Pass4sure All Combined

Q To whom is a high impact cost beneficial ?
1.
Only buyers
Only sellers
Neither buyers nor sellers
Only arbitrageurs
UnAttempted
CORRECT ANSWER:
Neither buyers nor sellers
Explanation:
Impact cost is the cost that the buyer or seller of stocks incur while executing a
transaction due to prevailing liquidity conditions in that counter.
A high impact cost will increase the purchasing price for the buyer and decrease
the selling price for the seller.
So a high impact cost is neither beneficial to the buyer nor the seller.
Q Initial margin to be paid in derivatives is set up taking into

2.
account the volatility of the underlying market. Generally ___
Lower the volatility, higher the initial margin
Higher the volatility, lower the initial margin
Higher the volatility, higher the initial margin
None of the above
UnAttempted
CORRECT ANSWER:
Higher the volatility, higher the initial margin

Explanation:
When the markets are very volatile, it could results in losses to the traders. So to
safe guard the trading member and the trader, higher initial margin are levied on
when volatility is high.
Q ______ is the ratio of change in option premium for a unit

3.
change in volatility.
Rho
Theta
Delta
Vega
UnAttempted
CORRECT ANSWER:
Vega
Explanation:
Vega (ν) is a measure of the sensitivity of an option price to changes in market
volatility. It is the change of an option premium for a given change in the
underlying volatility.
Q In a derivatives exchange, the networth requirement for a

4.
clearing member is higher than that of a non-clearing member
– State whether True or False?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
In a derivative exchange, the networth requirement for a clearing member is higher

than that of a non-clearing member.
Q The risk that cannot be controlled by diversification of

5.
portfolio is _____ .
Systematic Risk
Unsystematic Risk
Credit Risk
Operational Risk
UnAttempted
CORRECT ANSWER:
Systematic Risk
Explanation:
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.
Systematic risk can be caused due to unfavourable reasons such as act of

nature like a natural disaster, changes in government policy etc.
Q Can a long position in a Put option can be closed out by taking

6.
a short position in a call option with identical exercise date
and exercise price ?
Yes
No
UnAttempted
CORRECT ANSWER:
No
Explanation:
A long position in a Put Option can be closed out (squared up) only by selling the
same Put Option.
Q After the initiation of the futures contract, the price of the

7.
underlying asset has risen. In this situation, ______ .
Basically. price change in underlying asset has no effect on long or
short positions in futures
A long position becomes unprofitable
A short position becomes profitable
A long position becomes profitable
UnAttempted
CORRECT ANSWER:
A long position becomes profitable
Explanation:
When the price of the underlying asset rises in the spot market, its price in the
futures market will also rise. So, those who have purchased the futures (long
postion) will make a profit.
Q There are many products in the market which give high returns
8.
in risk-free manner - State whether True or False?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
Returns are related to the risk taken and hence there cannot be a product in the
market that gives high return in risk free manner.
Investors should be careful of opportunities that promise spectacular profits

or "guaranteed" returns. The deal sounds too good to resist. An individual may
claim that unrealistic returns can be realized from "Low-Risk Investment
Opportunities", but one has to keep in mind no investment is risk-free.
Q What will be the Delta for a Far Out-of-the-money option?

9.
Near 0
Near 1
Near -1
Near 2
UnAttempted
CORRECT ANSWER:
Near 0
Explanation:
Delta for Out of the Money Call and Put option approaches zero as it nears expiry.
Delta for In the Money Call option approaches 1 and delta for In the Money Put
option approaches -1 as it nears expiry.
Q The term mark-to-market means ________ .

10.
process by which a portfolio manager checks the daily profits /
losses
the current / spot index price
intimation from the broker to a client for additional funds
the every day revaluation of open positions by the exchanges to
reflect profits and losses in the market
UnAttempted
CORRECT ANSWER:
the every day revaluation of open positions by the exchanges to reflect profits
and losses in the market
Explanation:
Mark to Market (MTM) is a process by which margins are adjusted on the basis
of daily price changes in the markets for underlying assets.
The clearing member who suffers a loss is required to pay the MTM loss
amount which is in turn passed on to the clearing member who has made a MTM
profit.
Q The margining system for index futures is based on _______ .

11.
Margin at risk
Price at risk
Volume at risk
Value at risk
UnAttempted
CORRECT ANSWER:
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.
Q Mr. Ashu has bought 100 shares of ABC at Rs 980 per share.
12.
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?
Place a stop loss order for 100 shares of ABC at Rs 990 per share
Place a limit buy order for 100 shares of ABC at Rs 990 per share
Place a limit sell order for 100 shares of ABC at Rs 970 per share
UnAttempted
CORRECT ANSWER:
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).
Q A call option gives the buyer the right to buy the underlying at
13.
market price - State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
A call option gives the buyer the right to buy the underlying at a set price ie. the
strike price and not the market price.
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.
Q A trader buys a January ABC stock futures contract at Rs 768

14.
and the lot size is 1200. What is his profit or loss , if he
squares off the position at Rs 778 ?
Rs. 12000
Rs 1200000
- Rs 12000
- Rs 10000
UnAttempted
CORRECT ANSWER:
Rs. 12000
Explanation:
The trader buys at Rs 768 and sells off at Rs 778, so he makes a profit of Rs 10.
Lot size is 1200. So the total profit is Rs 10 X 1200 = Rs 12000
Q A Professional Clearing member of derivatives segment

15.
____________ .
should also be a member of the cash segment
should also become a member of the cash segment within 2 years
provides trading facility to its clients
does not have any trading rights
UnAttempted
CORRECT ANSWER:
does not have any trading rights
Explanation:
Professional clearing member is not a Trading Member of the exchange and does
not have trading rights.
Q Theta is a measure of the sensitivity of an option price to

16.
changes in market volatility. - State True or False?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
Theta : It is a measure of an option’s sensitivity to time decay. Theta is the
change in option price given a one-day decrease in time to expiration.
Vega : This is a measure of the sensitivity of an option price to changes in

market volatility.
Q Which one of these complaints against a trading member can

17.
an Exchange take up for redressal?
Complaints regarding land dealings between a client and trading
member
Complaints in respect of transactions which are already subject
matter of Arbitrage proceedings
Claims regarding notional loss for the disputed trade
Claims regarding unauthorized transaction in the client’s account
UnAttempted
CORRECT ANSWER:
Claims regarding unauthorized transaction in the client’s account
Explanation:
Complaints against trading members on account of the following can be taken
by an Exchange for redressal :
- Non-receipt of funds / securities
- Non- receipt of documents such as member client agreement, contract notes,
settlement of accounts, order trade log etc.
- Non-Receipt of Funds / Securities kept as margin
- Trades executed without adequate margins
- Delay /non – receipt of funds
- Squaring up of positions without consent
- Unauthorized transaction in the account
- Excess Brokerage charged by Trading Member / Sub-broker
- Unauthorized transfer of funds from commodities account to other accounts
etc.
Q In India, the clearing and settlement of derivatives trades

18.
would be through ______ .
State Bank of India
Euroclear
SEBI approved Clearing Corporation / Clearing House
The Interbank Clearing House
UnAttempted
CORRECT ANSWER:
SEBI approved Clearing Corporation / Clearing House
Explanation:
Clearing Corporation/ Clearing House is responsible for clearing and settlement
of all trades executed on the F&O Segment of the Exchange.
The clearing and settlement of derivatives trades would be through a SEBI

approved clearing corporation /house. Clearing corporations/houses complying
with the eligibility conditions as laid down by the L. C. Gupta committee have to
apply to SEBI for grant of approval.
Q Delta is the change in option price given a one percentage

19.
point change in the risk-free interest rate - State True or False
?
False
True
UnAttempted
CORRECT ANSWER:
False
Explanation:
Rho is the change in option price given a one percentage point change in the
interest rate.
Delta measures the sensitivity of the option value to a given small change in the
price of the underlying asset.
Q Can a Clearing Member give 'Fixed Deposits' as part of liquid

20.
assets to the Clearing Corporation?
Yes
No
UnAttempted
CORRECT ANSWER:
Yes
Explanation:
Clearing member is required to provide liquid assets which adequately cover
various margins and liquid Net-worth requirements.
Liquid Assets can be in the form of Cash, Cash Equivalents (Government

Securities, Fixed Deposits, Treasury Bills, Bank Guarantees, and Investment
Grade Debt Securities) and Equity Securities.
Q Vega measures change in delta with respect to change in price

21.
of the underlying asset - State True or False?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
Vega is a measure of the sensitivity of an option price to changes in market

volatility.
Gamma measures change in delta with respect to change in price of the

underlying asset.
Q A short position in a PUT option can be closed out by taking a

22.
long position in a same PUT option - State True or False?
False
True
UnAttempted
CORRECT ANSWER:
True
Explanation:
A short position in a PUT option can be closed out by taking a long position in a
same PUT option with same exercise date and exercise price.
Q On final settlement, the buyer/holder of the option will

23.
recognise the favourable difference received from the
seller/writer as ______ in the profit and loss account.
Income
Expense
Loan
Amortization
UnAttempted
CORRECT ANSWER:
Income
Explanation:
On exercise of the option, the buyer/ holder will receive favourable
difference, between the final settlement price as on the exercise/expiry date and
the strike price, which will be recognised as INCOME.
Q When the strike price increases, the premium on call option

24.
decreases - State True or False?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
The higher strike price would have a lower call option premium because the
intrinsic value is low or nil.
Q Trading is allowed in Indian Equity markets in which of the

25.
following -
Index Options
Individual stock options
Individual stock futures options
All of the above
UnAttempted
CORRECT ANSWER:
All of the above
Q Can the exercise price be more than or equal to or less than

26.
the cash spot price ?
Yes
No
UnAttempted
CORRECT ANSWER:
Yes
Explanation:
Exercise price means the Strike price for which options can be traded.
For eg. - A scrip ABC has options trading at a strike price of Rs 100. The spot price
(market price) can easily fluctuate as per market sentiments and can be above,
below or equal to Rs. 100.
Q Can one sell assets in futures market even if he does not own
27.
any such assets ?
Yes
No
UnAttempted
CORRECT ANSWER:
Yes
Explanation:
One can sell futures / options etc. even if he does not own the underlying asset.
Q On the derivatives futures market, if there are three series of

28.
one, two and three months open at a point of time, how many
calendar spread can one have ?
1
2
3
4
UnAttempted
CORRECT ANSWER:
Explanation:
The three calendar spreads can be between months 1 and 2, 2 and 3 and 1 and 3.
Q All the 50 stocks of NSE Nifty index are equally weighed while
29.
calculating the index - State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
The NIFTY 50 index is a well-diversified 50 companies index reflecting overall

market conditions.
NIFTY 50 Index is computed using free float market capitalization method. As per
this method, the 50 stocks of Nifty are weighed as per their free float market
capitalisation. For eg - Reliance Industry has a weightage of appx 7% where as
Wipro has a weightage of appx 2% in Nifty.
Q What does an Call Option gives the buyer ?

30.
The right but not the obligation
The obligation but not the right
Gives both the right and obligation
Neither the right not the obligation
UnAttempted
CORRECT ANSWER:
The right but not the obligation
Explanation:
A 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.
Q Speculators are those who take risk whereas hedgers are
31.
those who wish to reduce risk - State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
Hedgers - They face risk associated with the prices of underlying assets and use
derivatives to reduce their risk.
Speculators/Traders - They try to predict the future movements in prices of

underlying assets and based on the view, take positions in derivative contracts.
Q The money and securities which are deposited in a clients

32.
account _______ .
Can be attached for meeting the obligations of the broker on his
proprietary account
Cannot be attached for meeting the obligations of the broker on his
proprietary account
Can or cannot be attached depends on the decision of Clearing
Corporation
None of the above
UnAttempted
CORRECT ANSWER:
Cannot be attached for meeting the obligations of the broker on his
proprietary account
Explanation:
The securities or money deposited by clients cannot be attached for meeting

broker’s obligation on his proprietary account.
The broker has to maintain separate client bank account for segregation of client
money.
Also brokers should keep margins collected from clients in a separate bank
account.
Q In case there is a Stock Split of a company which is a part of

33.
an Index, than what will its impact on the index value?
The index value can increase or decrease but this cannot be
forecasted with accuracy
The index value will remain unchanged
The index value will decrease
The index value will increase
UnAttempted
CORRECT ANSWER:
The index value will remain unchanged
Explanation:
A stock split lowers its stock price but doesn't weaken its value to current
shareholders as the number of shares increase proportionally.
Stock Split has an effect on Options, Strike Price etc. but has no impact on the
index as such. Therefore, when a stock which is part of the index has a stock split,
it does not have an impact on the index.
Q 'Time Decay' is beneficial to the _______ .

34.
Option Buyer
Option Seller
Option Buyer and Seller equally
Neither the option buyer or seller
UnAttempted
CORRECT ANSWER:
Option Seller
Explanation:
If all other factors affecting an option’s price remain the same, the time value
portion of an option’s premium will decrease with the passage of time. This is also
known as time decay. Options are known as ‘wasting assets’, due to this property
where the time value gradually falls to zero.
Any fall in premium is advantageous to the option seller.
Q Identify the TRUE statement with respect to a Put option.

35.
In a Put Option, both the buyer and seller have the obligation to buy
and sell the underlying at a specified price
A put option will give the buyer a right but not an obligation to sell to
the writer an underlying at a specified price
A put option will give the seller a right but not an obligation to buy
from the buyer an underlying at a specified price
A put option will give the buyer an obligation but not the right to sell
to the writer an underlying at a specified price
UnAttempted
CORRECT ANSWER:
A put option will give the buyer a right but not an obligation to sell to the writer
an underlying at a specified price
Explanation:
Options may be categorized into two main types: · Call Options · Put Options
An option, which gives the buyer/holder a right to buy the underlying asset, is
called a call option; and an option which gives the buyer/holder a right to sell the
underlying asset, is called a ’put option’.
The buyer of an option is one who has a right but not the obligation in the contract.
For owning this right, he pays a price called ‘option premium’ to the seller of this
right. He has a right to buy the underlying asset in case of a call option and the
right to sell the underlying asset in case of a put option.
Q Mr. Menon has bought a futures contract and the price rises. In
36.
this case, Mr. Menon will _________ .
Make a profit
Make a loss
Make a profit or make a loss depending on the situation
Insufficient information to arrive at a conclusion
UnAttempted
CORRECT ANSWER:
Make a profit
Explanation:
Mr. Menon has bought the future contract which means he believes that the prices
will rise so that he can gain from it. So he will make a profit if the price rises.
Q How is the forward contract, which is for hedging purpose,

37.
accounted for in books of accounts?
The premium or discount will be shown in the Profit and Loss
Account
The premium or discount will be ignored for accounting
The premium or discount will be amortized over the life of contract
No premium or discount will be recognised in the books of accounts
UnAttempted
CORRECT ANSWER:
The premium or discount will be amortized over the life of contract
Explanation:
Accounting for Forward Contract as per Accounting Standard - 11
When forward contract is for hedging
- The premium or discount (i.e., difference between the value at spot rate and
forward rate) should be amortized over the life of contract.
- Exchange difference (difference between the value of settlement date/ reporting

date and value at previous reporting date/ inception of the contract) is recognized
in Profit & Loss statement of the year.
- Profit/ loss on cancellation/ renewal of forward contract are recognized in P&L

of the year.
Q A Derivative market helps in transferring the risk from
38.
________ .
Speculators to Hedgers
Arbitrageurs to Hedgers
Speculators to Arbitrageurs
Hedgers to Speculators
UnAttempted
CORRECT ANSWER:
Hedgers to Speculators
Explanation:
Hedgers aim to hedge their risk and speculators/traders take the risk which
hedgers plan to offload from their exposure.
Speculators form one of the most important participants of the derivatives market,
providing depth to the market. Hedgers may not be able to hedge, if speculators
were not present in the system.
Q Which of these options is an example of a Calendar Spread?

39.
Going short on the underpriced futures contract of one month and
at the same time buying the overpriced futures contract of another
month
Buying stock futures contract while at the same time shorting the
stock
Buying the underpriced futures contract of one month and
simultaneously selling the overpriced futures contract of another
month
Going short on the stock futures contract while simultaneously
buying the stock
UnAttempted
CORRECT ANSWER:
Buying the underpriced futures contract of one month and simultaneously

selling the overpriced futures contract of another month
Explanation:
Calendar spread refers to the arbitrage between futures contracts of different

expiration months.
In this strategy, the arbitrageur buys and sells the futures contracts of two
different months. To execute this strategy, the arbitrageur must identify which
contract to buy or sell. The principal rule of arbitrage is that one must buy the
underpriced contract and sell the overpriced one.
Hence, the arbitrageur needs to compute the fair price of both futures contracts
and compare these with the traded prices, to decide which contract is overpriced
and which one is underpriced.
Q Ms. Kavita wants to 'Sell' on a futures market. For this, she

40.
_________ .
need not own the underlying
must own the underlying
must own at least 25% of the underlying
must own at least 50% of the underlying
UnAttempted
CORRECT ANSWER:
need not own the underlying

Explanation:
Selling on a futures market does not need any delivery. Only margin is required to
be paid to Buy/Sell on a futures market.
Therefore, Ms. Kavita can sell on the futures market even without owning the
underlying. However, she needs to square up her position before the expiry.
Q The Derivatives market helps in _________ .

41.
Transfer of risk from those who are exposed to risk but have low
risk appetite to participants with high risk appetite
The reallocation of risk among the market participants
Both of the above
None of the above
UnAttempted
CORRECT ANSWER:
Both of the above
Explanation:
Derivatives play a positive role by reallocating risks. They help in transfer of

various risks from those who are exposed to risk but have low risk appetite
(Hedgers) to participants with high risk appetite (Speculators). For example,
hedgers do not want any risk where as traders/speculators are willing to take risk.
Derivatives were first invented as a Hedgeing tool so that people who wanted to
play safe can use them to transfer the risk by hedgeing.
Q Identify the FALSE statement with respect to Options.
42.
Option contracts are NOT symmetrical regarding the rights and
obligations of the parties involved
Buyer of an option gets the right while seller of an option bears the
obligation
Options contracts have non-linear payoffs
Options contracts have linear payoffs
UnAttempted
CORRECT ANSWER:
Options contracts have linear payoffs
Explanation:
In case of futures contracts, long as well as short position has unlimited profit or
loss potential. This results into linear payoffs for futures contracts. However,
option contracts do not have linear payoffs as the buyers and sellers have
different obligations and risk factors.
The buyer of an option has limited risk (premium which he pays) but can earn
unlimited profits whereas the seller of the option has unlimited risk but can earn
only limited profits (premium which he receives).
Option contracts are not symmetrical as the buyers and sellers have different
obligations and risk factors. The buyer has limited risk where as seller of an option
has unlimited risk.
Q 'SCORES' is the name given to ________ .

43.
SEBI’s web-based compliant redressal system
Securities Collateral Records System
Exchange’s risk management and margin system
Suspicious transaction reporting system
UnAttempted
CORRECT ANSWER:
SEBI’s web-based compliant redressal system
Explanation:
SEBI’s web-based complaints redressal system is called SCORES (Sebi

COmplaints REdress System).
SCORES is a centralized grievance management system with tracking mechanism

to know the latest updates and time taken for complaint resolution.
Q A clearing member reaches his prescribed position limits,

44.
therefore he will ________ .
be allowed to take only 5% additional exposure
not be able to reverse his position
be able to take fresh new positions for his clients but not in his
proprietary account
not be able to open new positions
UnAttempted
CORRECT ANSWER:
not be able to open new positions
Explanation:
A trading member, on reaching the prescribed limits, cannot open new positions.
But he can reverse existing positions.
Position limits are an important part of the risk management framework of a
derivatives exchange. A position limit on a derivatives exchange is a restriction
on the ownership that limits the number of derivatives contracts that a trading
member or client, acting individually or together with others, can own.
When client-level position limits are exceeded, the clearing member/ trading
member must ensure that the client does not take any fresh positions and the
existing positions must be reduced within permissible limits.
Q A calendar spread in index futures will be treated as

45.
_________ in a far month contract if the near months contract
is expired.
Long position
Short position
Optional position
Naked position
UnAttempted
CORRECT ANSWER:
Naked position
Explanation:
A naked position is long or short in any of the futures contracts but a spread
position consists of two opposite positions.
A calendar spread becomes a naked/open position, when the near month contract
expires or either of the legs of spread is closed.
Q The clearing member is free to close out transactions of a

46.
trading member if ________ .
The trading member has not paid initial margin money
The trading member has not paid daily settlement dues
In both the above cases
UnAttempted
CORRECT ANSWER:
In both the above cases
Explanation:
The following are some of the compliance lapses which attract penal charges:
- Non fulfilment of initial margin obligations - Non-fulfilment of settlement

obligation - Non-fulfilment of securities deliverable obligation - Non-fulfilment of
minimum deposit requirements etc.
In the event of a violation, Clearing Corporation may advice the Exchanges to

withdraw any or all of the membership rights of the clearing member including the
withdrawal of trading facilities of all trading members and/or clearing facility of
custodial participants clearing through such clearing members, without any
notice.
In addition, the outstanding positions of such clearing member and/or trading

members clearing and settling through such clearing member, may be closed out
and such action shall be final and binding on the clearing member and/or trading
member.
Q Identify the contract which is cleared and settled bilaterally?

