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

Quiz Title: NISM Series VIII: Equity Derivatives Certification Examination Mock Test
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1.[0/1] A penalty or suspension of registration of a stock broker from derivatives exchange/segment under SEBI
(Stock Broker and Sub-broker) Regulations, 1992 can take place if ________ 
A. The Stock Broker fails to pay fees
B. The Stock Broker is suspended by the Stock Broker
C. The stock broker violates the conditions of registration
D. In any of the above situations
Answer: D

2.[0/1] Index options on the S&P CNX Nifty can be exercised ___________.
A. upon maturity
B. any time on or before maturity
C. any time upto maturity
D. on a date pre-specified by the trading member
Answer: B

3.[0/1] The futures price is ________.

A. price at which a futures contract trades in the market
B. the price set by the exchange
C. spot price plus cost of carry
D. the price of a contract in the future
Answer: C

4.[0/1] The initial margin amount is large enough to cover a one-day loss that can be encountered on ______%
of the days.
A. 95
B. 99
C. 90
D. 50
Answer: A

5.[1/1] In Indian context, derivative includes: A) A security derived from a debt instrument, share, loan whether
secured or unsecured, risk instrument or contract for differences or any other form of security; B) A contract which
derives its value from the prices, or index of prices, of underlying securities;
A. A
B. B
C. Both of the above
D. None of the above
Answer: C

6.[1/1] The NEAT F&O trading system _____________.

A. does not allow combination trades
B. allows only a single order placement at a time
C. allows one to enter combination trades

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D. none of the above

Answer: C

7.[0/1] Initial margin in a futures contract is kept low

A. TRUE
B. FALSE
Answer: B

8.[1/1] On expiry, the settlement price of an index futures contract is

A. opening price of futures contract
B. closing index value
C. closing price of futures contract
D. opening index value
Answer: B

9.[1/1] Which of the following is not the duty of the trading member
A. Filling of 'Know Your Client' form
B. Execution of Client Broker Agreement
C. Bringing risk factors to the knowledge of client
D. Assisting the client to arrange for margins
Answer: D

10.[1/1] June futures contract on WIPRO closed at Rs. 1153 on May 20 and at Rs. 1150 on May 21, 2002. Raju
has a short position of 4000 in the June futures contract. On May 21, 2002, he sells 3000 units of 10-June-2002
expiring Put Options on WIPRO at strike price of Rs.1145 for a premium of Rs.28 per unit. What is his net
obligation to / from the Clearing Corporation for May 21, 2002?
A. Pay-in of Rs.32,000
B. Pay-in of Rs.72,000
C. Pay-out of Rs.96,000
D. Pay-out of Rs.32,000
Answer: B

11.[0/1] Cyrus is short 600 WIPRO July Puts at strike Rs. 1520 for a premium of Rs. 33 each on July 22, 2002.
On July 25, 2002 (the expiration day of the contract), the spot price of WIPRO closes at Rs.1553, while the July
futures on WIPRO close at 1555. Does Cyrus have an obligation to the Clearing Corporation on his positions, and
how much, if any?
A. Yes. Rs.18,900 pay-out
B. Yes. Rs.19,800 pay-out
C. Yes. Rs.18,900 pay-in
D. No pay in or pay-out on expiration of contract
Answer: D

12.[1/1] The spot price of TISCO is Rs. 2050 and the cost of financing is 10%. What is the fair price of a one
month futures contract on TISCO?
A. 2,085.15
B. 2,099.40
C. 2,082.80
D. 2,066.30
Answer: D

13.[0/1] You have bought a portfolio of securities on the exchange. To eliminate the risk arising out of market,
you should _____.
A. buy index futures

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B. buy stock futures

C. sell index futures
D. sell stock futures
Answer: D

14.[0/1] Futures differs from forwards in the sense that

A. settlement of contract takes place in the future
B. both parties are bound to give/take delivery
C. positions are marked-to-market everyday
D. contracts are custom designed
Answer: B

15.[1/1] Which of the following is the duty of the trading member?

