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NISM Equity Derivatives Certification Free Mock Test
NISM Equity Derivatives Certification Free Mock Test
NISM Equity Derivatives Certification Free Mock Test
A. Debt instrument
B. Derivative product
C. Cash market product
D. Money market instrument
Question 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
A. Trading
B. Hedging
C. Arbitraging
D. All of the above
Question 5. Impact cost is low when the liquidity in the system is poor.
A. True
B. False
A. 16,600
B. 15,600
C. -15,600
D. -16,600
Question 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. 772.5
B. 795
C. 840
D. 940.8
Question 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?
Question 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?
A. 10
B. 7
C. 3
D. 17
Question 12. An investor, who is anticipating a broad stock market fall, but is
not willing to sell his entire portfolio of stocks, can offset his potential losses by
shorting a certain number of Index futures.
A. True
B. False
Question 14. When the near leg of the calendar spread transaction on index
futures expires, the farther leg becomes a regular open position.
A. True
B. False
Question 19. You sold a Put option on a share. The strike price of the put was
Rs245 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
Question 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
A. True
B. False
Question 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
Question 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
A. Standardised options
B. Always in-the-money options
C. Customised options
D. Always out-of-the money options
Question 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?
Question 28. Mr. X purchases 100 put option on stock S at Rs 30 per call with
strike price of Rs280. If on exercise date, stock price is Rs 350, ignoring
transaction cost, Mr. X will choose ________
Question 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
A. Vega
B. Rho
C. Theta
D. Gamma
Question 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
Question 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
Question 33. On the derivative exchanges, all the orders entered on the Trading
System are at prices exclusive of brokerage.
A. True
B. False
Question 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 Rs1000 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 Rs770 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 Rs770 per share
A. 2,70,000
B. 5,02,050
C. 2,32,050
D. 4,10,000
Question 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
Question 38. Clients' positions cannot be netted off against each other while
calculating initial margin on the derivatives segment.
A. True
B. False
A. On a weekly basis
B. Every 2 days
C. Every 3 days
D. On a daily basis
A. True
B. False
A. RBI
B. Clearing Corporation
C. SEBI
D. Margin Office
A. True
B. False
Question 46. The main objective of Trade Guarantee Fund (TGF) at the
exchanges is ___________
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
Question 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
A. True
B. False
Question 51. Which of the following options on ABC Ltd stock with a strike price
of Rs.500 has the highest time value?
Question 52. The type of volatility which is derived from the option price and
indicates the volatility expected over the life of the option is termed as
____________.
A. implied volatility
B. historical volatility
C. expected volatility
D. forecast volatility
A. Short straddle
B. Short strangle
C. Covered call
D. Protective put
Question 56. Which of the following costs is not actually paid by the market
participants but arises due to lack of liquidity?
A. It allows brokers to trade on only one exchange but clear and settle their trades
through multiple clearing corporations
B. it will lead to an increase in trading costs
C. it allows brokers to trade on any exchange but clear and settle trades through the
clearing corporation of any other exchange
D. it will reduce competition among clearing corporations
A. Cross margin
B. SPAN margin
C. Peak margin
D. Exposure margin
Question 59. Profits from derivatives transactions for Indian investors are 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’
A. PAN number
B. Unique client code
C. ISIN code
D. Demat account number
A. Zero
B. Higher
C. Lower
D. None of the above
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.
Question 66. If one does a calendar spread contract in index futures, then it
attracts ___________
Question 67. Mr. Kailash has bought 200 shares of ABC Industries Ltd. at Rs.850
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. 4000 on this long position. What
should he do?
A. Place a limit buy order for 200 shares Rs.830 per share
B. Place a limit sell order for 200 shares Rs. 830 per share
C. Place a stop loss sell order for 200 shares Rs.830 per share
D. Place a limit buy order for 200 shares at Rs.870 per share
Explanation: Mr. Kailash will make a loss if the price of ABC Industries Ltd. falls. His loss
bearing capacity is Rs 4000. Therefore 4000 / 200 shares = Rs 20.
So, if the shares fall by Rs 20, he will make a loss of Rs 4000.
Question 68. All the trades and open positions on a derivative exchange are
guaranteed by the Clearing Corporation and it becomes a legal counterparty.
A. True
B. False
Explanation: Clearing Corporation or the Clearing House is responsible for clearing and
settlement of all trades executed on the F&O Segment of the Exchange.
Clearing Corporation acts as a legal counterparty to all trades on this segment and also
guarantees their financial settlement.
The Clearing and Settlement process comprises of three main activities, viz., Clearing,
Settlement and Risk Management.
Question 69. If the lot size of Reliance Industries future contract is 500 shares,
what will be the lot size of its Option contract?
A. 500
B. 250
C. 100
D. 1000
Explanation: The lot size of a Futures Contract and Options Contract are always the same.
A. Rs 3000
B. Rs 2500
C. Rs -3000
D. Rs -2500
Explanation: As Mr A has not squared up his position, the exchange will do it and the same is
done at the CASH MARKET CLOSING PRICE.
So, Buying Price - Rs 500
Sq Up price - Rs 510
Profit of Rs 10 x 250 lot = Rs 2500
A. False
B. True
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.
Question 72. 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
Explanation: Derivatives market and mainly the options market are difficult to understand
when compared to cash markets.
A. Volumes
B. Prices
C. Positions
D. All of the above
Explanation: All modern stock exchanges have highly developed online surveillance systems
to monitor the volumes / position and prices of all listed products and also check any unusual
activity etc. in them.