47.
A one month Nifty futures contract
A one-month USDINR options contract
A 3-month forward contract to buy Swiss Francs against the Indian
rupee
A one-month GOI bond futures contract
UnAttempted
CORRECT ANSWER:
A 3-month forward contract to buy Swiss Francs against the Indian rupee
Explanation:
Bilateral contract between is a contract between two parties. Generally, all

Forward contracts are bilateral contracts and are not done on any Exchange.
In the above options, only 'A 3-month forward contract to buy Swiss Francs
against the Indian rupee' is a forward contract and the other three are futures /
options contract. A futures contract is an agreement made through an organized
exchange to buy or sell a fixed amount of a commodity or a financial asset on a
future date at an agreed price.
Q When the volatility of the underlying stock decreases, the

48.
premium of its Call option will _______ .
Increase
Decrease
Not change
UnAttempted
CORRECT ANSWER:
Decrease
Explanation:
Higher volatility = Higher premium, Lower volatility = Lower premium (for both call
and put options).
Therefore, with a decrease in volatilty, the premium on the call option decreases.
Q An ‘European’ call option will give the buyer the right but not
49.
the obligation to buy from the seller an underlying at the
prevailing market price ________ .
Only on the expiry date
On or before the expiry date
One day preceding the expiry date
One day after the expiry date
UnAttempted
CORRECT ANSWER:
Only on the expiry date
Explanation:
European option: The owner (buyer/holder) of a European option can exercise his
right only on the expiry date/day of the contract. In India, all index and stock
options are European style options.
American option: The owner (buyer/holder) of an American option can exercise

his right at any time on or before the expiry date/day of the contract.
Q In futures trading, the margin is paid by ________

50.
The Buyer only
The Seller only
Both Buyer and Seller
The Clearing Corporation
UnAttempted
CORRECT ANSWER:
Both Buyer and Seller

Explanation:
The amount one needs to deposit in the margin account at the time of entering
into a futures contract is known as the initial margin.
In case of futures, both the buyer and seller are required to pay initial margin as
decided by exchanges for entering into futures contract.
In case of Options, the initial margin is paid only by the sellers. The option buyers
have to pay the premium to the option sellers.
Q In Option Spreads there is a combination of options
1.
constructed in such a way that there is limited profit or limited
loss - State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
Option Spreads involve combining options on the same underlying and of same
type (call/ put) but with different strikes and maturities. These are limited profit
and limited loss positions.
Q If the price volatility of the underlying stock is high then the

2.
Put option will _____ .
have zero premium
have comparatively lower premium
have comparatively higher premium
Volatility does not have any effect on the Put options
UnAttempted
CORRECT ANSWER:
have comparatively higher premium
Explanation:
Volatility is the magnitude of movement in the underlying asset’s price, either up
or down. It affects both call and put options in the same way. Higher the volatility
of the underlying stock, higher the premium because there is a greater
possibility that the option will move in-the-money during the life of the contract.
Higher volatility = Higher premium, Lower volatility = Lower premium (for both
call and put options).
Q Its common to have derivatives contract without any
3.
expiration date - State whether True or False ?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
Most derivatives contract have an expiration date.
Q When a dealer is doing trades in his own account and also

4.
doing trades for their clients then these two trades have to be
completely segregated - State True or False?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
The trades done by dealers are in the 'PRO' account ie. Proprietary account and
the trades done by Clients are in the 'CLI' account.
'Proprietary Trading’ is when a member trades on exchange on its own behalf. As
directed by SEBI and in pursuance of byelaws members are advised to specify the
nature of the order in terms of order being a ‘Client order’ or ‘Proprietary order’.
Q Whom does the Clearing Member need to consult for setting

5.
limits on the trading members clearing through him?
Clearing Corporation
SEBI
The respective Stock Exchange
No consultation is required with anyone as the Clearing Member
can set the limits of his trading members on his own
UnAttempted
CORRECT ANSWER:
No consultation is required with anyone as the Clearing Member can set the
limits of his trading members on his own
Explanation:
A trading terminal helps the Clearing Members to monitor the open positions of
all the Trading Members
clearing and settling through him. A Clearing Member may set limits for
a Trading Member clearing and settling through him.
Clearing corporation assists the Clearing Member to monitor the intraday limits
set up by a Clearing Member and whenever a Trading Member exceed the limits,
it stops that particular Trading Member from further trading.
Q Mr. Arvind is very bullish on the market. How ever he feels

6.
some specific companies which he has in his portfolio will not
perform well in future. What strategy should he adopt?
Sell Index futures and Sell specific companies shares
Buy Index futures and Sell specific companies shares
Sell Index futures and Buy specific companies shares
Do nothing as markets are uncertain
UnAttempted
CORRECT ANSWER:
Buy Index futures and Sell specific companies shares
Explanation:
Mr. Arvind should sell the shares of those specific companies and buy index
futures. By this he will profit when the index rises and avoid losses on those
specific companies if his view proves to be correct.
Q _______ means the maximum exposures in terms of number of

7.
options and futures contracts that an investor can hold on one
side of the market.
Outstanding Limit
Market Limit
Position Limit
Upper Limit
UnAttempted
CORRECT ANSWER:
Position Limit
Explanation:
Position limits are the maximum exposure levels which the entire market can go
up to and each Clearing Member or investor can go up to. Position limits for the
entire market and Clearing Members and investors are defined by SEBI.
Q How can you close a short position in a futures market?

8.
By buying a Call Option
By entering into a suitable forward contract
By executing a purchase of the same futures contracts
By executing a sale of the same futures contracts
UnAttempted
CORRECT ANSWER:
By executing a purchase of the same futures contracts
Explanation:
A short future contract ie. a sale position can be squared up by buying the same
contract in futures market and in no other way.
Q In exercising call option on an index, the option holder

9.
receives from the option writer cash amount equal to excess
of spot price (at the time of exercise) over the strike price of
the call option - State whether True or False ?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
When a person buys a Call Option of an index, he is expecting the index to rise.
On exercise, if the spot price of the index is over and above the strike price at
which the buyer had bought the Call, he will receive the difference between the
spot price and strike price.
Q What does hedging do?

10.
It maximises business profits
It minimises business losses
It produces a more clearer outcome
Hedging can be used only in currency markets and not in equity
markets
UnAttempted
CORRECT ANSWER:
It produces a more clearer outcome
Explanation:
Hedging produces a more clearer outcome. The classic example is the farmer
who sells futures contracts to lock into a price for delivering a crop on a future
date. The buyer might be a food-processing company, which wishes to fix a
price for taking delivery of the crop in the future.
Another case is that of a company due to receive a payment in a foreign

currency on a future date. It enters into a forward transaction with a bank
agreeing to sell the foreign currency and receive a predetermined quantity of
domestic currency.
Q A trader sells a futures contract and the price rises. The trader
11.
will _____ .
make a loss
make a profit
UnAttempted
CORRECT ANSWER:
make a loss
Explanation:
The trader has sold the future contract which means he believes that the prices
will fall. So he will make a loss if price rises.
Q What does a beta of more than 1 mean ?

12.
It means that the expected percentage change in stock price will be
twice the percentage change in index
less percentage change in index
more than the percentage change in index
It means that the expected percentage change in stock price equals
the percentage change in index
UnAttempted
CORRECT ANSWER:
It means that the expected percentage change in stock price will be more
than the percentage change in index
Explanation:
Beta measures the sensitivity of a stock / portfolio vis-a-vis index movement
over a period of time, on the basis of historical prices.
If Beta of a stock is 1, it means that a % change in the index will lead to equal %
change in the stock price.
Suppose a stock has a beta equal to 2. This means that historically a security
has moved 20% when the index
moved 10%.
Q Intrinsic value of an option is sum of Option premium and

13.
Time value - State whether True or False?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
Intrinsic value is basically the difference between Spot price and Strike price.
Option premium consists of two components - intrinsic value and time value
For eg. If the current option premium for a Rs 500 strike price Call option is Rs
70 and the current spot price is Rs 550, than Rs 50 is the intrinsic value (550 -
500) and the balance Rs 20 (70 - 50) is the time value.
Q Which of these statements is True?

14.
Money and securities deposited by clients can be attached for
meeting the brokers obligation on his proprietary account
Money and securities deposited by clients cannot be attached for
meeting the brokers obligation on his proprietary account
Money and securities deposited by clients can be attached as per
the decision of the clearing corporation
Money and securities deposited by clients can be attached as per
the decision of the Stock Exchange
UnAttempted
CORRECT ANSWER:
Money and securities deposited by clients cannot be attached for meeting the
brokers obligation on his proprietary account
Explanation:
The securities or money deposited by clients cannot be attached for meeting
broker’s obligation on his proprietary account.
The broker has to maintain separate client bank account for segregation of client
money.
Also brokers should keep margins collected from clients in a separate bank
account.
Q The Intrinsic Value is zero for out-of-the money options but
15.
always positive for in-the-money options - State True or False?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
In-the-money options have positive intrinsic value whereas at-the-money and out-
of-the-money options have zero intrinsic value. The intrinsic value of an option
can never be negative.
Q There is higher flexibility in fixing forward contract

16.
specification as compared to futures contract specifications -
State True or False?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
Futures are standardized contracts introduced by the exchanges. They
have certain limitations in the context of limited maturities, limited underlying
set, lack of flexibility in contract design and increased administrative costs on
account of MTM settlement etc.
Forward contracts are customised between two parties and there is complete
flexibility in designing the contract specifications as per mutual consent.
Q Speculator accepts the risks in search of profits - State True or

17.
False?
False
True
UnAttempted
CORRECT ANSWER:
True
Explanation:
Speculators try to predict the future movements in prices of stocks,
commodities, currencies etc. and accordingly buy or sell. There is risk in such
activities but the speculators take these risks in order to make profits.
Q A Clearing Member has to deposit _______ to clearing

18.
corporation which forms part of the security deposit.
Rs. 50 lakhs
Rs. 100 lakhs
Rs. 150 lakhs
Rs. 20 lakhs
UnAttempted
CORRECT ANSWER:
Rs. 50 lakhs
Explanation:
Clearing Member Eligibility Norms
- Net-worth of at least Rs.300 lakhs. The Net-worth requirement for a Clearing

Member who clears and settles only deals executed by him is Rs. 100 lakhs.
- Deposit of Rs. 50 lakhs to clearing corporation which forms part of the security
deposit of the Clearing Member.
- Additional incremental deposits of Rs.10 lakhs to clearing corporation for each

additional TM, in case the Clearing Member undertakes to clear and settle deals
for other TMs.
Q Exposure levels of Clearing Members are _______ correlated

19.
with the Liquid Assets maintained with the Clearing
Corporation.
Positively
Negatively
Not related
exponentially
UnAttempted
CORRECT ANSWER:
Positively
Explanation:
Exposure levels of Clearing Members are positively correlated with the Liquid
Assets maintained with the Clearing Corporation.
More the liquid assets deposited with the Clearing Corporation, higher will be the
exposure levels available to the Clearing Member.
Q When ordinary cash dividends are declared, Call Option values

20.
will decrease - State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
Cash dividends issued by stocks have a impact on their option prices.This is

because the underlying stock price is expected to drop by the dividend amount
on the ex-dividend date.
In case of call options, the values get reduced / discounted by as much as the
dividend amount.
Put options get more expensive as the stock price will drop by the dividend
amount after the ex-dividend date.
Q In Index futures, an open position can be settled by ______ .

21.
delivery on maturity
cash settlement on maturity
either by cash or delivery on maturity
exchange for gold on maturity
UnAttempted
CORRECT ANSWER:
cash settlement on maturity
Explanation:
Index futures are always cash settled on maturity i.e. the difference between trade
price and settlement price is received or paid.
Q The holder of a long position in a PUT option will gain if the

22.
price of the underlying asset ______ .
Increases
Decreases
Does not change
If the option expires worthless
UnAttempted
CORRECT ANSWER:
Decreases
Explanation:
The buyer of a Put Option is bearish. He believes that the price of the underlying
will fall.
When the price falls, the value of the put option rises. So he will benefit only if the
price decreases.
Q When the price of a future contract increases, the margin

23.
account ______ .
of the buyer of futures contract will be credited for the gain
of the seller of futures contract will be debited for the loss
Both 1 and 2
None of the above
UnAttempted
CORRECT ANSWER:
Both 1 and 2
Explanation:
The buyer of futures will have a notional gain and so his margin account will be
credited by the notional gain amount.
The seller of futures will have a notional loss if the price rises and his margin
account will be debited by the notional loss amount.
Q A Forward Contract _______ .

24.
can be cancelled but only after the expiry date
can be cancelled if the counter party also agrees to it
cannot be cancelled
can be cancelled even without the consent of the counter party
UnAttempted
CORRECT ANSWER:
can be cancelled if the counter party also agrees to it
Explanation:
Forwards are negotiated between two parties and the terms and conditions of
contracts are customized.
Any alteration in the terms of the contract or cancellation of the contract

is possible if both parties agree to it.
Q Suppose you are a trading member and have bought 14

25.
contracts of April series index futures and sold 7 contracts of
April series index futures on your own account. What will be
your exposure on these transactions ?
It will grossed up to 21 contracts
It will be netted to 7 contracts
Higher of 14 and 7 ie. 14 contracts
The Stock Exchange can decide to either to gross up or net out the
exposure depending on the past record of the trading member
UnAttempted
CORRECT ANSWER:
It will be netted to 7 contracts
Explanation:
Since its the same index futures contract, the exposure will be netted ie. 14 - 7 = 7
contracts.
Q A mutual fund manager is bearish on the market and wishes to

26.
reduce its exposure to equities from 50% to 40%, without
selling any of his equity holdings. Can he sell index futures for
it ?
Yes, he can sell index futures
No, Mutual funds are not allowed to sell index futures
UnAttempted
CORRECT ANSWER:
Yes, he can sell index futures
Explanation:
FII and Mutual funds can buy/sell in futures subject to certain limits.
FII & MF position limit in all index futures contracts on a particular underlying
index is Rs. 500 Crores or 15 % of the total open interest of the market in index
futures, whichever is higher. This limit would be applicable on open positions in
all futures contracts on a particular underlying index.
In addition to the above, FIIs & MF’s shall take exposure in equity index
derivatives subject to the following limits:
a) Short positions in index derivatives (short futures, short calls and long puts)
not exceeding (in notional value) the FII’s/ MF’s holding of stocks.
b) Long positions in index derivatives (long futures, long calls and short puts)
not exceeding (in notional value) the FII’s/ MF’s holding of cash,
government securities etc.
Q For a derivative exchange, the networth requirement for a

27.
clearing member is always less than that for a non clearing
member - State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
In a derivative exchange, the networth requirement for a clearing member is higher

than that of a non-clearing member.
Q Theta is the rate of change in option premium for a unit

28.
change in ______ .
volatility
price of the underlying asset
time to expiry
interest rates
UnAttempted
CORRECT ANSWER:
time to expiry
Explanation:
Theta is the change in option price given a one-day decrease in time to expiration.
It is a measure of time decay.
(Please memorize the details for Delta, Gamma, Theta, Rho etc.)
Q Future prices are usually more transparent than Forward

29.
prices - State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
A futures contract is similar to a forward, except that the deal is made through
an organized and regulated exchange rather than being negotiated directly
between two parties.
Since the futures are traded in an organised manner and mostly done through
screen based trading, they are much more transparent than forwards.
Q Derivatives brokers/ dealers are expected to know their clients
30.
and to exercise care to ensure that the derivative product
being sold by them to a particular client is suitable to his
understanding and financial capabilities - State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
Derivatives brokers/ dealers should avoid recommending opening futures/
options transaction unless they have a reasonable basis for believing that the
customer has such knowledge and financial experience that he or she is capable
of evaluating, and financially able to bear, the risks of the transaction.
Q Is it true that a buyer of a CALL OPTION cannot lose more than

31.
the option premium paid ?
True only for European options
True only for American options
True for all type of options
False for all type of options
UnAttempted
CORRECT ANSWER:
True for all type of options

Explanation:
The maximum loss for buyer of any option is the premium paid.
Q Why does 'Screen based trading' has a edge over 'Floor

32.
trading'?
The technology needs are lower
There is no need to route the order through an exchange
There is transparency in trade execution and execution price
There are no set up costs in screen based trading
UnAttempted
CORRECT ANSWER:
Explanation:
Screen based (Trading thro' computers) trading is fully transparent.
All the derivatives exchanges in India provide a fully automated screen-based

trading platform for index futures, index options, stock futures and stock options.
These trading systems support an order driven market and simultaneously
provide complete transparency of trading operations. Derivative trading is similar
to that of trading of equities in the cash market segment.
All these exchanges have developed software for the F&O market to facilitate
efficient and transparent trading in futures and options instruments.
Q Mr. Rohit is a Chartered Accountant and Mr. Ramesh is a

33.
Commerce Graduate. Both are clearing members of a
recognized exchange. Base on this information, identify the
TRUE statement.
Mr. Rohit will enjoy higher exposure limits than Mr. Ramesh
Mr. Ramesh will enjoy higher exposure limits than Mr. Rohit
Both of them will enjoy the same exposure limits
Insufficient information to draw a conclusion
UnAttempted
CORRECT ANSWER:
Insufficient information to draw a conclusion
Explanation:
Position limits are the maximum exposure levels which can be assumed by each
investor or Clearing Member or the market as a whole. Such position limits are
defined by SEBI.
The exchanges lay down exposure limits either in rupee terms or as percentage
of the Trade Guarantee Fund (TGF)/Settlement Guarantee Fund (SGF).
Thus, exposure limits is dependent on the funds deposited by the Clearing

member and not his education qualifications.
Q What happens to the intrinsic value of a Put Option if the

34.
Strike Price is taken down?
The intrinsic value goes up
The intrinsic value goes down
Their is no change in the intrinsic value
UnAttempted
CORRECT ANSWER:
The intrinsic value goes down

Explanation:
The intrinsic value of an option refers to the amount by which the 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 a put option which is In-the-money, the intrinsic value is the excess of Strike
price (X) over the spot price (S). Thus, the intrinsic value of put option can be
calculated as X-S, with a minimum value possible as zero.
For eg – If strike price is 100 and spot price is 90, the intrinsic value is 10
If the strike price is reduced to 95, the intrinsic value will be 5.
Therefore the intrinsic value of put option goes down as strike price is taken down.
Q Mr. Sanjay bought a ABC stock Put contract of Rs 300 strike

35.
for Rs 50. Lot size is 2000. What is his profit (+) or loss (-), if he
sells the Put at Rs. 56?
+10000
-10000
+12000
-12000
UnAttempted
CORRECT ANSWER:
+12000
Explanation:
This a simple question of calculation. Bought at Rs 50 and sold at Rs. 56. Which
means there is a profit of Rs 6.
Rs 6 x 2000 (Lot size) = Rs 12000 profit

Q If a speculator purchases a naked Call Option, this means
36.
he/she has a ______ .
Mixed view
Bullish view
Myopic view
Bearish view
UnAttempted
CORRECT ANSWER:
Bullish view
Explanation:
A naked position means a positional view – bullish or bearish. It’s the opposite of
a hedge position.
A buyer of a Call option has a bullish view.
Q What does 'Near Month' futures contract mean?

37.
'Near Month' is the month of beginning of the futures contract
'Near Month' is the month of expiry of the futures contract
'Near Month' is the current month of the futures contract
None of the above
UnAttempted
CORRECT ANSWER:
'Near Month' is the current month of the futures contract
Explanation:
Futures contract have a maximum of 3-month trading cycle – the near month
contract (which is the 1st / Current month ) the next month contract (which is the
2nd month ) and the far month contract (which is the 3rd month ).
Thus, on May 10th, 20XX, index and stock futures contracts on the NSE are
available for trading for the near month (May 20XX), the next month (June 20XX)
and the far month (July 20XX).
Q 'Rho' is connected to the ______ .

38.
Volatility of the underlying
Time to expiry of the option
Price of the underlying asset
Interest rates in the market
UnAttempted
CORRECT ANSWER:
Explanation:
Rho is the change in option price given a one percentage point change in the risk-
free interest rate.
Rho measures the change in an option’s price per unit increase in the cost of
funding the underlying.
Rho = Change in an option premium / Change in cost of funding the underlying.

Q In connection with the futures market, basis is ________ .
39.
The current interest rate in the economy
Volatility in the market
The difference between the futures price and spot price
Underlying market price
UnAttempted
CORRECT ANSWER:
The difference between the futures price and spot price
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 Identify the transaction which is an example of a speculative

40.
trade using futures.
When a person takes a long position in the stock futures in
expectations of announcement of excellent results
When a person buys a under priced index futures contract of one
month and simultaneously selling the overpriced index futures
contract of another month
When a person buys a stock in the cash market and simultaneously
shorts the overpriced stock futures contract
When a person takes a short position in index futures to protect
against a decline in his portfolio value
UnAttempted
CORRECT ANSWER:
When a person takes a long position in the stock futures in expectations of

announcement of excellent results
Explanation:
Speculative transactions in future are those transactions which :
- Do not result in delivery
- Are not done for hedging
- Are not a part of a strategy or arbitrage
When a person takes a long position in the stock futures in expectations of

announcement of excellent results is pure speculative transaction as its not a
hedge or a strategy or arbitrage.
Q ______ can write an option in the Indian stock market.

41.
Market Makers
Foreign portfolio investors
Individuals
All of the above
UnAttempted
CORRECT ANSWER:
All of the above
Explanation:
All of the above can write (sell) options in Indian stock market.
Individuals like traders, hedgers, arbitrageurs etc. can write options as per their
plans.
FIIs bring foreign capital to India, they invest in the F & O (Future and option
market). FIIs can also write options or short futures, as required by their strategy.
The market maker is a key stock market participant and like any trader or
arbitrageur, he is also there for the profit and buy/write options.
Q The BID PRICE is always __________ .

42.
Higher than ASK PRICE
Lower than ASK PRICE
Equal to ASK PRICE
UnAttempted
CORRECT ANSWER:
Lower than ASK PRICE
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 2500 – 2501,
where 2500 is the bid price and 2501 is the ask price.
So the Bid price is always lower than Ask price.
Q One of the reason that future trading has become expensive is

43.
due to higher margins - True or False?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
Cost components of futures transaction include margins, transaction costs

(commissions), taxes etc.
So, higher the margins more expensive the trading.
Q Who pays the initial margin to the exchange while entering

44.
into a futures contract?
Only buyers pay initial margin
Only sellers pay the initial margin
No margins are payable to the exchange by buyer or seller
Both the buyer and seller pay initial margin to the exchange
UnAttempted
CORRECT ANSWER:
Both the buyer and seller pay initial margin to the exchange
Explanation:
In case of futures, The buyer and seller are required to pay iinitial margin as
decided by exchanges for entering into futures contract.
(In case of Options, the initial margin is paid only by the sellers. The option buyers
have to pay the premium)
Q Which member of a stock exchange is not a Trading Member

45.
itself but clears and settles the trades of Trading Members and
institutional clients?
A Trading-cum-clearing member
A Professional clearing member
A Self-clearing member
Custodial participant
UnAttempted
CORRECT ANSWER:
A Professional clearing member
Explanation:
Professional Clearing Member: Professional clearing member clears the trades of

his associate Trading Member and institutional clients. PCM is not a Trading
Member of the exchange. Typically banks or custodians become a PCM and clear
and settle for Trading Members as well as for Custodial Participants.
Q A loss which is incurred on derivatives transactions and which
46.
are carried out in a recognized stock exchange can be carried
forward for a period of
5 assessment years
7 assessment years
8 assessment years
10 assessment years
UnAttempted
CORRECT ANSWER:
8 assessment years
Explanation:
Loss on derivative transactions can be set off against any other income during
the year (except salary income). In case the same cannot be set off, it can be
carried forward to subsequent assessment year and set off only against any other
non-speculative business income of the subsequent year.
Such losses can be carried forward for a period of 8 assessment years.
Q The risks connected with trading in derivatives have to be laid

47.
down in which document?
Contract Note which is sent to the client
The Risk Disclosure document
It can be conveyed verbally to the client
None of the above
UnAttempted
CORRECT ANSWER:
The Risk Disclosure document
Explanation:
The broker is required to get a Risk Disclosure Document signed by the client, at
the time of client registration. This document informs clients about the kind of
risks that derivatives can involve for the client. It makes the client aware and
informed about the various risks associated with derivatives trading.
Q The Beta of a portfolio is the _________ .

48.
Sum of the betas the constituent securities in that portfolio
Simple average of the beta’s of the constituent securities in that
portfolio
Same as the beta of the stock with the highest market capitalization
Value weighted average of the beta’s of the constituent securities in
that portfolio
UnAttempted
CORRECT ANSWER:
Value weighted average of the beta’s of the constituent securities in that

portfolio
Explanation:
Portfolio beta is a weighted average of betas of individual stocks in the portfolio

based on their investment proportion.
For example, if there are four stocks in a portfolio with betas 0.5, 1.1, 1.30 and 0.90
having weights 35%, 15%, 20% and 30% respectively, the beta of this portfolio
would be 0.87 ( = 0.5*0.35 +1.10*0.15 +1.30*0.20 +0.90*0.30)
Q What is the risk of bad delivery in an index futures contract?