A. Sending the periodical statement of accounts to clients
B. Maintaining unique client codes
C. Ensuring timely pay-in and pay-out of funds
D. All of the above
Answer: D

16.[1/1] VaR methodology seeks to measure the amount of value that a portfolio may stand to lose within a
certain horizon time period due to potential changes in ______________.
A. underlying exposures
B. underlying stock volatility
C. underlying asset spot price
D. underlying index volatility
Answer: A

17.[0/1] Ms. Shetty has sold 300 calls on WIPRO at a strike price of Rs.1503 for a premium of Rs.28 per call on
April 1, 2002. The closing price of equity shares of WIPRO is Rs. 1553 on that day. If the call option is assigned
against her on that day, what is her net obligation on April 01, 2002?
A. Pay-out of Rs.13,400
B. Pay-out of Rs. 21,600
C. Pay-in of Rs.15,000
D. Pay-in of Rs.6,600
Answer: D

18.[1/1] Initial margin is collected to __________.

A. provide for losses that have already occurred
B. make good daily losses
C. safeguard against potential losses on outstanding positions
D. square-off a position on the expiry of the contract
Answer: C

19.[1/1] Which of the following are derivatives?

A. Futures
B. Options
C. Forwards
D. All of the above
Answer: D

20.[1/1] A market index is very important for its use ___________.

A. in portfolio management
B. as a benchmark of portfolio performance

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C. as a barometer for market behavior

D. All of the above
Answer: D

21.[1/1] Immediate or cancel is an order which will automatically __________ in F&O segment of NSEIL
A. get stored in the system for matching, if not executed immediately
B. be matched because it being a preferential order
C. cancel the unmatched portion of the order quantity
D. be cancelled if it is not matched immediately and in its entirety
Answer: D

22.[1/1] Which of the following statements is true?

A. F&O Segment has a Basket trading facility.
B. Basket trading has been discontinued in the F&O Segment.
C. NSE does not allow basket trading in it's F&O Segment.
D. Basket trading is illegal in India.
Answer: A

23.[0/1]  _______ order allows the user to execute a contract as soon as it is entered into the system, failing
which the order is immediately cancelled from the system.
A. GTD
B. GTC
C. IOC
D. Limit
Answer: D

24.[1/1] Each user of the trading member in F&O segment of NSEIL is assigned a unique _________ ID
A. trading member
B. user
C. branch
D. exchange
Answer: A

25.[0/1] What is displayed in the NEAT Trading System Ticker Screen

A. The electronic display that continuously shows only the stock symbol, volume and price at which each
successive trade occurs.
B. The electronic display that continuously shows only the price at which each successive trade occurs.
C. The electronic display that continuously shows only the stock symbol and volume at each successive trade
occurs
D. None of the above
Answer: B

26.[1/1] Daily Mark to Market settlement of futures takes place on ________ basis .
A. T+0
B. T+5
C. T+3
D. T+1
Answer: D

27.[1/1] An investor owns one thousand shares of Reliance. Around budget time, he gets uncomfortable with the
price movements. One contract on Reliance is equivalent to 100 shares. Which of the following will give him the
hedge he desires?
A. Buy 5 Reliance futures contracts

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B. Sell 10 Reliance futures contracts

C. Sell 5 Reliance futures contracts
D. Buy 10 Reliance futures contracts
Answer: B

28.[0/1] An investor is bearish about Tata Motors and sells ten one-month ABC Ltd. futures contracts at
Rs.6,06,000. On the last Thursday of the month, Tata Motors closes at Rs.600. He makes a ________ . (assume
one lot = 100)
A. Profit of Rs. 6,000
B. Loss of Rs. 6,000
C. Profit of Rs. 8,000
D. Loss of Rs. 8,000
Answer: B

29.[0/1] In case a Future Contract is not traded in a day, which of the following prices is reckoned for daily mark
to market settlement?
A. Theoretical price
B. Closing price of the last traded day
C. Closing price of the futures contract
D. Closing price of the underlying
Answer: D

