networth requirements.
The total liquid assets comprise of at least 50% of the cash component and the rest is non cash component.
1. Cash Component:
• Cash
• Bank fixed deposits (FDRs) issued by approved banks and deposited with approved custodians or Clearing
Corporation.
• Bank Guarantees (BGs) in favour of clearing corporation from approved banks in the specified format.
• Units of money market mutual fund and Gilt funds where applicable haircut is 10%.
• Government Securities and T-Bills
2. Non Cash Component:
• Liquid (Group I) Equity Shares as per Capital Market Segment which are in demat form, as specified by
clearing corporation from time to time deposited with approved custodians.
• Mutual fund units other than those listed under cash component decided by clearing corporation from time
to time deposited with approved custodians.
Q 98.
**In the Option segment, if you sell a CALL at a premium of Rs 45 at the Strike Price of Rs 400, lot is
of 200 shares, then the maximum possible loss is ______
Rs 9000
Rs 20,000
Rs 80,000
Unlimited
CORRECT ANSWER
Explanation:
For a seller of an option - the maximum profit is the premium he receives and the maximum loss is unlimited.
Q 99.
When a person sells a call option, he has an –
Bullish view
Bearish view
Long term view
None of the above
WRONG ANSWER
CORRET ANSWER:
Bearish view
Q
100. The Stock Broker / Clearing Member has full authority to close out a transaction of his client
if___________ .
the client has not paid the daily settlement amount
the client not paid the initial margin
Both 1 and 2
A broker cannot close out a transaction
WRONG ANSWER
CORRET ANSWER:
Both 1 and 2
Out of 100 questions 30 correct and 70 wrong.

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1/15/2019 Welcome to Pass4Sure

Higher the risk ( Eg. Equity Shares ) higher is the return

An index option is a Derivative Product.

So when volumes will be high the impact cost will be low.

Future options are standardised as per the rules of stock exchange.

In this case the premium paid is Rs 20 x 400 shares = Rs 8000.

Mark to Market risks

Tick size is the minimum price movement of a trading instrument.

Asymmetric basically means not identical on both sides.

Arbitrage is a tool to use price differences in different markets to make a profit.

Purchase Price - Rs 3240

Sale Price - Rs 3188

So there is a loss : 3240 - 3188 = -52 x 100 = -5200

So the Ask price is always greater than Bid price.

So the maximum profit he can make is 40 x 1000 = Rs 40,000.

Contract month is the month in which futures contract expires.

• Government Securities and T-Bills

2. Non Cash Component:

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