49.
The risk does not exist
The risk is very high
The risk is there but quiet low
The risk is around 25% of the total deliveries
UnAttempted
CORRECT ANSWER:
The risk does not exist
Explanation:
Index futures are financial contracts whose underlying asset is a specific

index like Nifty 50 or Bank Nifty.
According to the SEBI regulations, all index futures contracts are cash-settled i.e.
there is no delivery of stocks. As there is no delivery, risk of bad delivery does not
arise.
(Bad delivery means delivery of securities which cannot be legally transferred to

the buyer due to some issue with the securities. For eg. Fake or stolen securities).
Q When does the monthly series mature for index futures of

50.
NSE?
First Wednesday of the month
First Thursday of the month
Last Wednesday of the month
Last Thursday of the month
UnAttempted
CORRECT ANSWER:
Last Thursday of the month
Explanation:
The Nifty, the Bank Nifty futures contracts and the stock futures contracts listed
on the NSE expire on the last Thursday of the respective month (or the day before
if the last Thursday is a trading holiday).
Q A long position in futures market can be reversed only with the
1.
same counterparty from whom the contract was initially
purchased - State whether True or False?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
Futures contracts are traded on screen based derivatives market where the
identity of the buyer and seller is unknown to each other. A trade can be squared
off with any buyer or seller whose quotes are available on the screen.
The Clearing Corporation acts as a legal counterparty for every contract and
guarantees the trades.
Q The broker is compulsorily required to get a Risk Disclosure

2.
Document signed by the client, at the time of client registration
- State True or False?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
the time of client registration. This document informs clients about the kind of
risks that derivatives can involve for the client. It makes the client aware and well
informed.
Q Meghna wants to sell 34 contracts of ABC futures at Rs. 2450

3.
(contract multiplier is 50) . Initial margin is 7%. How much will
be the initial margin to be paid ?
Rs. 4165000
Rs. 83300
Rs. 5831
Rs. 291550
UnAttempted
CORRECT ANSWER:
Rs. 291550
Explanation:
Margin to be collected from Meghna : Rs 2450 X 34 contracts X 50 (Market lot) at

7%
= Rs 4165000 x 7% = Rs 291550
Q Arbitrage is basically earning a risk-free profit by

4.
simultaneous buying and selling replicating assets in two or
more different markets - State True or False?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
Arbitrage is a deal that produces profit by exploiting a price difference in a
product in two different markets. Arbitrage originates when a trader purchases
an asset cheaply in one location and simultaneously arranges to sell it at a
higher price in another location.
Q In case of a member’s default, the Clearing Corporation cannot

5.
transfer clients positions to another member or close out all
open positions of defaulting member, without prior approval
from SEBI – State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
As per SEBI rules - The Clearing Corporation can transfer client positions from
one broker member to another broker member in the event of a default by the
first broker member.
A report is then sent to SEBI regarding this.
Q Clearing Corporation of an Exchange guarantees performance

6.
of exchange traded contracts - State whether True or False?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
Clearing Corporation acts as a legal counterparty to all trades on this segment
and also guarantees their financial settlement.
Q For which type of options is it profitable to exercise the

7.
options ?
At the Money
Out of the Money
In the Money
None of the above
UnAttempted
CORRECT ANSWER:
In the Money
Explanation:
IN THE MONEY - A call option with a strike price that is lower than the market price
of the underlying asset, or a put option with a strike price that is higher than the
market price of the underlying asset. In the money means that your stock option
is worth money and you can turn around and sell or exercise it.
For example, consider a stock that is trading at Rs 100. For such a stock, call
options with strike prices below Rs 100 would be In the money calls ( ie Rs 80, Rs
90 calls) while put options with strike prices above Rs 100 (Rs 110 , Rs 120 calls
etc.)would be In the money puts.
For easy understanding, those calls or puts which are profitable are In the Money.
Q A seller of call option can lose unlimited amount of money -

8.
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
A seller of a Call Option expects the price to fall. But as the price of the underlying
rises, he begins to make losses. Theoretically the price can rise to any levels and
so the call option seller may make unlimited losses.
Q 'Bulls' are those investors who believe the market will rise -
9.
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
Investors who believe that the markets will rise are called Bulls and investors who
believe that markets will fall are known as Bears.
Q The initial margin is always equal to the mark-to-market

10.
margin - State True or False?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
Mark to Market is a process by which margins are adjusted on the basis of daily
price changes in the markets for underlying assets. So this margin is as per the
daily price movements.
Initial margin is usually fixed depending on the price volatility. Higher the
volatility, higher the initial margin.
Q What does a seller of Put Option expect?

11.
An increase in the price of the underlying
No change in the price of the underlying
A decrease in the price of the underlying
Both 1 and 2
UnAttempted
CORRECT ANSWER:
Both 1 and 2
Explanation:
A seller of put option expects the price to rise.
Even if the price remains stable, the seller earns the option premium.
(Note - Buyer of Put option is bearish and a seller of Put option is bullish / neutral)
Q In the derivatives segment, who has to pay the margins as
12.
specified by the Clearing Corporation?
Clients
Arbitrageurs
Financial Institutions
All of the above
UnAttempted
CORRECT ANSWER:
All of the above
Explanation:
All those who trade in the derivatives segment have to pay margins without
exception.
Q When the price of a future contract decreases, the margin

13.
account ______ .
of the seller of futures contract will be credited for the gain
of the buyer of futures contract will be debited for the loss
Both 1 and 2
None of the above
UnAttempted
CORRECT ANSWER:
Both 1 and 2
Explanation:
The buyer of futures will have a notional loss and so his margin account will be
debited by the notional loss amount.
The seller of futures will have a notional profit if the price falls and his margin
account will be credited by the notional gain amount.
Q Mr. Ganesh thinks that the markets will go down, so he sell 10

14.
lots of index futures at 3500. His predictions come true and the
index falls and Mr. Ganesh buys back the futures contract at
3410. What is the profit Mr. Ganesh has made if one lot of
index is of 50.
35000
45000
55000
65000
UnAttempted
CORRECT ANSWER:
45000
Explanation:
Mr Ganesh had sold at Rs 3500 and bought back at Rs 3410. So he made a profit
of Rs 90.
Total Quantity sold = 10 lots x 50 (lot size) = 500
Total Profit = Rs 90 x 500 = Rs 45,000
Q Options contracts have two types of settlements: ______

15.
premium settlement and Final settlement
Daily
Weekly
Monthly
Yearly
UnAttempted
CORRECT ANSWER:
Daily
Explanation:
Options contracts have two types of settlements: Daily premium settlement and
Final settlement.
Daily Premium Settlement :The buyer of an option pays the premium, while the
seller receives the same. The amount payable and receivable as premium are
netted to compute the net premium payable or receivable amount for each client
for each option contract. The clearing members who have a premium payable
position are required to pay the premium amount to the clearing corporation and
in turn this amount is passed on to the members who have a premium receivable
position. This is known as daily premium settlement.
The premium payable amount and premium receivable amount are directly
credited/ debited to the clearing member’s clearing bank account on T+1 day,
where T is the trade date.
Q Investors who believe that the markets will fall are known as
16.
Bulls - State True or False?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
Investors who believe that the markets will fall are known as Bears.
Investors who believe that the markets will rise are known as Bulls.
Q Which of the below statement(s) hold true for Futures

17.
Contract?
Futures Contracts are settled through clearing corporation of the
exchange
Futures Contracts are standardized contracts
Futures Contracts are traded on an exchange
All of the above
UnAttempted
CORRECT ANSWER:
All of the above
Explanation:
Futures contract are standardised in terms of size of the contract, time to expiry
etc. They are always traded on a recognised exchange and the settlement is
through a clearing corporation.
Q What is Tick size?

18.
Tick size is the size of the futures contract
Tick size is the maximum permitted movement in the price of the
contract
Tick size is the minimum permitted movement in the price of the
contract
Tick size is the average of the high and low permitted prices
UnAttempted
CORRECT ANSWER:
Tick size is the minimum permitted movement in the price of the contract
Explanation:
Tick Size is the minimum move allowed in the price quotations.
Q In a calendar spread transaction, the trader takes opposite

19.
position in two futures contract with _______ .
two different underlying assets and same delivery month
two differently delivery months and two different underlying assets
two differently delivery months and same underlying asset
one stock and one index of same delivery months
UnAttempted
CORRECT ANSWER:
two differently delivery months and same underlying asset
Explanation:
Calendar spread position is a combination of two positions in futures on the
same underlying - long on one maturity contract and short on a different
maturity contract. For instance, a short position in near month contract coupled
with a long position in far month contract is a calendar spread position.
Q When a seller SHORT SELLS a stock, it means _____ .

20.
He has more than a months time to deliver the stock which he sold
He owns the stock he is supposed to deliver
He has to deliver the stock within a short time
He does not own the stock he is supposed to deliver
UnAttempted
CORRECT ANSWER:
He does not own the stock he is supposed to deliver
Explanation:
Selling Short means Seller does not own the stock he is supposed to deliver.
He has done a sale trade because he expects the price to fall and has to buy back
the stock (either with a profit or loss) before the end of trading on that day.
Q The simultaneous purchase and sale of two different tenors

21.
futures contracts in the same underlying is known as a ______
.
Limit order
Short hedge
Spread trade
Long hedge
UnAttempted
CORRECT ANSWER:
Spread trade
Explanation:
In case of a Spread Trade, two opposite positions (one long and one short) are
taken either in two contracts with same maturity on different products or in two
contracts with different maturities on the same product.
Q If the volatility of the underlying stock is decreasing, the
22.
premium of call option would _______ .
Increase
Decrease
will not change
None of the above
UnAttempted
CORRECT ANSWER:
Decrease
Explanation:
Lower the volatility lower the risk and so lower the premium.
The stocks which are highly volatile will have comparatively higher option
premiums as there involves a lot of risk trading in such stocks.
Q Excess of premium in an option over the intrinsic value is

23.
known as the time value - State True or False ?
False
True
UnAttempted
CORRECT ANSWER:
True
Explanation:
Option premium consists of two components - intrinsic value and time value.
Option premium is the sum of intrinsic value and time value.
Time value is the difference between premium and intrinsic value. ATM and OTM
options will have only time value because the intrinsic value of such options is
zero.
Q As per news, the Government can lose a vote of confidence

24.
and this can affect the stock markets pretty badly. If you are an
active trader, what is the ideal step you will take?
Buy index futures
Sell index futures
Double your portfolio holdings
Buy Blue Chip shares
UnAttempted
CORRECT ANSWER:
Sell index futures
Explanation:
In case of a negative news like fall of a Government, the stock markets generally
fall. Its difficult to judge which stocks will fall more. So, the best way is to short
the index futures as the index is bound to fall in response to a negative news and
the active trader can profit from it.
Q In stock markets, Beta is a statistical measure of the

25.
sensitivity of the movement of a share price to the movement
of prevailing interest rates - State True or False?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
Beta measures the sensitivity of a stock / portfolio vis-a-vis index movement over
a period of time, on the basis of historical prices.
Q The trades done by dealers in their own account has to be

26.
totally segregated from the trades done in their clients account
- State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
The trades done by dealers are in the 'PRO' account ie. Proprietary account and
the trades done by Clients are in the 'CLI' account.
'Proprietary Trading’ is when a member trades on exchange on its own behalf. As

directed by SEBI and in pursuance of byelaws members are advised to specify the
nature of the order in terms of order being a ‘Client order’ or ‘Proprietary order’.
Q The Time value of an option is the portion of option premium

27.
that is linked to the amount of time left till expiry of the option
contract and also due to the fact that the underlying
components that determine the value of option may change
during that time - State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
Time value of the option depends upon how much time is remaining for
the option to expire.
If all other factors affecting an option’s price remain same, the time value portion
of an option’s premium will decrease with the passage of time. This is also known
as time decay.
Q Broker are allowed to and expected to fund margin

28.
requirements of their clients - State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
As per major recommendations of Dr. L.C.Gupta Committee - All clients should

pay margins. Brokers should not fund margins of clients.
Q What advantage does the screen based trading has over floor
29.
trading ?
There are no set up costs in screen based trading
The technology needs are lower
There is no need to route the order through an exchange
UnAttempted
CORRECT ANSWER:
Explanation:
Screen based (Trading thro' computers) trading is fully transparent.
Q When there is a ‘Closing buy transaction’, this will have the

30.
effect of partly or fully offsetting ________ .
A cross position
A short position
A high position
A long position
UnAttempted
CORRECT ANSWER:
A short position
Explanation:
Creating a Short Position means selling the asset on an exchange with a view to
buy it back when the price falls.
So a Closing Buy transaction will be used to buy back / offset the short position
created.
Q Mr P and Mr Q are clearing members of a stock exchange .

31.
Both of them have maintained Rs 7 crores of liquid assets
consisting of equity shares and other assets. Both have the
same exposure limits on day one. Based on this, which of the
following statements is true ?
The minimum exposure possible for the two brokers may change
from time to time based on the changes in those asset valuations,
even if they do not withdraw the assets deposited
The minimum exposure possible for the two brokers will remain
same for ever, even if they withdraw the asset deposited
subsequently
The minimum exposure possible for the two brokers will remain the
same forever as long as they do not withdraw the assets deposited
None of the above
UnAttempted
CORRECT ANSWER:
The minimum exposure possible for the two brokers may change from time
to time based on the changes in those asset valuations, even if they do not
withdraw the assets deposited
Explanation:
The exposure depends on the value of assets deposited. Although both P and Q
have deposited assets worth Rs.7 crores, the assets could be different (equity
shares of different companies) and the value of these will become higher or lower
as time passes. So the exposure limits will also change accordingly.
Q Ms. Deepika is bearish on the market, so she is expecting the
32.
market to _____ .
Rise
Fall
Remain constant
Move sideways
UnAttempted
CORRECT ANSWER:
Fall
Explanation:
Investors who have a bearish on the stock or index expect the stock price or index
level to fall, take a short position in the stock futures or index futures contract.
(Investors who have a bullish view on the underlying stock or index expect the
stock price or index level to increase and they take a long position in the stock
futures or index futures contract).
Q Identify the True formula for Cost of Carry model.

33.
Price of Futures = Cost of carry
Price of Futures = Spot price
Price of Futures = Spot + Cost of carry
Price of Futures = Spot - Cost of carry
UnAttempted
CORRECT ANSWER:
Price of Futures = Spot + Cost of carry

Explanation:
Cost of Carry is the relationship between futures prices and spot prices. For stock
derivatives, carrying cost is the interest paid to finance the purchase.
For example, assume the share of XYZ Ltd is trading at Rs. 500 in the cash market.
A person wishes to buy the share, but does not have money. In that case he would
have to borrow Rs. 500 at the rate of, say, 12% per annum. So 1% ie. Rs 5 ( 1% of
Rs 500) is the per month interest cost. and this Rs 5 is the cost of carry.
The future price (ideally) at the beginning of month will be Spot Price + Cost of
Carry ie. Rs 500 + Rs 5 = Rs 505.
Q Identify the FALSE statement.

34.
For Call Options : With decrease in strike price, the premium on call
increases
For Call Options : With increase in strike price, the premium on call
increases
For Put Options : With increase in strike price, the premium on put
increases
For Put Options : With decrease in strike price, the premium on put
decreases
UnAttempted
CORRECT ANSWER:
For Call Options : With increase in strike price, the premium on call increases
Explanation:
If all the other factors remain constant but the strike price of option increases,
intrinsic value of the call option will decrease and hence its value will also
decrease.
For example, when the underlying index is at 17562, a call option with a strike
price of 17600 will trade at a higher price than a call option with the same maturity
but with a strike price of 17700. This is because the intrinsic value is progressively
lower for higher strike prices of calls.
(On the other hand, with all the other factors remaining constant, increase in strike
price of option increases the intrinsic value of the put option which in turn
increases its option value. Thus, a put option with a strike price of 17700 will trade
at a higher premium than a put option with the same maturity but a strike price of
17600).
Q __________ guarantees the performance of exchange traded

35.
contracts.
SEBI
Depositories
Custodians
UnAttempted
CORRECT ANSWER:
Explanation:
Clearing Corporation is responsible for clearing and settlement of all trades

executed in the F&O Segment of the Exchange. According to the legal principle of
‘novation’, the Clearing Corporation becomes the central counterparty to all
trades that take place on the exchange’s derivatives platform.
A clearing corporation guarantees contract performance (settlement of

transactions).
Q If there is no cross margining between cash and derivative
36.
segments of an exchange, this will _________ .
Promotes economic inefficiency
Increase the cost of trading
Reduces the volumes for given level of risk capital in the economy
All of the above
UnAttempted
CORRECT ANSWER:
Increase the cost of trading
Explanation:
Cross margining is available across Cash and Derivatives segment.
If a trader has credit balance in his trading account in the cash segment, he can
use it to margin his derivative trading, thus reducing his overall margin level.
If cross margining is not there, more margin will have to be deposited with the
exchange which will increase the cost of trading.
Q How should a seller of an option treat the premium received in

37.
his books of accounts?
It should be treated as an Income
It should be treated as an Expense
It should be treated as an Asset
It should be treated as a Liability
UnAttempted
CORRECT ANSWER:
It should be treated as an Income
Explanation:
The buyer/ holder of the option is required to pay the premium. In the books of the
buyer/ holder, such premium should be debited to an appropriate account, say,
"Equity Index/ Stock Option Premium Account".
In the books of the seller/ writer such premium received should be credited to an
appropriate account, say, "Equity Index/ Stock Option Premium Account".
Q From the various complaints against a trading member given

38.
below, identify which one can be taken up by the exchange for
redressal ?
Complaints in respect of transactions which are already subject
matter of arbitration proceedings
Non-receipt of funds or securities
Complaints relating to land dealings between a client and a trading
member
Claims for notional loss for the disputed period
UnAttempted
CORRECT ANSWER:
Non-receipt of funds or securities
Explanation:
Exchanges provide assistance if the complaints fall within the purview of the
Exchange and are related to trades that are executed on the Exchange Platform.
‘Non-receipt of funds / securities’ comes under this assistance.
Q Mr X sells one ABC stock futures contract at Rs. 745. What is

39.
his profit (+) or loss (-), if he purchases the contract back at
Rs. 754 ? Lot size is 1500
+13500
-13500
+9800
-9800
UnAttempted
CORRECT ANSWER:
-13500
Explanation:
When you sell a stock future contract you make a profit if the share price falls or
you make a loss if the price rises.
In this case, ABC stock futures has risen by Rs. 9 (754 - 745). So there will be a
loss.
Rs. 9 x 1500 (Lot size) = Loss of Rs 13500
Q Identify the CORRECT statement.

40.
A short position in a put option can be closed out by taking a long
position in a put option of any exercise price and exercise date
position in a call option with the same exercise price and exercise
date
position in a put option with the same exercise price and exercise
date
A short position in a put option can be closed out by taking a short
position in a call option with the same exercise price and exercise
date
UnAttempted
CORRECT ANSWER:
A short position in a put option can be closed out by taking a long position in
a put option with the same exercise price and exercise date
Explanation:
A closing transaction for an option involves the sale or purchase of an option

contract with the same terms (contract specifications), i.e., an option with the
same strike price and same expiry date.
Q Hedgers and speculators are two important participants of a

41.
securities market and they strike a balance due to their needs
as _______ .
Hedger wants to avoids risk while the speculator wants to takes risk
Hedger wants to takes risk while speculators wants to avoids risk
Both hedgers and speculators want to avoid risk
Both hedgers and speculators want to take risk
UnAttempted
CORRECT ANSWER:
Hedger wants to avoids risk while the speculator wants to takes risk
Explanation:
Corporations, Investing Institutions, banks and governments all use derivative

products to hedge or reduce their exposures to market variables such as interest
rates, share values, bond prices, currency exchange rates and commodity prices.
Speculators/Traders try to predict the future movements in prices of underlying

assets and based on the view, take positions in derivative contracts. They take a
risk to make profits.
Hedgers aim to hedge their risk where as speculators take the risk which hedgers
plan to offload from their exposure.
Q Mr. Harish had purchased 20 call options on a stock by paying

42.
a premium of Rs 10 per call (Strike price of Rs. 125). The stock
price has closed at Rs. 100 on the exercise date. Based on
economic rationale alone, Mr. Harish _________ .
Should exercise the option but he should not take delivery of the
underlying
Should exercise the option
Should not exercise the option
Should exercise the option as he likes the management of the
company
UnAttempted
CORRECT ANSWER:
Should not exercise the option
Explanation:
Mr. Harish has purchased a call option which means he believed that the price of
that call will go up. Instead the price has fallen. So he should not exercise the
option and the maximum loss he will suffer is the premium paid by him.
Q What happens to a 'Day Order' if its not executed during the

43.
day?
The Order will be executed in the auction market
The Order will be executed in the after-hours
The Order will be executed on the next trading day
The Order will be cancelled automatically at the end of the day
UnAttempted
CORRECT ANSWER:
The Order will be cancelled automatically at the end of the day
Explanation:
A Day order is an order which is valid for a single day on which it is entered. If the
order is not executed during the day, the trading system cancels the order
automatically at the end of the day.
Q Is it true that at expiration, the value of an option is its intrinsic

44.
value?
Yes, its true for all options
No, its not true for all options
Yes, its true but only for Call options
Yes, its true but only for Put options
UnAttempted
CORRECT ANSWER:
Yes, its true for all options
Explanation:
At expiration, the exercise settlement value for each unit of the exercised contract
is computed as follows:
Call options = Closing price of the security on the day of exercise - Strike price
Put options = Strike price - Closing price of the security on the day of exercise.
In other words, the final settlement amount is equal to the intrinsic value of the
option at expiration.
Q The strategy of _________ involves options with different

45.
strike prices but same expiry dates.
Straddle
Calendar spreads
Vertical spreads
Diagonal spreads
UnAttempted
CORRECT ANSWER:
Vertical spreads
Explanation:
Spreads are option strategies which involve combining options on the same
underlying and of same type (call/ put) but with different strikes and maturities.
These are limited profit and limited loss positions.
Vertical spreads are created by using options having same expiry date but
different strike prices. These can be created either using calls as combination or
puts as combination.
Q In an American Put Option, the buyer gets the right but not the
46.
obligation to _______ the writer an underlying asset at a
specified price ________ .
Buy from ; on or before the expiry date
Buy from ; on the expiry date
Sell to ; on or before the expiry date
Sell to ; on the expiry date
UnAttempted
CORRECT ANSWER:
Sell to ; on or before the expiry date
Explanation:
American option: The owner (buyer/holder) of an American option can exercise

his right at any time on or before the expiry date/day of the contract.
A Put Option gives the buyer/holder a right to sell the underlying asset.
Therefore an American Put Option gives the buyer the right but not the obligation
to sell to the writer an underlying asset at a specified price on or before the expiry
date.
Q Identify which of these is not an application of indices?

47.
Exchange traded funds
Index funds
Index derivatives
Private equity funds
UnAttempted
CORRECT ANSWER:
Private equity funds
Explanation:
Private Equity Funds are not connected to any index nor are they listed on a stock
exchange.
Traditionally, indices were used as a measure to understand the overall direction

of stock market. However, few applications on index have emerged in the
investment field such as Index Funds, Index Derivatives, Exchange Traded Funds
etc.
Q What is the minimum price movement in a scrip called ?

48.
Badla Rate
Tick
Touchline
Market Lot
UnAttempted
CORRECT ANSWER:
Tick
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. For eg. Tick size for Nifty
futures is 5 paisa.
Q Delta refers to the Rate of change in the _______ .