30.[0/1] To be eligible for options trading, the market wide position limit in the stock should not be less than Rs.
 ___________ 
A. 100 crore
B. 300 crore
C. 500 crore
D. 250 crore
Answer: C

31.[1/1] A stock is currently selling at Rs. 70. The put option to sell the stock at Rs. 75 costs Rs. 12. What is the
time value of the option?
A. Rs. 5
B. Rs. 2
C. Rs. 4
D. Rs. 7
Answer: D

32.[1/1] Weekly options trading commenced on NSE in _______ 

A. 2-Jun-05
B. NSE does not trade in Weekly options
C. 4-Jul-05
D. 4-Jun-05
Answer: B

33.[0/1] Value-at-risk measures ___________.

A. Credit rating of an investor
B. Value of proprietary portfolio
C. Risk level of a financial portfolio
D. Networth of an investor
Answer: B

34.[1/1] Mark-to-market margins are collected ___________.

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A. On a weekly basis
B. Every 2 days
C. Every 3 days
D. On a daily basis
Answer: D

35.[0/1] Clients' positions cannot be netted off against each other while calculating initial margin on the
derivatives segment.
A. FALSE
B. TRUE
Answer: A

36.[1/1] A defaulting member's clients positions could be transferred to ____________ by the Clearing
Corporation.
A. Another solvent member
B. The Exchange
C. A suspense account
D. Error account
Answer: B

37.[1/1] A member has two clients C1 and C2. C1 has purchased 800 contracts and C2 has sold 900 contracts in
August XYZ futures series. What is the outstanding liability (open position) of the member towards Clearing
Corporation in number of contracts?
A. 800
B. 1700
C. 900
D. 100
Answer: B

38.[0/1] Is it possible to place a limit buy order for 100 contracts of XYZ at Rs.770 per contract
A. Yes
B. No
Answer: B

39.[0/1] A trader has bought 100 shares of XYZ at Rs.780 per share. He expects the price to go up up but wants
to protect himself if the price falls. He does not want to lose more than Rs.1000 on this long position in XYZ. What
should the trader do?
A. Place a limit sell order for 100 shares of XYZ at Rs.770 per share
B. Place a stop loss sell order for 100 shares of XYZ at Rs.770 per share
C. Place a limit buy order for 100 shares of XYZ at Rs.790 per share
D. Place a limit buy order for 100 shares of XYZ at Rs.770 per share
Answer: D

40.[1/1] On the derivative exchanges, all the orders entered on the Trading System are at prices exclusive of
brokerage.
A. FALSE
B. TRUE
Answer: B

41.[0/1] If an investor buys a call option with lower strike price and sells another call option with higher strike
price, both on the same underlying share and same expiration date, the strategy is called ___________.
A. Bearish spread
B. Bullish spread

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C. Butterfly spread
D. Calendar spread
Answer: C

42.[1/1] If you sell a put option with strike of Rs. 245 at a premium of Rs.40, how much is the maximum gain that
you may have on expiry of this position?
A. 140
B. 40
C. 80
Answer: B

43.[1/1] Which is the ratio of change in option premium for the unit change in interest rates?
A. Vega
B. Rho
C. Theta
D. Gamma
Answer: B

44.[1/1] Three Call series of XYZ stock - January, February and March are quoted. Which will have the lowest
Option Premium (same strikes)?
A. March
B. February
C. January
D. All will be equal
Answer: C

45.[1/1] Mr. X purchases 100 put option on stock S at Rs. 30 per call with strike price of Rs. 280. If on exercise
date, stock price is Rs. 350, ignoring transaction cost, Mr. X will choose _____________.
A. To exercise the option
B. May or may not exercise the option depending on whether he is in his hometown or not at that time
C. May or may not exercise the option depending on whether he like the company S or not
D. Not to exercise the option
Answer: D

46.[0/1] In which option is the strike price better than the market price (i.e., price difference is advantageous to
the option holder) and therefore it is profitable to exercise the option?
A. Out-of the money option
B. In-the -money option
C. At-the-money option
D. Higher-the-money option
Answer: C

47.[1/1] Higher the price volatility of the underlying stock of the put option, ______________.
A. Lower would be the premium
B. Higher would be the premium
C. Nil (zero) would be the premium
D. Volatility does not effect put value
Answer: B

48.[0/1] Exchange traded options are _______________.