Question 74. The Spot price i.e., the market price of a share is Rs 200 and the
interest rate is 12% pa. Which of the below price is closest to 3 months future
maturity?
A. 206
B. 200
C. 203
D. 224
Question 75. Of the below mentioned options, which would attract margins?
Explanation: Buyers of Options pay the premium and that is the maximum loss they can suffer
- so they need not pay any margin.
A seller of options receives the premium but he can suffer infinite losses - so margins are
collected both from sellers of Call and Put options.
Question 76. The margining system for index futures is based on _______
A. Margin at risk
B. Price at risk
C. Volume at risk
D. Value at risk
Explanation: As per the recommendations of Dr. L.C. Gupta Committee - Margins should be
based on Value at Risk Methodology at 99% confidence.
Clearing corporation charges an upfront initial margin for all the open positions of a Clearing
Member. It specifies the initial margin requirements for each futures/ options contract on a
daily basis and also follows Value-At-Risk (VAR) based margining.
A. Hedging
B. Trading
C. Speculation
D. Arbitrage
Explanation: Arbitrage means buying a security in one market while simultaneously selling
the same security in a different market, to benefit from price differential.
A. Straddle
B. writing a covered call
C. calendar spread
D. protective put
Explanation: Protective Put is a calendar risk-management strategy that investors can use to
guard 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.
Question 79. A trader buys a call and a put option of same strike price and same
expiry. This is called as ________
A. Butterfly
B. Short Straddle
C. Long Straddle
D. Calendar Spread
Explanation: To do a long straddle strategy one has to buy a call and a put option of the same
strike price and expiry. Together, they produce a position which will lead to profits if the
market / stock is very volatile and it makes a big move - either up or down.
For e.g.- A person buys a Rs 200 call at Rs 30 and a Rs 200 put at Rs 20 of a stock. If the stock
rises significantly the call will rise greatly but his put will fall by maximum Rs 20. So, he makes
a good profit. If the stock falls significantly, he loses his call money buy gains greatly in the
put option as it rises.
Thus, the Long Straddle is used when a trader expects a big move in the stock -in any direction
is ok.
Question 80. 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 81. Fixed deposits and Bank guarantees are NOT permitted to be
offered by Clearing Members to the Clearing corpn as part of liquid assets - State
whether True or False?
A. True
B. False
Explanation: Clearing member is required to provide liquid assets which adequately cover
various margins and liquid Net-worth requirements. He may deposit liquid assets in the form
of cash, bank guarantees, fixed deposit receipts, approved securities and any other form of
collateral as may be prescribed from time to time.
Question 82. The intrinsic value is the difference between Market Price and
Strike Price of the option and it can never be negative.
A. True
B. False
Explanation: For an option, intrinsic value refers to the amount by which option is in the
money i.e., the amount an option buyer will realize, before adjusting for premium paid, if he
exercises the option instantly.
For call option which is in-the-money, intrinsic value is the excess of market price over the
exercise price. For put option which is in-the-money, intrinsic value is the excess of exercise
price over the market price.
Explanation: Beta measures the sensitivity of a scrip/ portfolio vis-a-vis index movement over
a period of time, on the basis of historical prices. A beta of 1 indicates that the security's price
Question 84. All the orders entered on the Trading System of a Derivative
Exchange are at Prices exclusive of brokerage. True or False?
A. False
B. True
Explanation: The prices are exclusive i.e., without any brokerage. Brokerage is added later
and is reflected in the contract note.
Question 85. If the price of a stock is volatile, then the option premium would
be relatively _______
A. Lower
B. Higher
C. No effect of volatility
D. Zero
Explanation: Higher volatility means higher risk and higher risk means one has to pay a higher
premium.
Question 86. If the liquid assets maintained by clearing member Mr. Ram are
higher than that clearing member Mr. Shyam, which of the below options is/are
true?
Explanation: As per the rules of SEBI and Stock Exchanges, the notional value of gross open
positions at any point in time in the case of all Futures and Options shall not exceed a
particular percentage of the liquid net worth of a member.
So, a member (Mr Ram) who keeps higher liquid assets as security and margin with the stock
A. Rs 3,48,075
B. Rs 4,05,000
C. Rs 5,87,500
D. Rs 7,53,075
Explanation: Initial margin requirements are based on 99% value at risk over a one daytime
horizon.
A. Hedging
B. Trading
C. Speculation
D. Arbitrage
Explanation: Arbitrage means buying a security in one market while simultaneously selling
the same security in a different market, to benefit from price differential.
A. Bearish Spread
B. Bullish Spread
C. Long term Investment
D. Butterfly
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.
Question 91. Mr. Ashu has bought 100 shares of ABC at Rs 980 per share. He
expects the price to go up but wants to protect himself if price falls. He does not
want to lose more than Rs. 1000 on this long position in ABC. What should Mr.
Ashu do?
A. Place a stop loss order for 100 shares of ABC at Rs 990 per share
B. Place a stop loss order for 100 shares of ABC at Rs 970 per share
C. Place limit buy order for 100 shares of ABC at Rs 990 per share
D. Place a limit sell order for 100 shares of ABC at Rs 970 per share
Explanation: Mr. Ashu will lose Rs 1000 if the ABC share will fall by Rs 10 as he has 100 shares
and a 10 rupee fall will lead to Rs 1000 loss.
He has bought at Rs 980. So, he will put the stop loss order at Rs 970 (980 - 10).
Explanation: For a member i.e., Stock Broker, the liability will be the sum of all the contracts
of all his clients. The contracts cannot be netted in between two clients. So, in this case the
sum of contracts is 100 + 300 = 400 contracts.
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