49.
Option premium per day
Option premium for a unit change in spot price of the underlying
Option premium for a unit change in interest rate
Option premium for a unit change in volatility of the underlying
UnAttempted
CORRECT ANSWER:
Option premium for a unit change in spot price of the underlying
Explanation:
Option premiums change with changes in the factors that determine option
pricing i.e., factors such as strike price, volatility, term to maturity, etc. The
sensitivities most commonly tracked in the market are known collectively as
“Greeks” represented by Delta, Gamma, Theta, Vega and Rho
The most important of the ‘Greeks’ is the option’s “Delta”. This measures the
sensitivity of the option value to a given small change in the 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.
Delta = Change in option premium/ Unit change in price of the underlying asset
Q What is the rate of STT on the sale of an index or stock futures
50.
contract?
0.01%
0.0125%
0.05%
0.1%
UnAttempted
CORRECT ANSWER:
0.0125%
Explanation:
Form 1st April 2023, the STT rates were revised and the STT on sale of stock
futures / index is 0.0125% on the price at which such futures is traded.
Q The mark-to-market margin debits for stock futures are done
1.
on a daily basis but the mark-to-market margin credits are
done on a weekly basis - State whether True or False ?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
In the futures and options market, profits and losses (Debits and Credits) are
settled on day-to-day basis – called mark to market (MTM) settlement.
Q Tick size is _________ .

2.
Contract Lot size
Average of the high and low prices
The maximum permitted movement in the price of the contract
The minimum permitted movement in the price of the contract
UnAttempted
CORRECT ANSWER:
The minimum permitted movement in the price of the contract
Explanation:
Tick Size is minimum move allowed in the price quotations.

Exchanges decide the tick sizes on traded contracts as part of contract
specification. For eg. - Tick size for Nifty futures is 5 paisa.
Q A forward contract is _____

3.
is a type of Option
is settled and cleared through a Clearing Corporation
a bilateral commitment of trade between two parties
is entered through an Exchange
UnAttempted
CORRECT ANSWER:
a bilateral commitment of trade between two parties
Explanation:
Forward Contract - It is a contractual agreement between two parties to buy/sell

an underlying asset at a certain future date for a particular price that is pre-
decided on the date of contract.
Q How many shares should be ideally there in an index ?

4.
Depends on the objective of the index
Around 100 to comprehensively cover all sectors
Exactly 50
Below 50
UnAttempted
CORRECT ANSWER:
Depends on the objective of the index
Explanation:
Stocks in the index are chosen based on certain pre-determined qualitative
and quantitative parameters, laid down by the Index Construction Managers.
Once a stock satisfies the eligibility criterion, it is entitled for inclusion in the
index.
Generally, final decision of inclusion or removal of a security from the index is

taken by a specialized committee known as Index Committee.
Q Longer the time to maturity of the PUT option, higher will be

5.
the time value - State whether True or False?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
the option to expire. Longer the time to maturity, higher will be the time value.
The effect of time to expiration on both call and put options is similar to that of
volatility on option premiums. Generally, longer the maturity of the option
greater is the uncertainty and hence the higher premiums. If all other factors
affecting an option’s price remain same, the time value portion of an option’s
premium will decrease with the passage of time.
Q Brokers and dealers of derivative exchanges have also to be

6.
registered with SEBI in addition to their registration with stock
exchange - State whether True or False?
True
False
UnAttempted
CORRECT 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 As a Call option moves more Out-Of-The-Money, the absolute

7.
value of Delta will ______.
Increase
Decrease
Not change
None of the above
UnAttempted
CORRECT ANSWER:
Decrease
Explanation:
A Call option moving more Out of the Money means the price of its underlying has
fallen.
Delta for call option buyer is positive. This means that the value of the
contract increases as the share price rises and falls as the share price falls.
Q Counterparty risk can also be called as ________ .

8.
Credit Risk
Default Risk
Both 1 and 2
Speculative Risk
UnAttempted
CORRECT ANSWER:
Both 1 and 2
Explanation:
Counterparty risk is the risk of an economic loss from the failure of counterparty
to fulfil its contractual obligation.
This risk is also called default risk or credit risk.
Q A penalty or suspension of registration of a stock broker from

9.
derivatives exchange/segment under SEBI (Stock Broker and
Sub-broker) Regulations, 1992 can take place if ______ .
The stock broker fails to resolve the complaints of the investors
The stock broker indulges in manipulating, or price rigging or
cornering of the market
The stock broker does not follow the code of conduct
All of the above
UnAttempted
CORRECT ANSWER:
All of the above
Explanation:
A penalty or suspension of registration of a stock - broker under the SEBI (Stock
Broker)
Regulations, 1992 can be ordered if:
- The stock broker violates the provisions of the Act
- The stock broker does not follow the code of conduct
- The stock broker fails to resolve the complaints of the investors
- The stock broker indulges in manipulating, or price rigging or cornering of
themarket
- The stock broker’s financial position deteriorates substantially
- The stock broker fails to pay fees
- The stock broker violates the conditions of registration
- The stock broker is suspended by the stock exchange
Q At the time of final settlement, the seller / writer of the option

10.
will recognize the adverse difference he paid to the buyer as
____ in his profit and loss account.
Expenses
Loss
Debt
Profit
UnAttempted
CORRECT ANSWER:
Loss
Explanation:
On exercise of the option, the seller/writer will pay the adverse difference,
between the final settlement price as on the exercise/ expiry date and the strike
price. Such payment will be recognised as a loss.
Q Its the duty of the Clearing Corporation to continuously

11.
analyse and modify the initial margin requirements as the
stock markets tend to be very volatile - State whether True or
False?
False
True
UnAttempted
CORRECT ANSWER:
True
Explanation:
Initial Margin levels should be dynamic and calculated continuously based
on volatility levels. The Clearing Corporation does this activity using modern
mathematical tools.
Q Fixed deposits and Bank guarantees are NOT permitted to be

12.
offered by Clearing Members to the Clearing corpn as part of
liquid assets - State whether True or False?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
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.
Q The absolute amount of minimum capital adequacy

13.
requirement for derivative clearing member is higher than that
of spot market - State whether True or False?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
The absolute amount of minimum capital adequacy requirement for derivative

brokers/dealers is much higher than for cash market as the risk involved are
higher.
Further, if a broker/dealer is involved both in cash and futures segments, or in

several exchanges, the capital adequacy requirement should be satisfied for each
exchange/segment separately.
Q At price level of Rs. 6900, what will be the value of one lot of
14.
ABC futures contract (contract multiplier 50)?
Rs. 289000
Rs. 690000
Rs. 345000
Rs. 460000
UnAttempted
CORRECT ANSWER:
Rs. 345000
Explanation:
The value of the futures contract is the Price X Lot size
= Rs 6900 X 50 = Rs 345000
Q What will be the value of one lot of ABC futures contract if the
15.
price is Rs. 3200 and the contract size is 150 ?
Rs.240000
Rs.320000
Rs.540000
Rs.480000
UnAttempted
CORRECT ANSWER:
Rs.480000
Explanation:
Value of a futures contract is the price multiplied by the contract size.
In the above question :
3200 * 150 = Rs.480000
Q In the derivatives market, the mark to market margin is equal

16.
to the initial margin - State True or False?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
Mark to Market is a process by which margins are adjusted on the basis of daily
price changes in the markets for underlying assets. So this margin is as per the
daily price movements.
Initial margin is usually fixed depending on the price volatility. Higher the
volatility, higher the initial margin.
Q When the option is exercised on maturity, the option premium
17.
is adjustable against the exercise price on settlement - State
True or False ?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
The premium paid is adjusted against the exercise price on settlement, if the
option is exercised on maturity.
Q A call option gives its holder the right to buy ‘any quantity’ of
18.
the underlying asset from the writer of the call option at a pre-
specified price - State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
A call option gives its holder the right to buy ONLY THE SPECIFIED QUANTITY
(lot size of the option contract) of the underlying asset from the writer of the call
option at a pre-specified price.
Q Losses incurred on derivative transactions on a ‘recognized

19.
stock exchange’ can be carried forward to _____ subsequent
assessment year and set off against any other non-speculative
business income of the subsequent year.
5
8
12
15
UnAttempted
CORRECT ANSWER:
Explanation:
Loss incurred on derivatives transactions which are carried out in a recognized

stock exchange can be carried forward for a period of 8 assessment years.
Q The price at which the underlying asset can be bought or sold

20.
on exercise of an option is called ________ .
Spot Price
Risk Premium
Strike Price
Option Premium
UnAttempted
CORRECT ANSWER:
Strike Price
Explanation:
Strike price or Exercise price is the price per share for which the underlying
security may be purchased or sold by the option holder.
Q In an ‘Opening Buy Transaction’ the effect will be that of

21.
creating or increasing ____ .
Arbitrage position
Cross position
Long position
Short position
UnAttempted
CORRECT ANSWER:
Long position
Explanation:
Opening a position means either buying or selling a contract, which increases
client’s open position (long or short).
Opening a Buy transaction means creating or adding LONG positions with a

view that the price will increase.
Q The initial margin in derivatives market depends on the

22.
volatility of the underlying market. Usually _________ .
Higher the volatility, Lower the initial margin
Higher the volatility, Higher the initial margin
Lower the volatility, Higher the initial margin
None of the above
UnAttempted
CORRECT ANSWER:
Higher the volatility, Higher the initial margin
Explanation:
If the stock is very volatile it could result in looses to the trader in a short period
of time. So to safe guard the trading member and the trader, higher initial margin
are levied on volatile stocks.
Q In general terms, if the number of participants in a market are

23.
more, the liquidity will be low - State True or False?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
Liquidity in the context of stock market means a market where large orders
are executed without moving the prices.
So if there are more the participants, higher should be the liquidity.
Q All types of investors should allot some portion of their

24.
portfolio to derivative products in order to increase the
portfolio returns irrespective of their risk tolerance levels -
State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
Derivatives are ideally used as a hedging product and not investment products.
Also, as a stand alone investment, they can prove to be very risky. So investors
who do not want to take risks, senior citizens etc. should not trade / invest in
derivative products.
Q If the interest rate increases, the premium on CALL option will

25.
also increase - State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
High interest rates will result in an increase in the value of a call option and a
decrease in the value of a put option.
Q The Clearing Corporation gives exposure limits to Clearing

26.
Members based on the number of Trading Members using the
services of that Clearing Member - State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
Clearing Corporation gives exposure limits to Clearing Members based on

deposits and not the number of members with that clearing member.
Q In derivative exchanges, the exposure amount possible for

27.
each member broker is linked to the amount of deposits /
margins kept by the member with the clearing house - True or
False ?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
Higher the deposits / margins kept, more will be the exposure amount available to
the member brokers.
Q What is Unsystematic Risk ?

28.
Unsystematic Risk is related to risk in a specific security and not
pertaining to overall market
Unsystematic Risk can be reduced through diversification
Both 1 and 2
None of the above
UnAttempted
CORRECT ANSWER:
Both 1 and 2
Explanation:
Unsystematic risk is the component of price risk that is unique to particular events
of the company and/or industry. For example : Strike in a factory or threats from
cheaper imports to steel industry.
This risk is inseparable from investing in the securities. This risk could be reduced
to a certain extent by diversifying the portfolio.
Q How can be risks be controlled in the derivatives segment by

29.
the stock exchange ?
By implementing a effective margin system
By having a well organized control systems and audit procedures
By periodic evaluation of member positions
All of the above
UnAttempted
CORRECT ANSWER:
All of the above
Explanation:
All the above steps need to be taken to control risks in the derivative segment.
Q In the derivative segment, once initial margin requirement is

30.
fixed, it cannot be changed by the exchange, during the
lifetime of the futures contract - State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
The initial margin is dependent on price movement of the underlying asset.
So the Initial Margin levels are dynamic and recalculated continuously based on
volatility levels.
Q What happens to the unmatched portion of the order in an

31.
Immediate or cancel (IOC) order ?
It will be added to the order book as a limit order
It will be executed on the next trading day
It will be executed in the next one hour
It will be cancelled
UnAttempted
CORRECT ANSWER:
It will be cancelled
Explanation:
Immediate or cancel (IOC): User is allowed to buy/sell a contract as soon as the

order is released into the trading system. An unmatched order will be immediately
cancelled.
Partial order match is possible in this order, and the unmatched portion of the
order is cancelled immediately.
Q What should be the market-wide position limit for a stock for it

32.
to be eligible for launch in the futures and options contracts in
the exchange traded equity derivatives segment in India?
At least Rs. 100 crores
UnAttempted
CORRECT ANSWER:

Explanation:
A stock on which stock option and single stock futures contracts are proposed to
be introduced shall conform to broad eligibility criteria for a continuous period of
six months. One of the criteria is :
The market wide position limit (MWPL) in the stock shall not be less than Rs 500
crores on a rolling basis.
Q When an investor gives instruction to his broker to buy a

33.
certain number of contracts at or below a specific price, the
order is called as _________ .
Market Order
Arbitrage Order
Spread Order
Limit Order
UnAttempted
CORRECT ANSWER:
Limit Order
Explanation:
Limit order is an order to buy or sell a contract at a specified price. The user has
to specify this limit price while placing the order and the order gets executed only
at this specified limit price or at a better price than that.
Q Under which Act / Regulations is the Suspicious Transaction

34.
reporting required?
SEBI Insider Trading Regulations
Foreign Account Tax Compliance Act (FATCA)
Anti-Money laundering (AML) and Combating of Financial
Terrorism (CFT) Regulations
Foreign Exchange Management Act (FEMA)
UnAttempted
CORRECT ANSWER:
Anti-Money laundering (AML) and Combating of Financial Terrorism (CFT)

Regulations
Explanation:
Under the Anti-Money Laundering (AML) and Combating of Financial Terrorism

(CFT) regulations, certain suspicious transactions are required to be reported to
the Financial Intelligence Unit – India (FIU-IND) set up by the Government to detect
possible attempts at money laundering.
Q Why are the margins for calendar spreads in index futures low
35.
?
Because calendar spreads are not traded on an Exchange
Because calendar spreads are OTT transaction
Because the market risk is low in calendar spreads
Because calendar spreads are special transactions guaranteed by
RBI
UnAttempted
CORRECT ANSWER:
Because the market risk is low in calendar spreads

Explanation:
Calendar spread position is a combination of two positions in futures on the same

underlying - long on one maturity contract and short on a different maturity
contract.
Calendar spreads carry only basis risk and low or no market risk ie. no risk even
if market rises or falls by a big amount - hence lower margins are adequate.
Q A hedger wants to offset the price risk on his equities, so he

36.
will take _________ .
A long positions in futures
A short positions in futures
A long position in Call
Both a long or short position in futures
UnAttempted
CORRECT ANSWER:
A short positions in futures
Explanation:
Hedgers face risk associated with the prices of underlying assets and use
derivatives to reduce their risk.
If a person has a portfolio of equity stocks, he can sell futures to offset the price
risk.
Q Mr. Ankur sold a Call option of strike of Rs. 500 on XYZ stock
37.
for premium of Rs. 50. The lot size is 1000. On the expiry date
the XYZ stock closed at Rs. 520. What is his net profit or loss?
Loss of Rs. 30,000
Profit of Rs. 20,000
Loss of Rs. 20,000
UnAttempted
CORRECT ANSWER:
Explanation:
When a person sells a Call option, he has a bearish view and makes a profit if the
price falls.
In this case the price has risen. So he loses Rs 20 ( 500 – 520).
When an option is sold, premium is received. He has received a premium of Rs 50
As he has received Rs 50 and lost Rs. 20, he will make a net profit of Rs 30
Lot size is 1000. Total Profit = Rs 30 x 1000 = Rs 30,000
Q Who can trade in derivative products?

38.
Any broker who is registered with SEBI can trade in derivative
products
Any broker who is registered with SEBI for trading in derivatives
products can trade in derivatives
Any member of a registered Stock Exchange
All of the above
UnAttempted
CORRECT ANSWER:
Any broker who is registered with SEBI for trading in derivatives products can
trade in derivatives
Explanation:
A normal equity market SEBI registered broker cannot deal in derivatives. The
broker has to be specially registered for dealing in derivative products with SEBI
to deal in derivatives.
Q A Call Option will give the holder of the option a right to buy
39.
how much of the underlying from the writer of the option?
The specified quantity or more than the specified quantity
The specified quantity or less than the specified quantity
Only the specified quantity
UnAttempted
CORRECT ANSWER:
Explanation:
Only the specified quantity as per the lot size of the option contract.
Q Those contracts which have been initiated but are not yet
40.
offset by a subsequent sale or purchase or by making or
taking delivery are considered as ______ .
Offsetting Positions
Clear Positions
Open Positions
Squared-off Positions
UnAttempted
CORRECT ANSWER:
Open Positions
Explanation:
Outstanding / unsettled position in various derivative contracts is called “Open

Position”.
For instance, if Mr. X shorts 5 contracts on Infosys futures and goes long on 3
contracts of Reliance futures, he is said to be having open position, which is equal
to short on 5 contracts of Infosys and long on 3 contracts of Reliance. If on the
next day, he buys 2 Infosys contracts of same maturity, his open position would
be – short on 3 Infosys contracts and long on 3 Reliance contracts.
Q As per SEBI's guidelines, derivatives trading takes place

41.
through ______ .
Online screen based trading system
Kerb trading
Auctions at public mandis
Open outcry method in the trading ring
UnAttempted
CORRECT ANSWER:
Online screen based trading system

Explanation:
Derivatives trading as per SEBI’s guidelines takes place through an online screen
based electronic trading system.
In case of electronic trading, there are screen-based broker dealing terminals,

instead of the trading pit. Futures and options trading in India is electronic in
nature, with the bids and offers, and the acceptance being displayed on the
terminal continuously.
Q Ms. Seema, a stock market trader, is very bearish on specific

42.
companies. However she is bullish on the market as a whole.
Identify the most appropriate strategy to take advantage from
this view?
She should sell shares of those specific companies and buy index
futures
She should sell the shares of those specific companies and also
sell index futures
She should buy the shares of those specific companies and sell
index futures
She should not do anything
UnAttempted
CORRECT ANSWER:
She should sell shares of those specific companies and buy index futures
Explanation:
The trader should sell the shares of those specific companies in futures and buy
index futures. By this she will profit when the stock prices of those specific
companies fall and index rises - if her view proves correct.
Q Why is the Clearing Corporation considered very important in
43.
the derivatives market?
Clearing Corporation deals with exchanges
Clearing Corporation related with stocks
Clearing Corporation provides settlement guarantee and assumes
role of counterparty for each trade
Clearing Corporation collects margins from members
UnAttempted
CORRECT ANSWER:
Clearing Corporation provides settlement guarantee and assumes role of

counterparty for each trade
Explanation:
Clearing corporations are required to have in place a Core Settlement Guarantee

Fund (SGF).
The primary objective of the Core SGF is to have a fund for each segment to
guarantee the settlement of trades executed in the respective segment of the
stock exchange. The Clearing Corporation acts as a legal counterparty for every
contract.
Q A client has asked for a quarterly settlement of his running

44.
account. In this connection, identify the INCORRECT
statements. A. The settlement will be done on first Friday of
the quarter B. The settlement will be done on last Friday of the
quarter C. The settlement will be done on any trading day of
the quarter
Both A and B are incorrect
Both B and C are incorrect
Both A and C are incorrect
None of the above
UnAttempted
CORRECT ANSWER:
Both B and C are incorrect
Explanation:
With a view to prevent any misuse of a client’s funds by the broker, SEBI has made
it mandatory for brokers to settle the running account of client funds on a monthly
or quarterly basis as per the mandate of the client.
To bring uniformity in the settlement of running accounts, brokers are now

required to settle the running account after considering the client’s EOD
obligations as on the date of settlement across all the Exchanges on the first
Friday of the quarter, in case of clients requiring a quarterly settlement, and on
the first Friday of the month in the case of clients opting for a monthly settlement.
Q Identify the CORRECT statement .

45.
Penny stocks are and good investment options for senior citizens
Brokers of a stock exchange are not expected to disclose the
investment risks to their clients
Low income families can use derivatives instruments to get rich
quickly
Sales agents of the brokers should not use high pressure luring
tactics
UnAttempted
CORRECT ANSWER:
Sales agents of the brokers should not use high pressure luring tactics
Explanation:
As per ethical Sales Practices to be followed by brokers :
Sales agents of brokers must at all times:
- Be courteous and professional.
- Shall refrain from making false assumptions, in particular over potential returns
on their investments.
- Avoid the use of high pressure/ luring tactics.
Q Complete the sentence : Shorter the time to expiry of a PUT

46.
Option, lesser will be its _______ .
Assignment Value
Time Value
Intrinsic Value
Settlement Value
UnAttempted
CORRECT ANSWER:
Time Value
Explanation:
Other things being equal, options tend to lose time value each day throughout
their life. This is due to the fact that the uncertainty element in the price decreases.
Thus shorter the time to maturity, lower will be the time value.
Q A derivatives market would primarily have which of the
47.
following participants?
Speculators
Long-term investors
Hedgers
Both Speculators and Hedgers
UnAttempted
CORRECT ANSWER:
Both Speculators and Hedgers
Explanation:
There are broadly three types of participants in the derivatives market - hedgers,
traders (also called speculators) and arbitrageurs.
Long-term investors invest in the cash market and take delivery of the securities.
Q Which of these is NOT included in the Indian equity derivatives

48.
market?
Options on individual stocks
Options on equity market indices
Futures on individual stocks
Interest rate futures
UnAttempted
CORRECT ANSWER:

Explanation:
Although NSE and BSE allows trading in Interest rate futures but it is not a part of
equity derivatives.
Q For calculating the net worth of a clearing member, which of

49.
these is/are NOT considered?
His Fixed Assets
His pledged securities
His membership card
All of the above
UnAttempted
CORRECT ANSWER:
All of the above
Explanation:
The networth of the member shall be computed as follows:
Capital + Free reserves
Less non-allowable assets which are :
- Fixed assets
- Pledged securities
- Member’s card
- Non-allowable securities (unlisted securities)
- Bad deliveries
- Doubtful debts and advances
- Prepaid expenses
- Intangible assets
- 30% marketable securities
Q in ___________ , the strike price and market price are equal.

50.
Out-of-the money option
Same-the-money option
At-the-money option
In-the-money option
UnAttempted
CORRECT ANSWER:
At-the-money option
Explanation:
At-the-money (ATM) 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 / market price.
Q In the case of futures contract, the profits or losses are
1.
received / paid only on maturity - State whether True or False?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
In futures contract, the profits / losses are received / paid as and when the contract
is closed (squared up) by the trader or on maturity, which ever is earlier.
Q If there are three series of one, two and three months futures
2.
open at a given point of time, how many calendar spread
possibilities arise?
4
3
2
1
UnAttempted
CORRECT ANSWER:
Explanation:
The three calendar spreads can be between months 1 and 2, 2 and 3 and 1 and 3.
Q ______ is not a derivatives market product.