A. Always in-the-money options
B. Standardised options
C. Customised options

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D. Always out-of-the money options

Answer: C

49.[1/1] An in-the-money option is _____________.

A. An option with a negative intrinsic value
B. An option which cannot be profitably exercised by the holder immediately
C. An option with a positive intrinsic value
D. An option with zero time value
Answer: C

50.[1/1] A put option gives the buyer a right to sell how much of the underlying to the writer of the option?
A. Any quantity
B. The specified quantity or less than the specified quantity
C. Only the specified quantity (lot size of the option contract)
D. The specified quantity or more than the specified quantity
Answer: C

51.[0/1] A european call option gives the buyer the right but not the obligation to buy from the seller an underlying
at the prevailing market price "on or before" the expiry date.
A. FALSE
B. TRUE
Answer: B

52.[1/1] Current Price of XYZ Stock is Rs. 286. Rs. 260 strike call is quoted at Rs. 45. What is the Intrinsic
Value?
A. 25
B. 19
C. 26
D. 24
Answer: B

53.[1/1] You sold a Put option on a share. The strike price of the put was Rs.245 and you received a premium of
Rs.49 from the option buyer. Theoretically, what can be the maximum loss on this position?
A. 206
B. 196
C. 49
Answer: B

54.[1/1] What role do speculators play in the futures market?

A. They produce the commodities traded at futures exchanges
B. They take delivery of the commodities at expiration
C. They add to the liquidity in the futures markets
D. They transfer their risk to the hedgers
Answer: C

55.[1/1] Cost of carry model states that ______________.

A. Price of Futures = Spot + Cost of Carry
B. Price of Futures = Spot - Cost of Carry
C. Price of Futures = Spot Price
D. Price of Futures = Cost of Carry
Answer: A

56.[0/1] The buyer of an option cannot lose more than the option premium paid.

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A. True only for European options

B. True only for American options
C. True for all options
D. False for all options
Answer: A

57.[1/1] Selling short a stock means ___________.

A. Seller has to deliver the stock within a short time
B. Seller does not own the stock he is supposed to deliver
C. Seller owns the stock he is supposed to deliver
D. Seller has more than a year's time to deliver the stock which he sold
Answer: B

58.[1/1] When the near leg of the calendar spread transaction on index futures expires, the farther leg becomes a
regular open position.
A. FALSE
B. TRUE
Answer: B

59.[1/1] Margins in 'Futures' trading are to be paid by _______.

A. Only the buyer
B. Only the seller
C. Both the buyer and the seller
D. The clearing corporation
Answer: C

60.[0/1] In an equity scheme, fund can hedge its equity exposure by selling stock index futures.
A. FALSE
B. TRUE
Answer: A

61.[1/1] Client A has purchased 10 contracts of December series and sold 7 contracts of January series of the
NSE Nifty futures. How many lots will get categorized as regular (non-spread) open positions?
A. 11
B. 3
C. 5
D. 15
Answer: B

62.[1/1] A calendar spread contract in index futures attracts ___________.

A. Same margin as sum of two independent legs of futures contract
B. Lower margin than sum of two independent legs of futures contract
C. Higher margin than sum of two independent legs of futures contract
D. No margin need to be paid for calendar spread positions
Answer: B

63.[1/1] If you have sold a XYZ futures contract (contract multiplier 50) at 3100 and bought it back at 3300, what
is your gain/loss?
A. A gain of Rs. 10,000
B. A loss of Rs. 5,000
C. A loss of Rs. 10,000
D. A gain of Rs. 5,000
Answer: C

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64.[1/1] Which of the following is closest to the forward price of a share, if Cash Price = Rs.750, Forward
Contract Maturity = 6 months from date, Market Interest rate = 12%?
A. 772.5
B. 795
C. 840
D. 940.8
Answer: B

