NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION

DEMO TEST 
 

  NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION

DEMO TEST 

Question 1 If one makes does a calendar spread contract in index futures, then it attracts_________

(a) Lower margin than sum of two independent legs of futures contract
(b)  No margin need to be paid for calendar spread positions
(c) Higher margin than sum of two independent legs of futures contract
(d) Same margin as sum of two independent legs of futures contract

Question 2 An exchange traded option after maturity __________ .

(a) Can be traded in the spot market

(b) Can be traded for next 7 days
(c) Cannot be traded
(d)  None of the above

Correct Answer 1 Lower margin than sum of two independent legs of futures contract

Answer Calendar spread position is a combination of two positions in futures on the same underlying -
Explanation long on one maturity contract and short on a different maturity contract.
When the market fluctuates, if there is a loss in the long position then there will be an almost
equal profit in short postion.
So Calendar spreads carry no market risk - hence lower margins are adequate.
Calendar spread carries on only basis risk. Basis risk means both the contracts will not
fluctuate identically.

Correct Answer 2 Cannot be traded

 

  NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION

DEMO TEST 

Question 3 A trader Mr. Raj wants to sell 10 contracts of June series at Rs.5200 and
a trader Mr. Rahul wants to buy 5 contracts of July series at Rs. 5250.
Lot size is 50 for both these contracts. The Initial Margin is fixed at 10%.
They both have their accounts with the same broker. How much Initial
Margin is required to be collected from both these investors by the
broker ?

(a) Rs 2,60,000
(b) Rs 1,31,250
(c) Rs 3,91,250
(d) Rs 1,28,750

Question 4 The Spot Price of ABC Stock is Rs. 347. Rs. 325 strike call is quoted at Rs. 39. What is the
Intrinsic Value?
(a) 0
(b) 22
(c) 39
(d) 61

Correct Answer 3 Rs 3,91,250

Answer Payment of Initial Margin by a broker cannot be netted against two or more
Explanation clients. So he will have to pay the margin for the open position of each of his
clients.
So margin payable for Mr. Raj is : 10 x 5200 x 50 at 10% = Rs 2,60,000
Margin payable for Mr. Rahul is : 5 x 5250 x 50 at 10% = Rs 1,31,250
Total = Rs 3,91,250.

Correct Answer 4 22

Answer When the Strike Price is below the Spot Price, the Call Option is 'In the Money' ie. profitable.
Explanation Intrinsic Value for a such a Call Option = Spot Price - Strike Price
= 347 - 325
= 22
 

  NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION

DEMO TEST 

Question 5 Tick size depends on

(a) The Delta of the security

(b) Its fixed by the exchange
(c) Volume in that security
(d) The Interest rates

Question 6 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 ?
(a) TRUE
(b) FALSE

Correct Answer 5 Its fixed by the exchange

Answer Tick size is the minimum move allowed in the price quotations. Exchanges decide the tick
Explanation sizes on traded contracts as part of contract specification. Tick size for Nifty futures is 5 paisa.

Correct Answer 6 TRUE

Answer Derivatives market and mainly the options market are difficult to understand
Explanation when compared to cash markets.
 

  NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION

DEMO TEST 

Question 7 Mr R wants to sell 17 contracts of January series at Rs.4550 and Mr S wants to sell 20
contracts of February series at Rs. 4500. Lot size is 50. The Initial Margin is fixed at
9%. How much Initial Margin is required to be collected from both these investors by
the broker?
(a) Rs 3,48,075
(b) Rs 4,05,000
(c) Rs 5,87,500
(d) Rs 7,53,075

Question 8 When you buy a put option on a stock you are owning, this strategy is
called _____________ .

(a) Straddle
(b) writing a covered call
(c) calender spread
(d)  protective put

Correct Answer 7 Rs 7,53,075

Answer The Broker has to collect -

Explanation From Mr. R : 17 x 4550 x 50 x 9% = Rs 3,48,075
From Mr. S : 20 x 4500 x 50 x 9% = Rs 4,05,000
Therefore the total margin to be collected is 348075 + 405000 = Rs 7,53,075

Correct Answer 8  protective put

Answer Protective Put is a a risk-management strategy that investors can use to guard
Explanation against the loss of unrealized gains.
The put option acts like an insurance policy - it costs money, which reduces
the investor's potential gains from owning the security, but it also reduces his
risk of losing money if the security declines in value. 
 

  NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION

DEMO TEST 

Question 9 OTC derivative market is less regulated market because these

transactions occur in private among qualified counterparties, who are
supposed to be capable enough to take care of themselves. True or False
(a) FALSE
(b) TRUE

Question 10 A member has two clients Rohit and Mohit. Rohit has purchased 100
contracts and Mohit has sold 300 contracts in March Tata Steel futures
series. What is the outstanding liability (open Position) of the member
towards Clearing Corporation in number of contracts?

(a) 100
(b) 300
(c) 400
(d) 200

Correct Answer 9 TRUE

Answer In an OTC market, no exchange is involved.

Explanation

Correct Answer 10 400

Answer For a member ie. Stock Broker, the liability will be the sum of all the contracts
Explanation of all his clients. The contracts cannot be netted inbetween two clients. So in
this case the sum of contracts is 100 + 300 = 400 contracts.

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  NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION

DEMO TEST