3.
Preference Share
Futures
Swaps
Options
UnAttempted
CORRECT ANSWER:
Preference Share
Explanation:
Futures, Forwards, Options, Swaps etc. are all products in the derivative market.
Preference share is not a derivative product.
Q Even if you do not own the underlying stock, you can sell the
4.
stock option for that stock - State whether True or False?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
Although Futures and Options were introduced as hedgeing tools but there is no
pre-condition that one has to own the stock to trade in futures and options.
One can easily buy and sell options without owning the underlying stock.
Q Over-the-counter options are always standardised - State

5.
whether True or False ?
True
False
UnAttempted
CORRECT ANSWER:
False
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 Calendar spreads carry basis risk and no market risk - hence

6.
_____ margins are charged.
Higher
Lower
NIL
Very high
UnAttempted
CORRECT ANSWER:
Lower
Explanation:
Calendar spreads carry only basis risk and no market risk - hence lower margins
are adequate.
That is why margin on calendar spread transaction in index futures is lower than
the sum of regular margin on two independent legs of spread transaction.
(Basis risk arises when the price of a futures contract does not have a
predictable relationship with the spot price, which is very rare.
Market risk is the risk that the price of a stock etc. will increase or decrease due
to changes in market factors)
Q A long or short position in a futures contract can be closed by

7.
initiating a reverse trade - State True or False?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
A closing transaction is one that reduces or eliminates an existing position by
an appropriate offsetting purchase or sale. This is also known as “squaring off”
your position.
A client is said to be closed a position if he sells a contract which he had bought

before or he buys a contract which he had sold earlier.
Q When it is said that there is cash settlement of an index

8.
futures contract, it means that the contract is settled in cash
with no delivery of the underlying - State whether True or
False?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
Index futures are always cash settled.
Individual securities can be cash settled or by delivery.
Q Which of these complaints against a trading member can an

9.
Exchange take up for redressal?
Claims for expenses incurred for taking up the matter with the ISC
Losses for transaction which are not within the framework of
exchange
Claims for opportunity loss for the particular disputed trade
Excess brokerage charged by a broker
UnAttempted
CORRECT ANSWER:
Excess brokerage charged by a broker
Explanation:
- Excess Brokerage charged by Trading Member
etc.
Q In exercising a Put option on a stock, the option holder

10.
acquires from the option writer _____ .
a short position in the underlying stock
a long position in the underlying stock
a strangle position in the underlying stock
a butterfly position in the underlying stock
UnAttempted
CORRECT ANSWER:
a short position in the underlying stock
Explanation:
The buyer / holder of a Put option is of the view that price of the underlying will
fall.
He thus acquires a short position on exercise.
Q When a person enters into a forward contract, the loss that

11.
can occur on the position is _____ .
known
unknown
UnAttempted
CORRECT ANSWER:
unknown
Explanation:
When a person enters into a forward or a futures contract, his profits or losses
are uncertain as it depends on the movement of prices.
(Only in the case of buying an option, the losses are fixed ie. premium paid)
Q You sold a call option on a share. The strike price of the Call
12.
was Rs 250 and you received a premium of Rs 16 from the
option buyer. What can be the maximum loss on this position?
Unlimited
Zero
Rs. 250
Rs. 234
UnAttempted
CORRECT ANSWER:
Unlimited
Explanation:
When you sell a Call Option, you believe that the price will fall.
If the price rises, you start making losses. Prices can rise theoretically to unlimited
levels, so the losses can be unlimited.
Q Clearing Member Mr. Prabhu focuses mainly on proprietary

13.
trading, while Clearing Member Mr. Mehta does not do any
proprietary trades and does trades only for clients. If both
have deposited the same amount of assets with Clearing
Corporation, which of the foll statement is true?
Mr. Prabhu enjoys a lower exposure limit than Mr. Mehta
Mr. Prabhu enjoys a higher exposure limit than Mr. Mehta
Both of them enjoy the same exposure limits
UnAttempted
CORRECT ANSWER:
Mr. Prabhu enjoys a higher exposure limit than Mr. Mehta
Explanation:
Proprietary positions are calculated on net basis (buy less sell) for each contract
and that of clients are arrived at by summing together net positions of each
individual client.
Margins are required to be paid up-front on gross basis at individual client level
for client positions and on net basis for proprietary positions.
Therefore, Mr. Prabhu who does only proprietary trades will get higher exposure
as his positions are calculated on net basis.
Q A tick is __________ .
14.
Minimum price difference between two buy quotes
Minimum price difference between two sell quotes
Both 1 and 2
None of the above
UnAttempted
CORRECT ANSWER:
Both 1 and 2
Explanation:
Tick Size is the minimum move allowed in the price quotations.
(Eg - Suppose the tick size 5 paise. A buyer has entered an order to buy at Rs 100.
If some other buyer wants to enter a buying quote at a higher price, he can quote
the price as Rs 100.05 and not 100.01)
Q A stock index like Nifty ______ .

15.
is a basket of stocks
can be easily manipulated
Both 1 and 2
None of the above
UnAttempted
CORRECT ANSWER:
is a basket of stocks
Explanation:
Stock Index like Nifty and Sensex consists of a basket of stocks and so its very
difficult / almost impossible to manipulate the index.
Q Generally, other things remaining the same - American options

16.
value is lower than that of European options - True or False?
True
False
The information given is inadequate
It depends on market condition
UnAttempted
CORRECT ANSWER:
False
Explanation:
American options are generally valued higher than European options.
American options allow option holders to exercise the option at any time prior its
maturity date, thus increasing the value of the option to the holder relative to
European options, which can only be exercised at maturity.
Q A Trading Member on derivatives exchange does not have

17.
Clearing rights - State True or False?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
Trading Member: They are members of Stock Exchanges. They can trade either
on behalf of their clients or
on their own account.
Trading cum Clearing Member: A Clearing Member (CM) who is also a Trading
Member (TM) of the exchange. Such CMs may clear and settle their own
proprietary trades, their clients' trades as well as trades of other TM's &
Custodial Participants
Q The exercise date and expiration date of an European option is
18.
________ .
Always the same
Always on the 28th of the expiry month
always different
May be same
UnAttempted
CORRECT ANSWER:
Always the same
Explanation:
An European option can only be exercised on the expiry date/day of the contract.
So in an European option the exercise date and expiration date is always the
same.
An American option can be exercised on any day.
Q Mr A sold a put option of strike Rs.300 on ABC stock for a

19.
premium of Rs.20. The lot size is 1000. On the expiry day, ABC
stock closed at Rs. 250. What is your net profit (+) or loss (-)?
-30000
+30000
+70000
-70000
UnAttempted
CORRECT ANSWER:
-30000
Explanation:
Mr. A sold a PUT option, that means he has a bullish or neutral view on PQR stock.
However, ABC stock has fallen by Rs 50 ( 300 - 250 ).
Which means he has lost Rs 50.
Since he has sold a PUT, he will receive the premium which is Rs 20.
So his net loss will be Rs 50 (Loss) - Rs 20 (Premium Recd) = Rs 30
Total Loss = Rs 30 x 1000 (lot size) = Rs. 30000
Q When a PUT option on an index is exercised, the option holder

20.
receives from the option writer _______ .
A cash amount that is equal to the excess of spot price over
exercise price
A cash amount that is equal to the excess of exercise price over
spot price
A cash amount that is equal to spot price
No amount
UnAttempted
CORRECT ANSWER:
A cash amount that is equal to the excess of exercise price over spot price
Explanation:
An option will only be exercised when its In the Money (Profitable)
A put option is In the Money when the Exercise price is higher than the spot price.
So the excess of exercise price over the spot price will be receivable by the option
holder.
(IN THE MONEY - A call option with a strike (exercise) price that is lower than the
market (spot) price of the underlying asset, or a put option with a strike price that
is higher than the market price of the underlying asset. In the money means that
your stock option is worth money and you can turn around and sell or exercise it.)
Q Intrinsic value is always positive for in-the-money options and

21.
zero for out-of-the money options - State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
In-the-money options have positive intrinsic value whereas at-the-money and out-
of-the-money options have zero intrinsic value. The intrinsic value of an option
can never be negative.
Q If futures price is higher than spot price of an underlying

22.
asset, this is known as _____ .
Maximization
Normalization
Backwardation
Contango
UnAttempted
CORRECT ANSWER:
Contango
Explanation:
If futures price is higher than spot price of an underlying asset,

market participants may expect the spot price to go up in near future. This
expectedly rising market is called “Contango market”.
Similarly, if futures price are lower than spot price of an asset, market participants
may expect the spot price to come down in future. This expectedly falling market
is called “Backwardation market”.
Q Mr. Ashish is a portfolio manager and he is bullish on the

23.
market. What should be his course of action ?
He should sell index futures
He should sell index call option
He should buy index futures
He should sell his complete portfolio
UnAttempted
CORRECT ANSWER:
He should buy index futures
Explanation:
Buying index futures such as Nifty futures will help him reap good profits if his
view of bullish markets prove correct.
Q The main proof of whether a futures transaction is for
24.
speculation or hedging is based on whether there already
exists a related commercial position which is exposed to risk
of loss due to price movement - State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
Hedgeing basically means making a trade to reduce the risk of adverse price
movements in an asset which you already hold. Normally, a hedge consists of
taking an offsetting position in a related security, such as a futures contract
For eg. - A company will be receiving dollars after three months. So to safe guard
against any fluctuations, it sells dollars in the futures market (3 month futures)
and locks in the price.
Q What is the role of speculators in the market ?

25.
They stabilise the markets
They reduce their risks by speculating
They maintain the Dollar-Rupee price parity
They add to the liquidity in the futures market
UnAttempted
CORRECT ANSWER:
They add to the liquidity in the futures market

Explanation:
Speculators constantly buy and sell creating good liquidity.
Q What is an Index Future ?

26.
Its a synthetic option
Its a cash market product
Its a derivative product
Its an option
UnAttempted
CORRECT ANSWER:
Its a derivative product
Explanation:
The future price of an index is derived from the spot / cash price.
So Index Future is a derivative product.
Q Identify the INCORRECT statement with respect to Tracking

27.
error of index funds.
From the point of view of the investors a low tracking error is
desirable
Tracking error can also arise due to mutual fund expenses
Tracking error is same for all index funds as it is fixed by the
regulator
Cash balances which are maintained by the fund manager can
cause tracking error
UnAttempted
CORRECT ANSWER:
Tracking error is same for all index funds as it is fixed by the regulator
Explanation:
Tracking error is the annualized difference between standard deviation of the fund
and its benchmark. Lower the tracking difference, better the fund.
“Tracking error” occurs due to fund management related expenses and cash
holdings maintained to take care of redemptions. Its not fixed by the regulator.
Q Which type of index is NSE NIFTY?

28.
Its a price-weighted index
Its a free-float market capitalisation index
Its an equally-weighted index
Its a market capitalisation – weighted index
UnAttempted
CORRECT ANSWER:
Its a free-float market capitalisation index
Explanation:
The free-float methodology is a method of calculating the market capitalization of

a stock market index's underlying companies. With the free-float
methodology, market capitalization is calculated by taking the equity's price and
multiplying it by the number of shares readily available in the market.
A majority of the stock indices globally, over a period of time, have moved to free
float basis, including the Indian equity indices - Sensex, Nifty and SX40.
Q Identify the strategy in which an investor takes a short

29.
position in call option and long position in the underlying
stock.
Writing a naked call
Protective call strategy
Writing a covered call
Butterfly strategy
UnAttempted
CORRECT ANSWER:
Explanation:
A Covered Call is a basic option trading strategy frequently used by traders to

protect their share holdings. It is a strategy in which you own shares of a company
and Sell OTM Call Option of the company in similar proportion.
The Call Option would not get exercised unless the stock price increases. Till then
you will earn the Premium. This a unlimited risk and limited reward strategy.
Q Identify the FALSE statement with respect to trading on the

30.
OTC market.
OTC markets have a centralised clearing and settlement of all
trades
On the OTC markets, there are no limits on the positions that
buyers and sellers can take
Buyers and sellers can trade in tailor-made contracts in the OTC
markets
In the OTC markets, risk management is usually the responsibility
of the parties themselves
UnAttempted
CORRECT ANSWER:
OTC markets have a centralised clearing and settlement of all trades
Explanation:
Forward contracts are also known as OTC contracts.
It is a contractual agreement between two parties to buy/sell an underlying asset

at a certain future date for a particular price that is pre-decided on the date of
contract. Both the contracting parties are committed and are obliged to honour
the transaction irrespective of the price of the underlying asset at the time of
delivery. Since forwards are negotiated between two parties, the terms and
conditions of contracts are customized/tailor made.
These contracts are not regulated by an Exchange and there is no centralised

clearing and settlement of trades.
Q The cost incurred due to the Bid-Ask spread is known as

31.
______ .
Transction cost
Spread cost
Margin cost
Impact cost
UnAttempted
CORRECT ANSWER:
Impact cost
Explanation:
Impact cost is a measure of the cost incurred due to the bid-ask spread.
Impact cost represents the cost of executing a transaction in a given stock, for a
specific predefined order size, at any given point of time.
Impact cost is the measure of liquidity of the security. It is the cost a buyer or
seller has to incur for a particular quantity of order at a given point of time due to
the existing liquidity condition of the security available in the market.
Q A future contract ______ .

32.
can be traded on a one to one basis by counterparties
will never have a specified maturity
can be squared off any time before expiry
cannot be squared off before expiry
UnAttempted
CORRECT ANSWER:
can be squared off any time before expiry
Explanation:
Futures contract can be squared off any time before expiry.

Q A Trading-cum-clearing member has a client X who has
33.
purchased and sold 1000 and 2000 contracts respectively in
the June series of ABC futures (contract multiplier 50). The
Trading-cum-clearing member has purchased and sold 1500
and 2200 contracts respectively on his own account in the
same June series of ABC futures (contract multiplier 50). What
is the outstanding liability (open position) of the member
towards clearing corporation in the number of contracts?
1700
300
6700
2200
UnAttempted
CORRECT ANSWER:
1700
Explanation:
The open position of a client and the clearing member cannot be netted off with
each other.
Open position of client X is 1000 - 2000 = 1000 sale contracts
Open position of Clearing member is 2200 - 1500 = 700 purchase contracts
Total outstanding position of the clearing member towards the Clearing

Corporation is 1000 + 700 = 1700 contracts
Q Which of these is an example of derivative contract?

34.
Treasury Bills of Government of India
Equity shares of XYZ Ltd
S&P 500 futures
Certificate of Deposit
UnAttempted
CORRECT ANSWER:
S&P 500 futures
Explanation:
Index Derivatives are derivative contracts which have the index as the underlying
asset.
The Standard and Poor's 500, or simply the S&P 500, is a stock market index
tracking the stock performance of 500 of the largest companies listed on stock
exchanges in the United States.
S&P futures are a derivative contract with S&P 500 index as the underlying.
Q Which of these derivative contracts, once entered into, usually

35.
cannot be closed or reversed till their expiry?
Exchange traded options on futures
Exchange traded options
Future contracts
Forward contracts
UnAttempted
CORRECT ANSWER:
Forward contracts
Explanation:
Forwards are bilateral over-the-counter (OTC) transactions where the terms of the
contract, such as price, quantity, quality, time and place are negotiated between
two parties to the contract.
The tailor made contracts and their non-availability on exchanges creates

illiquidity in the contracts. Therefore, it is very difficult for parties to exit from the
forward contract before the contract’s maturity.
Q Who becomes a counter party to every trade in futures

36.
transactions?
SEBI
Custodian
Depository
UnAttempted
CORRECT ANSWER:
Explanation:

executed on the F&O Segment of the Exchange.
It acts as a legal counterparty to all trades on this segment and also guarantees
their financial settlement.
Q What will the option holder receive when he exercises a put

37.
option on an index?
He will receive cash amount equal to excess of spot price over
exercise price
He will receive cash amount equal to excess of exercise price over
spot price
He will receive cash amount equal to spot price
He will receive nothing
UnAttempted
CORRECT ANSWER:
He will receive cash amount equal to excess of exercise price over spot price
Explanation:
An option will only be exercised when its In the Money (Profitable)
A put option is In the Money when the Exercise price is higher than the spot price.
So the excess of exercise price over the spot price will be receivable by the option
holder.
(IN THE MONEY - A call option with a strike (exercise) price that is lower than the
market (spot) price of the underlying asset, or a put option with a strike price that
is higher than the market price of the underlying asset. In the money means that
your stock option is worth money and you can turn around and sell or exercise it.)
Q When does the Clearing Corporation change the initial margin

38.
requirements?
Clearing Corporation can continuously change the initial margin
requirements according to changes in market volatility
Clearing Corporation can continuously change the initial margin
requirements whenever their is an increase in trading volumes
Clearing Corporation changes the initial margin requirements
periodically, based on specific instructions received from SEBI
Clearing Corporation changes the initial margin requirements
periodically, after each expiry date
UnAttempted
CORRECT ANSWER:
Clearing Corporation can continuously change the initial margin requirements

according to changes in market volatility
Explanation:
The initial margin is dependent on price movement of the underlying asset. As

high volatility assets carry more risk, the Exchange / Clearing Corporation would
charge higher initial margin on them.
Q Mark-to-market margins are collected _____ .

39.
On a weekly basis
On a daily basis
Every 2 days
Every 3 days
UnAttempted
CORRECT ANSWER:
On a 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.
Q The facility for lending and borrowing securities is usually
40.
necessary for smooth execution of ________ .
Cash and carry arbitrage
Reverse cash-and-carry arbitrage
Cross-hedge using futures
Calendar spread using futures
UnAttempted
CORRECT ANSWER:
Reverse cash-and-carry arbitrage
Explanation:
Usually the futures prices are higher than cash market prices. The reverse cash-
and-carry arbitrage is done when the futures contract are lower than the cash
market price. For eg. Reliance Industries Ltd. is trading at Rs 2050 in the cash
market and Rs. 2000 in futures market. The arbitrageur will sell in the cash market
at Rs 2050 and buy in the future market at Rs 2000, thus making a profit of Rs 50
(less expenses).
The arbitrageur should have the stock to deliver in the cash market, which will be
bought back at the time of reversing the position. If stock is not available,
arbitrageur needs to borrow the stock to implement the arbitrage. Therefore,
existence of a facility for lending and borrowing securities is required for smooth
execution Reverse cash-and-carry arbitrage.
Q Identify the strategy which will be most appropriate when

41.
volatility is expected to be very low.
Short Straddle
Short Butterfly
Long Butterfly
Long Straddle
UnAttempted
CORRECT ANSWER:
Short Straddle
Explanation:
Short Straddle Strategy - Here, the trader’s view is that the price of underlying
would not move much or remain stable (Low volatility). So, he sells a call and a
put so that he can profit from the premiums received.
Q Identify the TRUE statement with respect to Option Spreads.

42.
A bullish call spread will result in an initial cash inflow for the trader
A bearish call spread will result in an initial cash inflow for the trader
A bullish put spread will result in an initial cash outflow for the
trader
A bearish put spread will result in an initial cash inflow for the trader
UnAttempted
CORRECT ANSWER:
A bearish call spread will result in an initial cash inflow for the trader
Explanation:
In a bearish call spread, there is a net in-flow of premium when the spread is
initiated. A bear call spread is achieved by simultaneously selling a call option
and buying a call option at a higher strike price but with the same expiration date.
The maximum profit to be gained using this strategy is equal to the credit received
when initiating the trade.
(In a bearish put spread and bullish call spread there is a net out-flow of premium
when the spread is initiated. In a bullish put spread, there is a net in-flow of
premium when the spread is initiated.)
Q In India, when the option holder exercises a call option on an
43.
equity stock, _________ .
The option holder will receives cash amount equal to excess of spot
price (at the time of exercise) over the strike price of the option
The option holder buys the underlying stock from the option writer
at a pre-specified price
The option holder receives cash amount equal to excess of strike
price of the call option over the spot price (at the time of exercise)
The option holder sells the underlying stock to the option writer at a
pre-specified price
UnAttempted
CORRECT ANSWER:
The option holder buys the underlying stock from the option writer at a pre-
specified price
Explanation:
Unlike index options, stock options are settled by physical delivery. All long ITM
options are automatically assigned by the exchange on the expiry day to short
positions in option contracts with the same series on a random basis. The final
settlement takes place by physical delivery in accordance with the settlement
schedule of the clearing corporation.
Q Trader A wants to sell 20 contracts of August series at Rs 4500

44.
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?
5,02,050
2,70,000
4,10,000
2,32,050
UnAttempted
CORRECT ANSWER:
5,02,050
Explanation:
Payment of Initial Margin by a broker cannot be netted against two or more clients.
So he will have to pay the margin for the open position of each of his clients.
So margin payable for Trader A is : 20 x 4500 x 50 (Lot size) at 6% = Rs 2,70,000
Margin payable for Trader B is : 17 x 4550 x 50 (Lot size) at 6% = Rs 2,32,050
Total = Rs 5,02,050.
Q State whether True or False - A trading member of a

45.
derivatives exchange can clear his trades through a Clearing
member, who may or may not be a Professional clearing
member.
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
There are Trading cum Clearing Members on an Exchange. They are Clearing
Members who are also Trading Members of the exchange. Such Clearing Members
may clear and settle their own proprietary trades, their clients' trades as well as
trades of other Trading Members and Custodial Participants.
Q A trader has a short position in a futures contract. If prices of

46.
this futures contract increases, than the mark-to-market
margin account of the trader will be ______ .
Credited for the loss
Credited for the gain
Debited for the loss
Debited for the gain
UnAttempted
CORRECT ANSWER:
Debited for the loss
Explanation:
In a short position, if the price increases, there is a loss. So, the mark to market
margin will be debited.
Q A Mutual Fund manager has collected Rs. 300 crores from a

47.
New Fund Offer. He is planning to invest this amount over the
next one month in buying 20 selected stocks. How can he
hedge the risk for this planned purchase of stocks?
He can execute a long hedge using index futures
He can execute a short hedge using index futures contracts on
each of the 20 stocks
He can execute a short hedge using index futures
He can execute a long hedge using put options on each of the 20
stocks
UnAttempted
CORRECT ANSWER:
He can execute a long hedge using put options on each of the 20 stocks
Explanation:
A long hedge can be created for all the 20 stocks using put options as follows :
The fund manager sells the put options of the 20 stocks as per required quantity.
He has now locked his prices. If the price falls, he can buy them in the spot market
(at lower prices) and square up his put options at a loss.
If the prices rise, he squares up is options at a profit and buys in the spot market
at a higher price.
Therefore, in both the situations, his purchase price is not affected.
Q Default risk is also known as ________ .

48.
Credit Risk
Counterparty Risk
Both of the above
None of the above
UnAttempted
CORRECT ANSWER:
Both of the above
Explanation:
Counterparty risk is the risk arising out of the default of a counterparty to the
transaction. It is the risk of an economic loss from the failure of the counterparty
to fulfil its contractual obligation. This risk is also called default risk or credit risk.
It is generally not applicable to clients trading in exchange-traded equity

derivatives because the settlement of such transactions is guaranteed by the
exchange / clearing corporation.
Q What is a 'Stock Option'?