65.[1/1] You have taken a short position of one contract in June XYZ futures (contract multiplier 50) at a price of
Rs. 3,400. When you closed this position after a few days, you realized that you made a profit of Rs. 10,000.
Which of the following closing actions would have enabled you to generate this profit? (You may ignore brokerage
costs.)
A. Selling 1 June XYZ futures contract at 3200
B. Buying 1 June XYZ futures contract at 3600
C. Buying 1 June XYZ futures contract at 3200
D. Selling 1 June XYZ futures contract at 3600
Answer: C

66.[1/1] You sold one XYZ Stock Futures contract at Rs. 278 and the lot size is 1,200. What is your profit (+) or
loss (-), if you purchase the contract back at Rs. 265?
A. 16,600
B. -15,600
C. -16,600
D. 15,600
Answer: D

67.[0/1] Impact cost is low when the liquidity in the system is poor.
A. TRUE
B. FALSE
Answer: A

68.[0/1] Operational risks include losses due to ____________.

A. Too much of management control
B. Income tax regulations
C. Government policies
D. Inadequate disaster planning
Answer: A

69.[0/1] Financial derivatives provide the facility for __________.

A. Speculation
B. Hedging
C. Arbitraging
D. All of the above
Answer: C

70.[1/1] The purchase of a share in one market and the simultaneous sale in a different market to benefit from
price differentials is known as ____________.
A. Mortgage
B. Hedging
C. Arbitrage
D. Speculation
Answer: C

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71.[1/1] An index option is a __________________.

A. Debt instrument
B. Derivative product
C. Cash market product
D. Money market instrument
Answer: B

72.[0/1] A trading member allowed to clear his own trades only is known as _________.
A. Trading member - clearing member
B. Trading members are not allowed to clear their own trades
C. Professional clearing member
D. Self clearing member
Answer: A

73.[1/1] NISM stands for ___________.

A. National Institute of Stock Markets
B. National Integrated Stock Market
C. National Institute of Securities Markets
D. National Institution of Security Market
Answer: C

74.[1/1] A stock broker applies for registration to SEBI _________.

A. directly
B. through association of members
C. through Ministry of Finance
D. through stock exchange(s) of which he or she is admitted as a member
Answer: D

75.[1/1] Santosh is bearish about ABC Ltd.and sells ten one-month ABC Ltd.futures contracts at Rs.2,96,000. On
the last Thursday of the month, ABC Ltd.closes at Rs.310. He makes a _________. (assume one lot = 100)
A. profit of Rs. 7,000
B. loss of Rs. 7,000
C. profit of Rs. 14,000
D. loss of Rs. 14,000
Answer: D

76.[1/1] Hedging with index futures means ___________.

A. long security, short security
B. long security, short index futures
C. long security, long index futures
D. long index futures, short index futures
Answer: B

77.[1/1] At the balance sheet date, the balance in the `initial margin equity index futures account' should be
shown separately under the head
A. outstanding balance
B. current assets
C. prepaid expenses
D. current liabilities
Answer: B

78.[0/1] If the annual risk free rate is 10%, then the `r' used in the Black Scholes formula should be ______.
A. 0.1398

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B. 1.1
C. 0.095
D. None of the above
Answer: A

79.[1/1] Swaptions are:

A. Options to roll over a swap
B. Options on futures
C. Options to buy or sell a swap
D. None of the above
Answer: C

80.[0/1] Around 60% of the trading volume on the American Stock Exchange is from
A. Index Funds
B. Index Futures
C. Index Options
D. ETFs
Answer: B

81.[0/1] A writer of a call option is a person who _____________.

A. Has the right to buy the underlying asset
B. Has the obligation to sell the underlying asset
C. Has the right to sell the underlying asset
D. Has the obligation to buy the underlying asset
Answer: A

82.[0/1] Which of the following is required for personnel working in the industry in order to dispense quality
intermediation?
A. To possess requisite skills and knowledge.
B. To have a proper understanding of the business and skills to help it remain competitive.
C. To follow certain code of conduct.
D. All of the above
Answer: C

83.[1/1] The clearing member/trading member is required to disclose to the clearing corporation details of any
person(s) acting in concert who together own _____% or more of the open interest of all futures and options
contracts on a particular underlying index on the stock exchange.
A. 12
B. 20
C. 15
D. 25
Answer: C

84.[0/1] Which of the following should be disclosed separately for long and short positions, in respect of each
series of equity index futures as of the balance sheet date?
A. The daily settlement price
B. Number of equity index futures contracts having open position
C. Number of units of equity index futures pertaining to the contracts
D. All of the above
Answer: B

85.[1/1] A dealer sold one January Nifty futures contract for Rs.250,000 on 15th January. Each Nifty futures
contract is for delivery of 50 Nifties. On 25th January, the index closed at 5100. How much profit/loss did he

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make?
A. Profit of Rs. 9000
B. Loss of Rs. 8000
C. Loss of Rs. 9500
D. Loss of Rs. 5000
Answer: D

86.[1/1] Spot Price = Rs. 100. Call Option Strike Price = Rs. 98. Premium = Rs. 4. An investor buys the Option
contract. On Expiry of the Option the Spot price is Rs. 108. Net profit for the Buyer of the Option is ___.
A. Rs. 6
B. Rs. 5
C. Rs. 2
D. Rs. 4
Answer: A

87.[1/1] ETFs can be ________.

A. bought on an exchange but sold only directly to the mutual fund
B. bought and sold only directly with a mutual fund
C. bought and sold on an exchange like shares
D. None of the above
Answer: C

88.[0/1] The Black-Scholes option pricing model was developed in ____ .

A. 1923
B. 1973
C. 1887
D. 1987
Answer: C

89.[1/1] A stock broker is allowed to buy, sell or deal in securities __________.

A. only on being admitted as a member of a stock exchange
B. on submission of document with stock exchange for admission
C. only on having a certificate of registration granted by SEBI
D. on submission of document with SEBI for registration
Answer: C

90.[1/1] The beta of Nifty is _______.

A. 1.7
B. 1
C. -1
Answer: B

91.[1/1] The intrinsic value of a call option is the amount the option is
A. at-the-money
B. above-the-money
C. in-the-money
D. out-of-the-money
Answer: C

92.[0/1] Transaction tax is payable by the __________ of the derivative instrument.

A. designer
B. buyer
C. originator

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D. seller
Answer: B

93.[0/1] NSCCL's on-line position monitoring system monitors open position of _____________on a real time
basis.
A. dealer only
B. trading member only
C. clearing member only
D. clearing member and trading member
Answer: D

94.[0/1] An 'authorised person' in the Futures & Options segment is ___________.

A. any person who is acting in any capacity on behalf of the trading member or a participant for any activity
relating to the trades done and executed
B. a person authorised by the exchange as an approved user of a trading member
C. an approved user of a participant
D. All of the above
Answer: C

95.[1/1] Futures trading first emerged in the exchanges located in ________.

A. London
B. Chicago
C. Singapore
D. Frankfurt
Answer: B

96.[1/1] The maximum brokerage chargeable by a trading member in relation to trades effected in the contracts
admitted to dealing on the F&O segment of NSEIL is fixed at ______ of the contract value, exclusive of statutory
levies.
A. 1.50%
B. 2.50%
C. 0.75%
D. 3%
Answer: B

97.[0/1] Derivatives can be used for which of the following?

A. Hedging
B. Arbitrage
C. Speculating
D. All of the above
Answer: B

98.[0/1] An option to buy or sell a swap, that becomes operative at the expiry of the option, is called a ______ 
A. swaption
B. futures
C. basket option
D. Warrants
Answer: C

99.[0/1]  ______ is a form of basket options.

A. Equity index futures
B. Equity index options
C. Swaptions

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D. Warrants
Answer: C

100.[1/1] Seller of a put option expects ___________.

A. Decrease in the price of underlying asset
B. Increase in the price of underlying asset
C. No change in the price of underlying asset
D. Both (2) and (3)
Answer: B

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