49.
Its a debt instrument
Its a derivative instrument
Its a foreign exchange instrument
Its a money market instrument
UnAttempted
CORRECT ANSWER:
Its a derivative instrument
Explanation:
Stock option: These options have individual stocks as the underlying asset. For
example, option on ONGC, NTPC, etc. These options are derivative instruments.
Q On announcement of the record date for merger/demerger, the
50.
unexpired futures and options contracts on the underlying
securities which are outstanding on the last cum date
________ .
Will compulsorily be settled at the settlement price on the last cum
date
Will continue to be traded till their expiry date
Will be squared up by the broker at the day’s opening price
Will be closed-off by the merged /demerged company at a
predetermined price
UnAttempted
CORRECT ANSWER:
Will compulsorily be settled at the settlement price on the last cum date
Explanation:
On announcement of the record date for merger/demerger, the last cum-date for
merger/demerger would be determined by the Exchange/ Clearing Corporation.
Un-expired contracts in the underlying, which shall cease to exist subsequent to

the merger/demerger, outstanding as on last cum-date shall be compulsorily
settled at the settlement price. The settlement price shall be the last available
closing price of such underlying in the Capital Market segment of the Exchanges,
on the last cum-date.
Q Mr. Sam is a equity fund manager and he is bearish on the
1.
stock market. How will he use this view to create a hedge?
He will sell all his stocks
He will decrease the NAV of his fund
He will sell index futures
He will buy index futures
UnAttempted
CORRECT ANSWER:
He will sell index futures
Explanation:
Mr. Sam is a fund manager which means his fund already has a portfolio of stock.
He thinks that the stock market can fall so he will sell index futures to create a
hedge.
In case the market falls, he will have a loss on his stocks but will earn on his index
futures position.
Q ______ is a deal that produces profit by exploiting a price

2.
difference in a product in two different markets.
Hedging
Trading
Speculation
Arbitrage
UnAttempted
CORRECT ANSWER:
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.
Q The option which gives the holder a right to SELL the

3.
underlying asset on or before a particular date for a certain
price, is called as _________
American Call option
American Put option
European Call option
European Put option
UnAttempted
CORRECT ANSWER:
American Put option
Explanation:
American option: The owner of such option can exercise his right at any time on
or before the expiry date/day of the contract.
A Put Option gives the holder the right to sell the underlying asset on or before a
particular date for a certain price
(European option: The owner of such option can exercise his right only on the
expiry date/day of the contract. In India, Index options are European)
Q A trader takes a short position in call option, but does not take
4.
any offsetting position in the underlying stock. What is this
strategy known as ?
Protective Put strategy
Butterfly strategy
UnAttempted
CORRECT ANSWER:
Explanation:
Naked position in options market simply means a long or short position in any
option contract without having any position in the underlying asset.
When one sells (short) a call it is also known as 'writing' a call.
So the above strategy is - Writing a naked call option.
Q If the price of far month futures is less than the price of near
5.
month futures, it is called as _______ .
Reverse Hedging
Contango
Basis
Backwardation
UnAttempted
CORRECT ANSWER:
Backwardation
Explanation:
If futures price is lower than spot price of an asset or if the far month future
prices are lower than current month futures prices, it is called “Backwardation
market”.
Q Before you take a position in a futures contract, the Exchange

6.
calls for ____ to cover any loss that your position may incur.
Initial Margin
Mark-to-market Margin
Ad-hoc Margin
Call Margin
UnAttempted
CORRECT ANSWER:
Initial Margin
Explanation:
a futures contract is known as the initial margin.
Q The Exercise price of an option is same as its position limit -

7.
State whether True or False?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
up to and each Clearing Member or investor can go up to.
Strike price or Exercise price is the price for which the underlying security may
be purchased or sold by the option holder.
Q Can a Equity oriented mutual fund hedge its equity exposure

8.
by selling index futures?
Yes
No
UnAttempted
CORRECT ANSWER:
Yes
Explanation:
Yes, a mutual fund can sell index futures for hedgeing purposes.
For eg - If a fund manager of an equity mutual fund feels that the stock markets
can fall in the near future, he can hedge his position by selling Nifty / Sensex
futures.
Q When the margins are kept on the lower side, it will attract
9.
more players to join the derivatives market - State True or
False?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
The Clearing Corporation generally keeps the margins for derivatives trading on
the higher side as the risk of losses are high and it wants only financially strong
traders to trade in the market.
If the margins are kept on a lower side, many more traders will start trading in the
derivatives market.
Q Professional clearing member clears the trades of his

10.
associate Trading Member only - State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
Professional clearing member clears the trades of his associate Trading Member
and Institutional clients.
Q Future contracts are not symmetrical with respect to rights &

11.
obligations of the parties involved - State True or False?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
Option contracts are not symmetrical as the buyers and sellers have different
obligations and risk factors. The buyer has limited risk where as seller of an option
has unlimited risk.
On the other hand, obligations and returns in Futures are symmetrical for both
buyer and sellers. Both gain or lose in equal proportion as per the price
movements.
Q An Index Option is ______ .

12.
a derivative product
settled in cash
rarely traded on the Indian stock exchanges
Both 1 and 2
UnAttempted
CORRECT ANSWER:
Both 1 and 2
Explanation:
Index option is a derivative product derived from indices like Nifty, Bank Nifty,
Sensex etc.
Index options are settled only in cash.
Q As per the SEBI Act, the board members of Securities

13.
Exchange Board of India are appointed by _____ .
The Stock Exchanges
The Central Government
The High Court of Mumbai
Securities Appellate Tribunal
UnAttempted
CORRECT ANSWER:
Explanation:
SEBI consists of a Board of Directors who are appointed by the Union Government
of India.
Q The rate of change in option premium for a unit change in

14.
price of the underlying asset is known as Delta - State True or
False ?
False
True
UnAttempted
CORRECT ANSWER:
True
Explanation:
Q Client A has purchased 10 contracts of December series and

15.
sold 7 contracts of January series of the NSE Nifty futures.
How many lots will get categorized as regular (non-spread)
open positions?
3
7
10
17
UnAttempted
CORRECT ANSWER:
Explanation:
Client A has bought and sold the same underlying ie. NSE Nifty futures. So his
risk is limited to the net position which will be his open position.
Here Client A has bought 10 lots and sold 7 lots, so his open position is 3 lots.
Q State True or False - Scarcity of underlying commodity will

16.
generally cause a rise in its futures price.
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
Generally, a shortage / scarcity of any commodity will lead to a rise in the spot as
well as futures prices.
For eg. A drop in the manufacturing of oil by OPEC countries will lead to a rise in
the international oil prices.
Q Functions of a Derivative Market include _____ .

17.
Improving price discovery based on actual valuations and
expectations
Shift of speculative trades from unorganized market to organized
market
Both 1 and 2
None of the above
UnAttempted
CORRECT ANSWER:
Both 1 and 2
Explanation:
Derivatives Market serves following specific functions:
- Derivatives market helps in improving price discovery based on actual

valuations and expectations.
- Derivatives market helps in transfer of various risks from those who are
exposed to risk but have low risk appetite to participants with high risk appetite.
For example hedgers want to give away the risk where as traders are willing to
take risk.
- Derivatives market helps shift of speculative trades from unorganized market

to organized market. Risk management mechanism and surveillance of activities
of various participants in organized space provide stability to the financial
system.
Q The expiry day for June series Index Futures on BSE would be
18.
______ .
Last Thursday in June
Last Thursday in July
Last Thursday in August
Last Thursday in September
UnAttempted
CORRECT ANSWER:
Last Thursday in June
Explanation:
On BSE and NSE, the expiry day is the last Thursday of the expiry month. If the
last Thursday is a trading holiday, then the expiry day is the previous trading day.
Q When a call option on an index is exercised, the option holder

19.
will receive from the option writer, cash amount equal to
excess of spot price (at the time of exercise) over the strike
price of the call option - State True or False?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
A buyer of a Call Option in an index is bullish. On exercise, if the spot price of the
index is over and above the strike price at which the buyer had bought the Call,
he will receive the difference between the spot price and strike price.
(The buyer had also paid the premium while buying the Call. So his actual profit
will be the difference between spot and strike price less the premium paid)
Q At which price can a trader place a bid or offer for a scrip?

20.
At a price which is within the daily circuit filter limits
At a price which the trader wishes
At a price negotiated between the exchange and the member
At a price which the trader deems fit
UnAttempted
CORRECT ANSWER:
At a price which is within the daily circuit filter limits
Explanation:
The buy or sell price cannot be any price which the trader deems fit. It has to be
within the daily circuit filter limits set by the exchange.
Q A fall in the price of Wipro stock will increase the value of the
21.
Wipro call option - State True or False?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
In normal market, price of a call option rises with a rise in the underlying stock
price and the premium falls if the price of the underlying stock falls.
So, if the price of Wipro falls, the value of Wipro call option will also fall.
Q Mr. Sunil places a stop loss sell order on ABC stock with a
22.
trigger price of Rs. 450. The current market price of ABC stock
is Rs 470. The order will be released for execution ______
As soon as the market price of ABC touches Rs. 470
As soon as the order is placed in the system
If similar orders are available in the order book at Rs. 450
UnAttempted
CORRECT ANSWER:
Explanation:
A stop-loss order gets activated when the trigger price is reached and enters the
market as a market order or as a limit order.
In the above question, the trigger price is Rs. 450. So this order will get released
in the system for execution as soon as the price of Rs. 450 is reached.
Q Non Index Option contracts can be settled __________ .

23.
in cash or settled by delivery depending on the terms of the
contract
in cash or settled by delivery depending on the choice of the buyer
in cash or settled by delivery depending on the choice of the seller
None of the above
UnAttempted
CORRECT ANSWER:
in cash or settled by delivery depending on the terms of the contract
Explanation:
Final exercise settlement is effected for all in-the-money option contracts on the
last trading day of an option contract. Long positions at in-the money strike prices
are assigned to short positions in option contracts with the same series at the
client level on a random basis.
For option contracts that are to be cash settled, it is done by debit/credit of

relevant clearing accounts of relevant clearing members with the respective
clearing bank towards the exercise settlement value for each unit of the option
contract and other option contracts are settled through delivery. Open positions
in options shall cease to exist after exercise or on expiration day, as the case may
be.
Q If the clearing / trading member fails to pay the dues, the

24.
clearing corporation can disable the clearing / trading
members from trading - State True or False?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
The Clearing Corporation has powers to levy additional margins, special
margins, define maximum exposure limits and disable brokers from trading.
Q Who appoints the board members of the Securities Exchange

25.
Board of India under the SEBI Act ?
Maharashtra Government as SEBI is situated in Mumbai
The President of India
The Stock Exchanges
UnAttempted
CORRECT ANSWER:
Explanation:
SEBI consists of a Board of Directors who are appointed by the Union Government
of India.
Q You sold one ABC stock futures contract at Rs.268 and the lot
26.
size is 1,500. What is your profit (+) or loss (-), if you purchase
the contract back at Rs.274?
+9000
+18000
-9000
-18000
UnAttempted
CORRECT ANSWER:
-9000
Explanation:
When you sell a stock future contract you make a profit if the share price falls or
you make a loss if the price rises and you buy back the contract.
In this case, ABC stock futures has risen by Rs. 6 (274 - 268). So there will be a
loss.
Rs. 6 x 1500 (Lot size) = Loss of Rs 9000
Q Institutional investors pay lower margins than the individual

27.
investors for derivatives trading - State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
The margin requirement is same for both individual investors and institutional
investors.
Q A person who provides two way quotes for various stocks is

28.
known as _____ .
Arbitrageur
Speculator
Hedger
Market Maker
UnAttempted
CORRECT ANSWER:
Market Maker
Explanation:
A market maker or liquidity provider is a company or an individual that quotes

both a buy and a sell price in a financial instrument hoping to make a profit on the
bid-offer spread.
Q ______ can write an option in the Indian stock market .
29.
Common individuals
Market makers
Foreign Financial Institutions (FII)
All of the above
UnAttempted
CORRECT ANSWER:
All of the above
Explanation:
All of the above can write (sell) options in Indian stock market.
Q In case of forward contracts, the rules regarding the minimum

30.
amount by which the price would change and the price limits
are specified by an authority - State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
In a Forward Contract, there is no such authority. Forward contract is agreement

between two parties to buy/sell an underlying asset and no other authority like a
Stock Exchange or SEBI is involved.
Q Foreign Exchange can be a part of liquid assets to be
31.
maintained by Clearing Members with the clearing corporation
- State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
Liquid assets can comprise of Cash, Bank Guarantees, Govt. Securities etc. but
not foreign exchange.
Q The volatility estimation methodology is known only to the

32.
Clearing Corporation and not to others - State True or False?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
of the underlying stock, higher the premium.
Calculation of volatility is not a secret. There are many formulas available. For
example, many option traders calculate this expected volatility by running the
Black-Scholes model in the reverse order.
Q If the futures price is rising but open interest is declining, it

33.
indicates _______ .
Short Covering
Long positions are being squared up
Flat trend
Very Volatile trend
UnAttempted
CORRECT ANSWER:
Short Covering
Explanation:
If the futures price is rising but open interest is declining, it indicates short-
covering. It usually indicates that existing short positions are being squared up.
Q _______ is an order with a Time Condition.

34.
Stop-Loss order
Good till cancelled order
Market order
Limit order
UnAttempted
CORRECT ANSWER:
Good till cancelled order
Explanation:
Good Till Cancel (GTC) is a type of order that enables client to place buying and
selling orders with specifying time interval for which instruction of request
remains valid. The maximum validity of a GTC order is 365 days.
Q Miss Tanisha has gone short on October Futures on ABC

35.
stock at 2300. She will make a profit if futures price move to
_______ .
2250
2350
2325
2450
UnAttempted
CORRECT ANSWER:
2250
Explanation:
A short futures position will be profitable if the price falls below the sale price. In
the above question, the sale price is Rs 2300. Therefore, when the futures price
falls to Rs 2250, there will be profits.
Q What does Value-at-risk measures?

36.
value of a volatile portfolio
Risk level of a financial portfolio
Value of illiquid shares portfolio
Index PE value
UnAttempted
CORRECT ANSWER:
Explanation:
Value at Risk calculates the expected maximum loss, which may be incurred by
a portfolio over a given period of time and specified confidence level.
Q Mr. Nayar has purchased 8 contracts of March series and sold

37.
6 contracts of April series of the NSE Nifty futures. How many
lots will get categorized as Regular (non-spread) open
positions?
14
8
2
6
UnAttempted
CORRECT ANSWER:
Explanation:
Various future contract position in the same underlying ( even at various expiry
dates ) are netted off before arriving at open position. Here in this case its 8 - 6 =
2.
This is because a long and a short position in the same underlying will have no
risk (if one will make profit, the other will be in a simillar loss) and only the open
position will have the risks and margins will be collected from these open
positions.
Q Who can clear trades in index options?

38.
All AMFI and IRDA members
Members of a stock exchange
Members and sub brokers of the stock exchange
Clearing members registered in the derivatives segment.
UnAttempted
CORRECT ANSWER:
Clearing members registered in the derivatives segment.
Explanation:
Clearing and settlement activities in the F&O segment are undertaken by Clearing
Corporation with the help of Clearing Members and Clearing Banks.
Exercise settlement in respect of admitted deals in index option contracts are

cash settled by debit/credit of the clearing accounts of the relevant clearing
members with the respective clearing bank. Index option contracts, which have
been exercised, shall be assigned and allocated to clearing members at the client
level with the same series.
Q Cost of carry model means price of futures is equal to _______

39.
.
Spot price + Cost of Carry
Spot Price
Cost of Carry
Spot price – Cost of Carry
UnAttempted
CORRECT ANSWER:
Spot price + Cost of Carry
Explanation:
Cost of Carry is the relationship between futures prices and spot prices. For stock
derivatives, carrying cost is the interest paid to finance the purchase.
For example, assume the share of XYZ Ltd is trading at Rs. 200 in the cash market.
A person wishes to buy the share, but does not have money. In that case he would
have to borrow Rs. 200 at the rate of, say, 12% per annum. So 1% ie. Rs 2 ( 1% of
Rs 200) is the per month interest cost. and this Rs 2 is the cost of carry.
The future price (ideally) at the beginning of month will be Spot Price + Cost of
Carry ie. Rs 200 + Rs 2 = Rs 202.
Q As per SEBI rules , a stock broker can be suspended from the

40.
derivatives segment if ________ .
he violates the conditions of registration
he is suspended by the stock exchange
he fails to pay fees
Any of above
UnAttempted
CORRECT ANSWER:
Any of above
Explanation:
A penalty or suspension of registration of a stock - broker under the SEBI (Stock
Broker & Sub - Broker) Regulations, 1992 can be ordered if:
• The stock broker violates the provisions of the Act
• The stock broker does not follow the code of conduct
• The stock broker fails to resolve the complaints of the investors
• The stock broker indulges in manipulating, or price rigging or cornering of the
market
• The stock broker’s financial position deteriorates substantially
• The stock broker fails to pay fees
• The stock broker violates the conditions of registration
• The stock broker is suspended by the stock exchange
Q In case of Bonus shares, the new option strike price is arrived

41.
at by ______ the old strike price by the adjustment factor.
adding
dividing
subtracting
multiplying
UnAttempted
CORRECT ANSWER:
dividing
Explanation:
In case of Bonus, Stock Splits and Consolidations. the new strike price for option
contracts is arrived at by dividing the old strike price by the adjustment factor.
Q Mr Gautam has sold a put option with strike of Rs.650 at a
42.
premium of Rs.60. What is the maximum gain per share that he
may have on expiry of this positon?
650
590
60
0
UnAttempted
CORRECT ANSWER:
60
Explanation:
The maximum a seller of an option (either CALL or PUT) can gain is the premium
he receives. In this case Mr. Gautam is receiving Rs 60 per share as premium and
that can be his maximum profit.
Q Can clients position be netted off against each other while

43.
calculating initial Margin on the derivatives segment.
No
Yes
UnAttempted
CORRECT ANSWER:
No
Explanation:
Each clients open position is taken separately for calculating the initial margin.
Positions of two or more clients cannot be netted off against each other for
calculation of initial margin.
For eg - If Mr A has bought 10 contracts of Nifty and Mr B has sold 4 contracts of

Nifty, then the broker has to pay the initial margin on 14 contracts and not 6
contracts.
Q If a person buys a share in one market and the simultaneously

44.
sells in a different market to benefit from differentials is known
as_________.
Long trading
Arbitrage
Speculation
Jobbing
UnAttempted
CORRECT ANSWER:
Arbitrage
Explanation:
Arbitrage means the simultaneous purchase and sale of an asset in order to profit
from a difference in the price.
It is a trade that profits by exploiting price differences of identical or similar

financial instruments, on different markets.
For example- If SBI is quoted on NSE at Rs 200 and on BSE there is a buyer at Rs
203, then the arbitrageur will buy on NSE and sell on BSE and Rs 3 (less brokerage
etc.) will be is profit.
Arbitrage exists as a result of market inefficiencies; it provides a mechanism to

ensure prices do not deviate substantially from fair value for long periods of time.
Q Three Call series of same strike price of State Bank of India
45.
stock-June, July and August are quoted. Which will have the
lowest option premium ?
Same premium for all
June
July
August
UnAttempted
CORRECT ANSWER:
June
Explanation:
The series closest to current date will have the lowest premium due to low time
value of money ( so lower interest costs ).
Q If a trader does a calendar spread in index futures and the near

46.
leg of the calendar spread expires, the Further leg becomes a
regular open position. True or False ?
True
False
UnAttempted
CORRECT ANSWER:
True
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 Are Broker-Members allowed on the Clearing Council of the

47.
Clearing Corporation of the derivatives segment ?
Yes
No
UnAttempted
CORRECT ANSWER:
No
Explanation:
No, broker members are not allowed on the Clearing Council of the Clearing
Corporation of the derivatives segment.
Q Margins in futures trading are applicable to -

48.
Only Institutional players.
Both the buyer and the seller
Only the buyer
Only the Seller
UnAttempted
CORRECT ANSWER:
Both the buyer and the seller
Explanation:
In a futures market margins are payable by both the parties.
Q Mr R wants to sell 17 contracts of January series at Rs.4550

49.
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?
Rs 3,48,075
Rs 4,05,000
Rs 5,87,500
Rs 7,53,075
UnAttempted
CORRECT ANSWER:
Rs 7,53,075
Explanation:
The Broker has to collect -
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
Q If the price of a stock is volatile, then the option premium

50.
would be relatively ______.
Lower
Higher
No effect of volatility
zero
UnAttempted
CORRECT ANSWER:
Higher
Explanation:
Higher volatility means higher risk and higher risk means one has to pay a higher
premium.
Q 1. Can Professional Clearing members act only on behalf of
institutional clients ?
Yes
No
UnAttempted
CORRECT ANSWER:
No
Explanation:
and institutional clients.
Q 2. Trading members shall maintain a higher level of Book

networth than the clearing members - State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
Clearing Members have to maintain higher book networth than trading members.
Q 3. If you have a long or short position in a futures contract, this
can be closed by initiating a reverse trade - True or False ?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
Closing a position means either buying or selling a contract, which essentially
results in reduction of client’s open position (long or short). A client is said to
be closed a position if he sells a contract which he had bought before or he
buys a contract which he had sold earlier.
Q 4. The idea and economic rational of introducing forward

contracts is to________ .
help arbitrage
help trading
help hedgeing
both 1 and 3
UnAttempted
CORRECT ANSWER:
help hedgeing
Explanation:
The essential idea of entering into a forward is to fix the price and thereby avoid
the price risk. By entering into forwards, one is assured of the price at which one
can buy/sell an underlying asset.
Thus Forward contracts are basically meant for hedgeing / managing the risks.
Q 5. As per Accounting Standards, the initial margin paid by an

option seller is shown under ___________ in the balance
sheet
Bad Debts
Fixed Assets
Current Assets
Current Liabilities
UnAttempted
CORRECT ANSWER:
Current Assets
Explanation:
The seller/ writer of the option is required to pay initial margin for entering into
the option contract and its should be debited to an appropriate account, say,
"Equity Index/ Stock Option Margin Account".
In the balance sheet, such account should be shown separately under the head
"Current Assets".
Q 6. A person who is bullish and a payer of premium is a

____________.
buyer of call option
seller of call option
buyer of put option
seller of put option
UnAttempted
CORRECT ANSWER:
buyer of call option
Explanation:
A buyer of a Call is bullish and believes that the price will rise. He pays a premium
which is his maximum loss but the profits can be unlimited.
Q 7. Investor Mr. X wants to sell 11 contracts of Feb series at

Rs.6300 & investor Mr. Y wants to sell 13 contracts of March
series at Rs.6450. 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 margin of X and Y) by the broker?
Rs 251550
Rs 459450
Rs 640000
Rs 374900
UnAttempted
CORRECT ANSWER:
Rs 459450
Explanation:
Margin from Mr. X
Rs 6300 X 11 contracts X 50 (lot size) X 6% = 207900
Margin from Mr. Y
Rs 6450 X 13 contracts X 50 (lot size) X 6% = 251550
Total Margin = 207900 + 251550 = 459450.

Q 8. A trader has taken a short position of one contract in Sept
ABC futures (contract multiplier 50) at a price of Rs.1800.
When he closed this position after a few days, he realized that
he has made a profit a Rs.5000. Which of the following closing
actions would have enabled him to generate the profit?(
Please ignore brokerage costs) .
Buying 1 Sept ABC futures contract at 1900
Selling 1 Sept ABC futures contract at 1900
Selling 1 Sept ABC futures contract at 1700
UnAttempted
CORRECT ANSWER:
Explanation:
To make a profit of Rs 5000, he has to earn Rs 100 per share ( 5000 / 50 (lot size)
= 100 )
Since he has gone short, he will make a profit when the price falls and he buys at
the reduced price.
He has sold at Rs 1800, so when he buys back at Rs 1700 he make Rs 100 profit
per share.
Rs 100 X 50 ( Lot size ) = Rs 5000 profit.
Q 9. The option which gives the holder a right to buy the

underlying asset on or before a particular date for a certain
price, is called as _________
European put option
American put option
American call option
European call option.
UnAttempted
CORRECT ANSWER:
American call option
Explanation:
In case of American options, buyers can exercise their option any time before the
maturity of contract.
In case of European options, owner of such option can exercise his right only on
the expiry date/day of the contract.
Q A call option gives the holder a right to buy how much of the
10.
underlying from the writer of the option?
The specified quantity or less than the specified quantity
The specified quantity or more than the specified quantity
None of the above
UnAttempted
CORRECT ANSWER:
Explanation:
Only the specified quantity as per the lot size of the option contract.
Q Which of the following is closest to the forward price of a
11.
share if cash price is Rs 425, forward contract maturity=12
months from date, market interest rate 12%
425
482
476
437
UnAttempted
CORRECT ANSWER:
476
Explanation:
12 months maturity means full one year of interest cost.
So 12% of 425 = 425 x 12 / 100 = 51
425 + 51 = 476 is closest to the one year forward price
Q A trader is very bearish on specific companies. However he is

12.
bullish on the market as a whole. Which of the following is the
most appropriate strategy to take advantage from this view?
sell the shares of those specific companies in futures and also sell
index futures
sell the shares of those specific companies in futures and buy
index futures
buy the shares of those specific companies in futures and sell
index futures.
do nothing
UnAttempted
CORRECT ANSWER:
sell the shares of those specific companies in futures and buy index futures
Explanation:
The trader should sell the shares of those specific companies in futures and buy
index futures. By this he will profit when the stock prices of those specific
companies fall and index rises - if his view proves correct.
Q The concept in which the derivative trader gets a higher

13.
exposure for the small portion of margin amount brought by
him is called as ___________ .
Arbitrage
Leverage
Delta Hedgeing
Speculation
UnAttempted
CORRECT ANSWER:
Leverage
Explanation:
A trader in the future’s market pays a relatively small margin for market exposure
in relation to the contract value. This is known as leverage.
Q Which of the following problem(s) that exist in the forward

14.
contracts are solved by the Futures contracts ?
a central agency for monitoring
settlement problems
counter party risk
all of the above
UnAttempted
CORRECT ANSWER:
all of the above
Explanation:
two parties to the contract. There is a risk of an economic loss from the failure of
counterparty to fulfil its contractual obligation.
Futures markets were innovated to overcome the limitations of forwards. A

futures contract is an agreement made through an organized exchange. The
clearing corporation associated with the exchange guarantees settlement of
these trades.
Q Loss incurred on derivatives transactions can be carried

15.
forward for a period of 12 assessment years - State whether
True or False ?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
Loss incurred on derivatives transactions which are carried out in a recognized
stock exchange can be carried forward for a period of 8 assessment years.
Q A short position in a CALL option can be closed out by taking

16.
a long position in a PUT option with same exercise date and
exercise price - State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
A short position in a CALL option can be closed out by taking a long position in
a same CALL option with same exercise date and exercise price.
Q Which of the following complaints can be taken up by the

17.
exchange for redressal ?
Claims for notional loss, opportunity loss for the disputed period or
trade
Complaints pertaining to trades not executed on the Exchange by
the complainant
Claims of sub-broker/authorized persons for private commercial
dealings with the trading member
Excess Brokerage charged by Trading Member / Sub-broker
UnAttempted
CORRECT ANSWER:
Excess Brokerage charged by Trading Member / Sub-broker
Explanation:
Exchanges provide assistance if the complaints fall within the purview of the
Exchange and are related to trades that are executed on the Exchange Platform.
Excess Brokerage charged by Trading Member / Sub-broker comes under this
assistance.
Q Mr. Ravi purchases 10 call option on stock at Rs. 20 per call

18.
with strike price of Rs 350. If on exercise date, stock price is
Rs. 310, ignoring transaction cost, Mr. Ravi will
choose___________
to exercise the option
not to exercise the option
may or may not exercise the option depending on whether he likes
the company or not
may or may not depending on whether he is in town or not
UnAttempted
CORRECT ANSWER:
not to exercise the option
Explanation:
Mr. Ravi has bought a Call Option assuming that the price will rise.
The price has fallen and he is in a loss. So he will choose not to exercise his
option.
His loss is restricted to the premium he has paid.
Q Trading members are required to possess a higher level of

19.
Capital Adequacy (as per balance sheet) than clearing
members- True or False ?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
Clearing Members are permitted to settle their own trades as well as the trades of
the other non-clearing members known as Trading Members who have agreed to
settle the trades through them.
Thus the Capital Adequacy requirement is higher for Clearing Members.
Q A trader sold a call option on a share of strike price Rs. 200

20.
and received a premium of Rs. 12 from the option buyer. What
can be his maximum loss on this position ?
Rs 200
Rs 188
Rs 12
Unlimited
UnAttempted
CORRECT ANSWER:
Unlimited
Explanation:
When a trader sells a Call option he is bearish / neutral on that scrip.

But in case the price rises, he makes losses and theoretically price can rise to
any levels - so his losses can be unlimited.
In this eg, he has sold Rs 200 call at Rs 12. In case the price rises, the call price
will also rise and theoretically it can rise to any levels leading to 'unlimited
losses'
Q Securities Transaction Tax (STT) is levied on ________.

21.
Purchase of Equity Shares
Sale of Derivatives
Purchase of Derivatives
Only 1 and 2
UnAttempted
CORRECT ANSWER:
Only 1 and 2
Explanation:
STT is levied on transactions involving equity, derivatives and equity oriented

mutual funds.
It is levied on purchase and sale of equity shares.
STT is applicable only on all sell transactions for both futures and option
contracts.
Q The contract size in futures market is defined by

22.
____________
The Stock Brokers
The Stock Exchange
The Parties to the contract
SEBI
UnAttempted
CORRECT ANSWER:
The Stock Exchange
Explanation:
The Contract size (Lot size) is specified by the exchange. (minimum value of Rs
5,00,000).
Q In Options - the seller of an contract pays an upfront premium

23.
at the time of entering into the contract - State whether True or
False ?
True
False as the premium is paid on maturity
False as the premium is paid by the buyer and not the seller
None of the above
UnAttempted
CORRECT ANSWER:
False as the premium is paid by the buyer and not the seller
Explanation:
In Options (Both Call and Put), the premium is paid by the buyer of options and
not the seller of options. The seller receives the premium.
Q In case of _______ , the gain or loss is realised on daily basis
24.
due to mark-to-market mechanism.
Swaps
Forward contracts
Future contracts
Option contracts
UnAttempted
CORRECT ANSWER:
Future contracts
Explanation:
Futures contracts have two types of settlements: (A) the mark-to-market (MTM)
settlement which happens on a continuous basis at the end of each day, and (B)
the final settlement which happens on the last trading day of the futures contract.
Mark to Market (MTM) is a process by which margins are adjusted on the basis of
daily price changes in the markets for underlying assets.
(Options contracts have two types of settlements: Daily premium settlement and
Final settlement)
Q A calendar spread in index futures is treated as _________ in

25.
a far month contract when the near months contract is
expired.
long position
hedged position
naked position
Short position
UnAttempted
CORRECT ANSWER:
naked position
Explanation:
A calendar spread becomes a naked/open position, when the near month contract
expires or either of the legs of spread is closed.
Q The main objective of derivatives is to enable market

26.
participants to ___
Trade
Manage the risks
Speculate
Arbitrage
UnAttempted
CORRECT ANSWER:
Manage the risks
Explanation:
Derivatives market helps in transfer of various risks from those who are exposed
to risk but have low risk appetite to participants with high risk appetite. For
example, hedgers want to give away the risk where as traders are willing to take
risk.
Q Higher the interest rate, the higher the CALL option premium -
27.
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
High interest rates will result in an increase in the value of a call option and a
decrease in the value of a put option.
Q A Buyer or holder of the option is the party to the contract

28.
who has __________.
the obligation but not the right
the right but not the obligation
the right and the obligation
None of the above
UnAttempted
CORRECT ANSWER:
the right but not the obligation
Explanation:
A Call option gives the buyer the right, but not the obligation to buy the underlying
at the strike price.
A put option gives the buyer of the option the right, but not the obligation, to sell
the underlying at the strike price.
Q The Trading members on the exchanges derivatives segment
29.
are not required to be registered with SEBI.- State whether
True or False ?
False
True
UnAttempted
CORRECT ANSWER:
False
Explanation:
SEBI has powers for Registering and regulating the working of stock brokers,
sub–brokers, etc. A trading member / stock broker has to register with SEBI and
Stock Exchanges.
Q A unique principle of futures trading makes trading possible

30.
for those who do not want to make or take delivery of
underlying assets. Which is that principle ?
Traded on a recognised exchange
Price uncertainty
Standardisation of contracts
Cash settlement
UnAttempted
CORRECT ANSWER:
Cash settlement
Explanation:
In a cash settlement method, the parties to a transaction settle by receiving or

paying the gains or losses related to a contract in cash (ie. money transfer)
Q On the National Stock Exchange, for its index futures, what

31.
would be the opening day of its April series?
Last Friday of March month
Last Friday of April month
Last Friday of Jan month
Last Friday of February month
UnAttempted
CORRECT ANSWER:
Last Friday of Jan month
Explanation:
There are 3 series of index futures active all the time. A new series is introduced
as the older series expires.
Lets assume the Jan, Feb and March series are active currently.
On the last Thursday of Jan, the Jan series will expire.
So that next day ie. on the last Friday of Jan, the April series will be activated.
This will be the opening day for April series. Thus we will have three series active
ie. Feb, March and April.
Q Operational risks include losses due to______

32.
natural calamities
inadequate contingency planning
power failure
all of the above
UnAttempted
CORRECT ANSWER:
inadequate contingency 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 The total number of outstanding / unsettled contracts in the

33.
market, at any point of time is known as “OPEN INTEREST” -
True or False ?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
An open interest is the total number of contracts outstanding (yet to be settled)

for an underlying asset.
Q The clearing corporation may utilize the client account
34.
margins deposited with it for fulfilling the dues which a
clearing member may owe to the clearing corporation for the
trades on the clearing members own account. State True or
False ?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
Clients money cannot be used by the Clearing or Trading member for his trades.
Q A clearing member has deposited eligible liquid assets of

35.
Rs.75 lacs. The exchange has minimum liquid net worth
requirement of Rs. 50 lakhs. The member has not entered into
any transactions so far. What is the margin available for
trading. (in lakhs)
75
50
25
125
UnAttempted
CORRECT ANSWER:
25
Explanation:
Liquid Networth is defined as Liquid Assets minus Initial Margin.
In above case he has deposited Rs 75 lakhs as liquid assets. Rs 50 lakhs is

the requirement, so the balance Rs 25 lakhs will be used as initial margin.
Q Is it true that an efficient cash market is required for an

36.
efficient futures market ? Yes or No ?
Yes
No
UnAttempted
CORRECT ANSWER:
Yes
Explanation:
The prices of futures are derived from the underlying cash market prices. So an
efficient cash market is required for an efficient futures market.
Q If the price of a future contract increases, the mark to market

37.
margin account of the holder of the short position in that
contract is credited for the gain. State whether True or False ?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
In a short position, if the price increases, there is a loss. So, the mark to market
margin will be debited.
Q The absolute amount of minimum capital adequacy

38.
requirement for derivative brokers is same as that for cash
market - True or False ?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
The absolute amount of minimum capital adequacy requirement for derivative

brokers/dealers has to be much higher than for cash market.
Further, if a broker/dealer is involved both in cash and futures segments, or in

several exchanges, the capital adequacy requirement should be satisfied for each
exchange/segment separately.
Q Change in option premium for a unit change in ________ is

39.
known as Rho.
market volatility
Price of the underlying asset
Risk free interest rate
liquidity
UnAttempted
CORRECT ANSWER:
Risk free interest rate
Explanation:
free interest rate.
Q The ask price is the price at which___

40.
the clearing corporation settles the transaction
the trader is prepared to sell the share
the trader is prepared to purchase the share
the trader is prepared to either buy or sell the share
UnAttempted
CORRECT ANSWER:
the trader is prepared to sell the share
Explanation:
BID ASK price means Buyer and Seller price - eg Rs 100 - 101
So Ask price is the price at which the trader is prepared to sell the share.
Q In India, futures and options on individual stocks are allowed
41.
on__________.
A few selected stocks only
All stocks listed on any of the exchanges
All stocks with stock price of more than Rs.100 or Rs 50 in A and B
group resp.
Only those stocks which are simultaneously listed on all the stock
exchange in India
UnAttempted
CORRECT ANSWER:
A few selected stocks only
Explanation:
Only those stocks are included to be traded in the derivatives segment which
meet the SEBI / Exchange criteria for derivatives trading.
Q Higher the price volatility, higher would be the initial margin

42.
requirement - State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
If the price of a stock is very volatile, the risk of losses increases. So the Stock
Exchanges collect higher initial margins in such cases.
Q In a derivative exchange, the net worth requirement for a

43.
clearing member is higher than that of a non-clearing member
(ie. a member who only clears his trades).
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
Clearing Member Eligibility Norms : Net-worth of at least Rs.300 lakhs.
The Net-worth requirement for a Clearing Member who clears and settles only
deals executed by him is Rs. 100 lakhs.
Q Money and securities deposited by clients with the trading

44.
members should be kept by them in a separate clients
account - True or False ?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
As per SEBI reules - Brokers should keep margins collected from clients in a
separate bank account.
They should maintain separate client bank account for segregation of client
money.
Q All active members of the Exchange are required to make

45.
initial contribution towards Trade Guarantee Fund of the
Exchange - State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
Main objectives of Trade Guarantee Fund (TGF):
- To guarantee settlement of bonafide transactions of the members of the

exchange.
- To inculcate confidence in the minds of market participants.
- To protect the interest of the investors in securities.
All active members of the Exchange are required to make initial contribution
towards Trade Guarantee Fund of the Exchange.
Q An increase in the interest rates will lead to _________.

46.
increase the premium on put options
decrease the premium on put options
No effect on put options
Expiration of the option automatically
UnAttempted
CORRECT ANSWER:
decrease the premium on put options
Explanation:
High interest rates means high cost of capital and this will result in an increase
in the value of a call option and a decrease in the value of a put option.
Q In a forward contract, the party that’s agrees to sell the

47.
underlying asset on a certain specified date for a certain
specified price is said to have assumed_______
A long position
a square off position
a short position
a trade off position
UnAttempted
CORRECT ANSWER:
a trade off position
Explanation:
Trade off basically means- an exchange where you give up one thing in order to
get something else. In a forward contract for eg - the farmers sells his crop two
months hence in exchange of some amount of money.
Q Mr. Hitesh is a trading member. One of his clients has
48.
purchased 12 contracts of March series index futures and
another client as has sold 10 contracts of March series index
futures. The exposure of Mr. Hitesh as trading member is
________.
grossed up at 22 contracts
netted out at 2 contracts
maximum of 10 and 12 which is 12 contracts
The Exchange will decide to either gross up or net out the
exposure depending upon his past record
UnAttempted
CORRECT ANSWER:
grossed up at 22 contracts
Explanation:
The open position of all the clients of a trading member are grossed up to arrive
at the total exposure of the trading member.
Q In case of Call options, if the market price is less than the

49.
exercise (strike) price, the option will __________.
expire worthless
seller of the option will exercise it
will definitely get exercised
none of the above
UnAttempted
CORRECT ANSWER:
expire worthless
Explanation:
If market price is below strike price, the option expires worthless as the buyer will
incur the maximum loss of his premium paid and the seller will earn the premium
received.
Q Does the difference between exercise price of the option and

50.
spot price affects option premium ? State Yes or No.
Yes
No
UnAttempted
CORRECT ANSWER:
Yes
Explanation:
The Option premium is a combination of intrinsic value and time value and other
factors.
The Intrinsic value is difference between Spot and Exercise Price (Strike Price).
Exercise price remains constant whereas the Spot price fluctuates.
So the option premium will fluctuate as per the movement in Spot price.
Q A high initial margin level improves solvency & financial

51.
capability of the clearing corporation - True or False ?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
Higher initial margin collection from trading members reduces the chances of
their defaults thus improving the solvency & financial capability of the clearing
corporation.
Q An American put option gives the buyer the right but not the
52.
obligations to sell to the writer an underlying asset at a
specified price on or before the expiry date - State whether
True or False ?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
The owner of American option can exercise his right at any time on or before the
expiry date/day of the contract.
The owner of European option can exercise his right only on the expiry date/day
of the contract.
Q State True or False - A futures contract is usually referred to

53.
by its delivery month.
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
A key characteristic of a futures contract that designates when the contract

expires and when the underlying asset must be delivered. The exchange on the
futures contract is traded will also establish a delivery location and a date within
the delivery month when the delivery can take place.
Not all futures contracts require physical delivery of a commodity, and many are
settled in cash.
Delivery Month is also referred to as "contract month."
Q Mr A sold a put option of strike Rs.400 on PQR stock for a

54.
premium of Rs.32. The lot size is 500. On the expiry day, PQR
stock closed at Rs. 350. What is your net profit or loss?
-25000 (Loss)
-9000 (Loss)
9000 (Profit)
25000 (Profit)
UnAttempted
CORRECT ANSWER:
-9000 (Loss)
Explanation:
Mr. A sold a PUT option, that means he has a bullish or neutral view on PQR stock.
However, PQR stock has fallen by Rs 50 ( 400 - 350 ).
Which means he has lost Rs 50.
Since he has sold a PUT, he will receive the premium which is Rs 32.
So his net loss will be Rs 50 (Loss) - Rs 32 (Premium Recd) = Rs 18
Total Loss = Rs 18 x 500 (lot size) = Rs. 9000
Q In an Index Futures contract, the tick size is 0.2 of an index

55.
point & the index multiple is Rs 50, then ‘a tick’ is valued
at_______.
Rs 50
Rs 100
Rs 10
Rs 2.50
UnAttempted
CORRECT ANSWER:
Rs 10
Explanation:
Rs 50 X 0.2 = Rs 10.
Each tick movement will result in profit or loss of Rs 10 for the Index buyer or
seller resp.
Q The securities which are placed by clearing members with the

56.
clearing corporation as a part of liquid assets are __________
.
marked to market on a periodical basis
is not marked to market as they are blue chip shares
may or may not be marked to market depending on the decision of
the Stock Exchange
None of the above
UnAttempted
CORRECT ANSWER:
marked to market on a periodical basis
Explanation:
As per Prof. J. R. Verma Committee recommendations the securities placed with

the Clearing Corporation shall be marked to market on a periodical basis (weekly).
Q Contract month means_____

57.
Month in which the transaction is done
Month of expiry of the futures contract
Month of beginning of the futures contract
None of the above
UnAttempted
CORRECT ANSWER:
Month of expiry of the futures contract
Explanation:
Contract month is the maturity month of the contract.
For eg - A trader may buy a March month contract in January.

So March will be the contract month.
Q Initial margin is calculated based on ____

58.
Average price movement in the last 5 working days
Value-At-Risk (VAR) based margining.
fixed at 25% for most of the scrips and 35% for volatile scrips
As per the The Black & Scholes Model
UnAttempted
CORRECT ANSWER:
Value-At-Risk (VAR) based margining.
Explanation:
Initial margin requirements are based on 99% value at risk over a one day time
horizon.
Q Daily ‘Trading Price Limits’ define the maximum percentage

59.
by which the price of a future contract can rise above or fall
below the previous days settlement price - State whether True
or False ?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
A price limit is the maximum range that a futures contract is allowed to move up
or down within a single day. Price limits are re-calculated every day. When price
limits are reached in one day, the variable price limits might be implemented to
expand the initial limits to the variable amount for the next trading day.
Q For portfolio hedging by institutions and mutual funds, index

60.
based derivatives are more suitable and are much more cost
effective than derivative based on individual stocks - State
True or False ?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
A portfolio consists of many stocks and not all stocks are available for trading in
the futures/derivatives market. Also many stock futures have low volumes.
Therefore institutions use index based derivatives for hedging. Although it may
not give a perfect hedge but with proper choice of index futures, a good hedge
can be created.
Q A Trading cum Clearing Member is responsible to the

61.
exchange for his transactions & also for the position of his
trading members under him - True or False ?
False
True
UnAttempted
CORRECT ANSWER:
True
Explanation:
Trading cum Clearing Member: This is a Clearing Member (CM) who is also a
Trading Member (TM) of the exchange. Such CMs may clear and settle their own
proprietary trades, their clients' trades as well as trades of other Trading
Members.
Q A default by a member in the derivatives segment will be not

62.
be treated as default in the cash segments of that exchange -
False
True
UnAttempted
CORRECT ANSWER:
False
Explanation:
A default by a member in the derivatives segment will be treated as default in all

segments of that exchange and as default on all exchanges where he is a
member.
Q Does trading in derivatives become expensive due to high
63.
margins ? State Yes or No.
Yes
No
UnAttempted
CORRECT ANSWER:
Yes
Explanation:
Cost components of futures transaction include margins, transaction costs

(commissions), taxes etc.
So higher the margins more expensive the trading.
Q ___________ risk is the component of price risk that is unique

64.
to particular events of the company and/or industry and this
risk could be reduced to a certain extent by diversifying the
portfolio.
Unsystematic Risk
Systematic Risk
Arbitrage Risk
Interest Rate Risk
UnAttempted
CORRECT ANSWER:
Unsystematic Risk
Explanation:
The risk that is specific to an industry or firm. Examples of unsystematic

risk include losses caused by labor problems, nationalization of assets etc. Also
called diversifiable risk
Q The Clearing of trades on a stock exchange can be done

65.
by_________.
by the trading members
by the clearing members
both by clearing members and trading members
none of the above
UnAttempted
CORRECT ANSWER:
by the clearing members
Q In an In the money PUT option____

66.
strike price would be lower than the market price
exercise price would be equal to the market price
strike price would be higher than the market price
strike price would be zero
UnAttempted
CORRECT ANSWER:
strike price would be higher than the market price
Explanation:
A put option is said to be In The Money when market price is lower than strike
price.
Q Delta measures the expected change in the option premium

67.
for a unit change in ________.
Volatility of underlying asset
treasury interest rates
time to option expiry
spot price of underlying asset
UnAttempted
CORRECT ANSWER:
spot price of underlying asset
Explanation:
Q In an Out-of-the Money (OTM) Put option ____

68.
Strike price would be higher than the market price
Exercise price would be equal to the market
Strike price would be lower than the market price
strike price would be zero
UnAttempted
CORRECT ANSWER:
Strike price would be lower than the market price

Explanation:
A put option is said to be OTM when spot (market) price is higher than strike
price.
A call option is said to be OTM, when spot (market) price is lower than strike price.
Q Diversification is used to control Systematic Risks - True or

69.
False ?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
Systematic risks are risks which are associated with movement of entire market
due to economic / political and other factors. These cannot be controlled by
diversifying ones portfolio as the entire portfolio will fall in case of a negative
news.
The Systematic risks can be controlled by hedging in the F&O section.
Unsystematic risk ie. Company / Industry specific risk can be reduced to a certain
extent by diversifying the portfolio.
Q A trader sold on ABC Stock Futures Contract at Rs.354 & the

70.
lot size is 900. What is the traders profit or loss if he
purchases the contract back at Rs.341 ?
Rs 11700
- Rs 11700 (Loss)
Rs 8300
- Rs 8300 (Loss)
UnAttempted
CORRECT ANSWER:
Rs 11700
Explanation:
He sold at Rs 354 and bought back at Rs 341 which means he has made a profit.
Rs 354 - Rs 341 = Rs 13
Rs 13 X 900 (Lot size) = Rs 11700 Profit
Q When would a trader make a profit on a short position of

71.
September futures?
when he buys a October future at a lower price
when he sells another September future at a lower price
he square of this short position by buying the September future at
lower price
when he sells October futures at a lower price.
UnAttempted
CORRECT ANSWER:
he square of this short position by buying the September future at lower price
Explanation:
Profit can be made in a short position when the price falls and the same is bought
back.
For eg - You sold a stock at Rs 100 ie. created a short position. When price falls
to say Rs 80 and you buy it back, you make a profit of Rs 20.
In case of futures, you have to square up in the same expiry month.
Q Which of the following is not an application of indices?

72.
index derivatives
exchange traded funds
private equity funds
Index funds
UnAttempted
CORRECT ANSWER:
private equity funds
Explanation:
Private Equity Funds are not connected to any index nor are they listed on a stock
exchange.
Q Options contracts are not symmetrical with respect to rights &

73.
obligations of the parties involved - State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
The buyer of an option has a right but not the obligation in the contract. Also his
risks are limited to the extent of premium paid.
The writer/seller of an option is one who receives the option premium and is
thereby obliged to sell/buy the asset if the buyer of option exercises his right. His
risks are unlimited.
Thus Option contracts are not symmetrical as the buyers and sellers have
different obligations and risk factors.
On the other hand obligations and returns in Futures are symmetrical for both
buyer and sellers.
Q Time value and intrinsic value of a call option are always

74.
either positive or zero- True or False ?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
Only in-the-money options have intrinsic value whereas at-the-money and out-of-
the-money options have zero intrinsic value. The intrinsic value of an option can
never be negative.
Time value also can never be negative.

Q The gain or loss is realized on daily basis due to mark to
75.
market mechanism in which of the following contracts ?
Forward Contracts
Contracts in Swaps
Future market contracts
Equity Cash Market contracts
UnAttempted
CORRECT ANSWER:
Future market contracts
Explanation:
Futures contracts have two types of settlements: (A) the mark-to-market (MTM)
settlement which happens on a continuous basis at the end of each day, and (B)
the final settlement which happens on the last trading day of the futures contract.
Q The market price of a share is Rs 120 and the 110 Call is

76.
quoted at Rs 24, what is the intrinsic value of this Call option
?
Rs. 10
Rs. 20
Rs. 34
Rs. 130
UnAttempted
CORRECT ANSWER:
Rs. 10
Explanation:
Option Premium consists of two variables - Intrinsic Value and Time Value.
In the above case, the cash market price is 120 and the strike price is Rs 110. So
the Intrinsic value is Rs 10 ( 120 - 110 ). The balance of option premium ( 24 - 10 )
ie. Rs 14 is the time value.
Q The main logic behind Position limits is to____________.

77.
prevent the market being unduly influenced by the activities of an
individual/group of investors
prevent the market being unduly influenced by Central Govt
policies
give direction to the market to move up or down as determined by
SEBI
to encourage high networth investors to provide direction to the
market
UnAttempted
CORRECT ANSWER:
prevent the market being unduly influenced by the activities of an

individual/group of investors
Explanation:
up to and each Clearing Member / Trading member or investor can go up to.
Thus no investor can take an extra ordinary large position and influence the
direction of a scrip / market.
Q The seller of the put option gains if price of underlying
78.
asset___________
Decreases
Increases
Does not change
Both 2 and 3
UnAttempted
CORRECT ANSWER:
Both 2 and 3
Explanation:
The seller of PUT option is either bullish or neutral. He gains the premium
received if the underlying increases or remains flat.
Q A portfolio with 50 different stocks is twice as risky as another

79.
portfolio with 100 stocks in it - State whether True or False ?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
A good index is a trade-off between diversification and liquidity. A well-diversified
index reflects the behaviour of the overall market/ economy. While diversification
helps in reducing risk, beyond a point it may not help in the context.
Going from 10 stocks to 20 stocks gives a sharp reduction in risk. However, going
from 50 stocks to 100 stocks gives very little reduction in risk. Going beyond 100
stocks gives almost zero reduction in risk. Hence, there is little to gain by
diversifying beyond a point.
Q Mr A buys a call option with lower strike price and sells

80.
another call option with higher strike price both on the same
underlying share and same expiration date, the strategy is
called______
Bull Spread
Bear Spread
Butterfly Spread
Calendar Spread
UnAttempted
CORRECT ANSWER:
Bull Spread
Explanation:
A bull call spread is constructed by buying a call option with a low strike price,
and selling another call option with a higher strike price.
Q Futures trading is considered more risky than equity trading

81.
due to _________.
high leverage
High pressure
high volatility
high liquidity
UnAttempted
CORRECT ANSWER:
high leverage
Explanation:
Traders can trade in derivatives by paying a small margin ( around 25 to 30% of

the total contract value), This leverage increases the risk as the trader can take
up poistions beyond his capacity.
Q Institutional investors pay higher margins than the individual

82.
investors for derivatives trading - State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
The margin requirement is same for both individual investors and institutional
investors.
Q The derivatives segment of a Stock Exchange is under the

83.
same governing council as the cash segment - State True or
False ?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
The derivatives exchange/segment has a separate governing council and no

common members are allowed between the Cash segment Governing Board and
the Derivatives segment Governing Council of the exchange.
Q You have bought a futures contract and the price drops, you
84.
will _________.
Make a notional profit
Make a notional loss
given information is incomplete to arrive at a conclusion
none of the above
UnAttempted
CORRECT ANSWER:
Make a notional loss
Explanation:
For eg. You bought a futures contarct of 1000 shares at Rs 500. The price drops
to Rs 480. Therefore there is a notional loss of Rs. 20 (500 - 480) x 1000 shares =
Rs 20,000.
This is a notional loss and not an actual loss. The actual profit / loss will happen
only when you square up the contract.
Q Stock price is ____________.

85.
same as in the near month future contract
same as exercise price of an option
same as strike price of an option
the price of the underlying in the spot market
UnAttempted
CORRECT ANSWER:
the price of the underlying in the spot market
Explanation:
Stock price or Spot price means the current market price of that stock in the cash
market.
Q A naked call option strategy means that the writer does not
86.
currently owns the underlying - State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
An options strategy in which an investor writes (sells) call options on the open
market without owning the underlying security.
This strategy is sometimes referred to as an "uncovered call" or a "short call".
Q Factor(s) influencing option pricing include which of the

87.
following ?
time to expiration
volatility of the underlying shares
Interest rates
all of the above
UnAttempted
CORRECT ANSWER:
all of the above
Explanation:
There are five fundamental parameters on which the option price depends upon:
1) Spot price of the underlying asset
2) Strike price of the option
3) Volatility of the underlying asset’s price
4) Time to expiration
5) Interest rates
These factors affect the premium/ price of options in several ways.

Q When ordinary cash dividends are declared, put option values
88.
will decrease - State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
Cash dividends issued by stocks have big impact on their option prices. This is
because the underlying stock price is expected to drop by the dividend amount
on the ex-dividend date.
Put options gets more expensive due to the fact that stock price always drop by
the dividend amount after ex-dividend date.
In case of call options, they can get discounted by as much as the dividend
amount.
Q A Writer of an option _________.

89.
has obligation in the contract
receives the premium
has choice in the contract
Both 1 and 2
UnAttempted
CORRECT ANSWER:
Both 1 and 2
Explanation:
The writer of an option is one who receives the option premium and is thereby
obliged to sell/buy the asset if the buyer of option exercises his right.
Q The daily settlement prices of equity derivatives are decided

90.
by _________.
SEBI
Brokers Association
RBI
UnAttempted
CORRECT ANSWER:
Explanation:
One of the responsibilities of the Clearing Corporation is to decide the Daily

Settlement Prices.
Q The maximum possible loss for the option buyer is the

91.
premium paid , but the profits can be higher depending on the
underlying price movement. This is true for which type of
options ?
true for all types of options
true for American options only
true for European options only
false for all types options
UnAttempted
CORRECT ANSWER:
true for all types of options
Explanation:
The difference between American and European options is relating to the time of
exercising the contract. Profit potential in both of them is same.
Q If a Clearing members defaults, the margin paid on his own

92.
account only is allowed to be used by the clearing corporation
for realizing its dues from the member. The clients margin
remain unaffected - State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
In case of Clearing Member default, margins paid by the Clearing Member on his
own account alone would be used to settle his dues.
Q A future contract is a very standardized contract that leaves

93.
very little (except the price) open to negotiation - State True or
False ?
False
True
UnAttempted
CORRECT ANSWER:
True
Explanation:
Terms of the future contracts are standardized wrt. quantity, time period etc. Only
price is decided by the demand supply and other market situations.
A forward contract on the other hand is not standardized.
Q Shorter the time to maturity of the call option, higher will be

94.
the time value - State whether True or False ?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
Other things being equal, options tend to lose time value each day throughout
their life. This is due to the fact that the uncertainty element in the price
decreases.
Thus shorter the time to maturity, lower will be the time value.
Q Mr. Anand asks his broker to buy certain number of contracts
95.
at the market price, this instruction is called____________
arbitrage order
limit order
stop loss order
market order
UnAttempted
CORRECT ANSWER:
market order
Explanation:
A market order is an order to buy or sell a contract at the best bid/offer price
currently available in the market. Price is not specified at the time of placing
this order.
Q A Client Registration form contains client’s _____________

96.
investment objectives
background
beneficial identity
all of the above
UnAttempted
CORRECT ANSWER:
all of the above
Explanation:
While opening a clients account, the broker should know some important details
of his clients. Therefore the Client Registration form asks for deatils on the
backgroung of the client ( to know if there is a criminal background or is not
banned in any other manner, whether in terms of criminal or civil proceedings by
any enforcement agency worldwide).
The client should be identified by the intermediary by using reliable sources

including documents/information. The intermediary should obtain adequate
information to satisfactorily establish the identity of each new client and the
purpose of the intended nature of the relationship.
Q Any person who wishes to open a Trading Account must be

97.
given the following documents by his trading member -
Complete version of all the laws of SEBI
Risk disclosure document
All the rules & regulations of the exchange
SEBI guidelines on the subject
UnAttempted
CORRECT ANSWER:
Risk disclosure document
Explanation:
the time of client registration.
Q The ‘ASK’ price is always_________.

98.
greater than the bid price
equal to bid price
lower than the bid price
none of the above
UnAttempted
CORRECT ANSWER:
greater than the bid price
Explanation:
Bid and Ask price means the Buyer and Seller price.
For eg price of a stock as quoted on a stock market is Rs. 100 - 101.
So 100 is the Bid price and 101 is the Ask price.
The Ask will always be higher than Bid price.
Q Mr. Mohan entered into a contract with Mr. Soham to buy 500
99.
bags of Cotton at a price of Rs 800 per bag. Delivery of goods
and payment of money will take place 4 months from now.
Both Mr. Mohan and Mr. Soham have a right as well as an
obligation under this contract. What type of contract is this?
Options
Forwards
Futures
Swaps
UnAttempted
CORRECT ANSWER:
Forwards
Explanation:
Forward contract is an agreement made directly between two parties to buy or

sell an asset on a specific date in the future, at the terms decided today. There is
no Stock Exchange, Commodity Exchange etc.involved.
Q The process by which a futures contract is terminated by a
100.
transaction that is equal and opposite to the original
transaction is called __________ .
netting
off setting
hedgeing
mark to market
UnAttempted
CORRECT ANSWER:
off setting
Explanation:
A closing transaction is one that reduces or eliminates an existing position by an

appropriate offsetting purchase or sale.
Q 1. Initial Margin is –
The margin which is paid when a trading member starts his
business
The Margin which is paid at the time of buying shares in the spot
market.
The margin which a trading member needs to pay when applying
for membership
The margin which is paid at the time of entering futures contract
UnAttempted
CORRECT ANSWER:
The margin which is paid at the time of entering futures contract
Explanation:
The amount one needs to deposit in the margin account at the time entering a
futures contract is known as the initial margin.
Q 2. The Strangle strategy is similar to straddle strategy in outlook

but different in _______________ .
implementation
aggression
cost
All of the above
UnAttempted
CORRECT ANSWER:
All of the above
Explanation:
Long Strangle As in case of straddle, the outlook here (for the long strangle
position) 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 3. Of the below options, which is more difficult to manipulate ?

Individual Stocks
IT sector stocks
Stock Index
All of the above
UnAttempted
CORRECT ANSWER:
Stock Index
Explanation:
A stock index contains a basket of high market cap stocks. So its very difficult to
manipulate it when compared to individual stocks.
Q 4. 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 ?
Rs 2,60,000
Rs 1,31,250
Rs 3,91,250
Rs 1,28,750
UnAttempted
CORRECT ANSWER:
Rs 3,91,250
Explanation:
Payment of Initial Margin by a broker cannot be netted against two or more

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.
Q 5. Liquid Assets offered by a Clearing Member to the Clearing

Corporation can include Mutual Fund Units and Bank
Gaurantees. True or False ?
False
True
UnAttempted
CORRECT ANSWER:
True
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 6. An option buyer pays the option premium to the option seller.

True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
Option Premium is the price which the option buyer pays to the option seller.
Q 7. Contract month is the month in which futures contract –
Expires
Are at the lowest price
Are at its highest price
None of the above
UnAttempted
CORRECT ANSWER:
Expires
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 8. By meeting additional requirements, a Trading Member can

also be a Clearing Member – True or False ?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
A Trading Member can also be a Clearing Member by meeting additional
requirements.
Q 9. The minimum price movement in a scrip is called BASIS.

True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
The minimum price movement in a scrip is called TICK. It is minimum move

allowed in the price quotations. Exchanges decide the tick sizes on traded
contracts as part of contract specification.
Q Calendar spreads carry only ________ risk.

10.
speculative
market
basis
interest
UnAttempted
CORRECT ANSWER:
basis
Explanation:
Basis means the difference between Spot Price and Future Price or difference
between two future price of the same underlying.
Basis risk is the chance that the basis will have strengthened or weakened from
the time the hedge is implemented to the time when the hedge is removed - ie.
the risk that the two future prices will not fluctuate identically.
Q Risk which are Non Systematic can be reduced by diversifying

11.
ones portfolio.
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
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.
Q An exchange traded option after maturity _______ .

12.
Can be traded after 2 days ie. after pay in / pay out.
Can be traded in the spot market
Cannot be traded
None of the above
UnAttempted
CORRECT ANSWER:
Cannot be traded
Explanation:
An exchange traded option can only be traded till the last date of expiry ie. its
maturity. After that it will not be available for trading.
For eg - If 27th June is the last Thursday of the month ie. the maturity, all options
of June month will cease to exist as soon as the market closes on 27th June.
Q The option premium paid by the option buyer remains with the
13.
exchange till the time it is closed out or expired.
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
The Option premium is collected by the exchange but is given to the seller of
option.
Q When a call option is ‘ In The Money ‘ – the _______________.

14.
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
UnAttempted
CORRECT 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 You have bought a CALL of SBI of Strike price of Rs 200 of

15.
January. To close the position, you will buy a PUT of same
strike price of January. True or False ?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
When you buy a CALL option, to close this position you will have to sell a CALL
option of same strike price and expiry.
Q An Investor Mr Shah wants to buy 8 contracts of January
16.
series at Rs 740 and an investor Mr Patel wants to sell 5
contracts of February series at Rs 754. Initial Margin is fixed at
6%. How much initial margin has to be collected from them ?
Market lot is 250.
Rs 56,550
Rs 88,800
Rs 1,45,350
Rs 1,87,600
UnAttempted
CORRECT ANSWER:
Rs 1,45,350
Explanation:
Margin to be collected from Mr Shah : Rs 740 X 8 contracts X 250 (Market lot) at

6%
= Rs 1480000 x 6% = Rs 88,800
Margin to be collected from Mr Patel : Rs 754 X 5 contracts X 250 (Market lot) at

6%
= Rs 942500 x 6% = Rs 56,550
So the total margin : 88,800 + 56,550 = Rs 145350
Q In case of CALL OPTION, it gives the buyer the right to

17.
_________ .
buy the underlying at market price
buy the underlying at set price
sell the underlying at market price
sell the underlying at set price
UnAttempted
CORRECT ANSWER:
buy the underlying at set price
Explanation:
A call option is a financial instrument that gives the buyer the right, but not an
obligation, to buy 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 will get the security
at the set price or strike price as he has paid a premium for it.
Q The spot price of LKK share is Rs 300, the put option of Strike
18.
Price Rs 280 is _____ .
In the money
Out of the money
At the money
None of the above
UnAttempted
CORRECT ANSWER:
Out of the money
Explanation:
Out of the Money Option - A call option with a strike price that is higher than the
market price of the underlying asset, or a put option with a strike price that is
lower than the market price of the underlying asset. An out of the money option
has no intrinsic value, but only possesses time value.
As in the above example, LKK is trading at Rs 300. For such a stock, call options
with strike prices above Rs 300 would be out of the money calls, while put options
with strike prices below Rs 300 would be out of the money puts. Out of the money
options are significantly cheaper than in the money or at the money options.
Q A stock exchange has ON LINE SURVEILLANCE capability to

19.
monitor the __________.
Volumes
Prices
Positions
All of the above
UnAttempted
CORRECT ANSWER:
All of the above
Explanation:
All modern stock exchanges have highly developed online surveillance sytems
to monitor the volumes / position and prices of all listed products and also check
any unusual activity etc. in them.
Q Equities can also be traded through Professional Clearing

20.
Members.
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
and institutional clients. He need not be a member of an exchange.
Q Important element (s) of risk management is (are) :

21.
Monitoring capital adequacy requirements of members
Regular evaluation of trading members positions
Collection of Margins
All of the above
UnAttempted
CORRECT ANSWER:
All of the above
Q What is a covered call ?

22.
Its a strategy to sell calls at various strike prices to profit from the
premium received
Its used to generate extra income from existing holdings in the
cash market.
Its a strategy of buying a call and sell its future for hedgeing
Its done by buying a call and put of the same strike price.
UnAttempted
CORRECT ANSWER:
Its used to generate extra income from existing holdings in the cash market.
Explanation:
Covered Call strategy is used to generate extra income from existing holdings in
the cash market. If an investor has bought shares and intends to hold them for
some time, then he would like to earn some income on that asset, without selling
it, thereby reducing his cost of acquisition.
So he sells a call option of that stock and benefits from the premium received.
Q A trader buys a call and a put option of same strike price and
23.
same expiry. This is called as _________ .
Butterfly
Short Straddle
Long Straddle
Calendar Spread
UnAttempted
CORRECT ANSWER:
Long Straddle
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 eg- 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.
Q Position limits have been designed to _______ .

24.
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
UnAttempted
CORRECT ANSWER:
stop the markets being wrongly influenced by the trading activities of

investor(s)
Explanation:
up to and each Clearing Member or investor can go up to.
Position limits for the entire market and Clearing Members and investors are
defined by SEBI.
Q Of the below options, when will the April index future contract
25.
be introduced on NSE ?
On the 1st trading day after last Thursday in March
On the 1st trading day after last Friday in March
On the 1st trading day after last Thursday in January
On the 1st trading day after last Friday in January
UnAttempted
CORRECT ANSWER:
On the 1st trading day after last Thursday in January
Explanation:
There are always 3 contracts running. So for eg. we will have Jan-Feb-Mar
contracts trading in January.
When January contracts expire on last Thursday of January, on Friday the April
contracts will be introduced and so we will have Feb-Mar-April contracts.
Q A clearing member is required to bring in an additional

26.
incremental deposits of _____ to clearing corporation for each
additional TM he undertakes to clear and settle deals.
Rs.5 lakhs
Rs.10 lakhs
Rs.15 lakhs
Rs.20 lakhs
UnAttempted
CORRECT ANSWER:
Rs.10 lakhs
Explanation:
A clearing member is required to bring in an additional incremental deposits of
Rs.10 lakhs to clearing corporation for each additional TM (Trading Member), in
case the Clearing Member undertakes to clear and settle deals for other TMs.
Q A common individual investor cannot write an option.

27.
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
Writing an option means selling an option. Any person can write an option after
he has fullfilled the necessary formalities like client registration, margin
payments etc.
Q STT means ________ .

28.
Stock Trading Tax
Stock Transaction Tax
Securities Transaction Tax
Securities Trading Tax
UnAttempted
CORRECT ANSWER:
Explanation:
Securities Transaction Tax (STT) is payable by the Trading Members / Brokers on

the stock market transactions and this is collected from their clients.
Q Value-at-risk calculations are done on the basis of __________

29.
.
best possible market conditions
ideal market conditions
volatility
90 % risk parameter
UnAttempted
CORRECT ANSWER:
volatility
Q Longer the time to expiry/maturity of a call option, higher will

30.
be the time value.
False
True
UnAttempted
CORRECT ANSWER:
True
Explanation:
the option to expire.
Longer the maturity of the option greater is the uncertainty and hence the
higher premiums.
Q A buyer of Put Option –

31.
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
UnAttempted
CORRECT ANSWER:
Has the right to sell the underlying asset
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 In the derivatives market, all the margins are collected by

32.
___________ .
Margin House
SEBI
Clearing House
Clearing Banks
UnAttempted
CORRECT ANSWER:
Clearing House
Explanation:
Responsibilities of the Clearing House / Corporation include:
- Collection of Margins on timely basis
- Smooth operation of the Market
- Daily Clearing and Settlement etc.
Q A person sells a put option of Strike Price 265, market lot

33.
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
UnAttempted
CORRECT ANSWER:
Rs 40,000
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 When you buy a put option on a stock you are owning, this
34.
strategy is called _____________ .
Straddle
writing a covered call
calender spread
protective put
UnAttempted
CORRECT ANSWER:
protective put
Explanation:
Protective Put is a a 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.
Q Beta is the change in option price given a one percentage

35.
point change in the risk-free interest rate.
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
free interest rate.
Beta a measure of systematic risk of a security that cannot be avoided through

diversification.
Q If futures price are lower than spot price of an asset, market
36.
participants may expect the spot price to come down in
future. This situation is called –
Contango
Reverse System
Backwardation
Impact costs
UnAttempted
CORRECT 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 The networth of clearing members does not include -

37.
Bad Deliveries
Doubtful Debts
Unlisted Securities
All of the Above
UnAttempted
CORRECT ANSWER:
All of the Above

Explanation:
The networth of the member shall be computed as follows:
- Capital + Free reserves

- Less non-allowable assets which are :
o Fixed assets
o Pledged securities
o Member’s card
o Non-allowable securities (unlisted securities)
o Bad deliveries
o Doubtful debts and advances
o Prepaid expenses
o Intangible assets
o 30% marketable securities
Q The spot price of ABC share is Rs 500, the call option of Strike
38.
Price Rs 500 is –
In the money
Out of the money
At the money
None of the above
UnAttempted
CORRECT 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 The Option which gives its holder a positive cash flow is
39.
called a _______ .
At the money option
Out of the money option
In the money option
Delta
UnAttempted
CORRECT ANSWER:
In the money option
Explanation:
An 'In the money' (ITM) option gives the 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.
Q An investor who is less risk averse would like to have greater

40.
exposure to equity and other risky investments compared to
fixed income instruments - State True or False ?
False
True
UnAttempted
CORRECT ANSWER:
True
Explanation:
Although Equity Markets can give good returns but they are quiet risky to invest.
So only a 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.
(Risk Averse person is reluctant to take risk. A more risk averse person plays
very safe and does not take any risk. A less risk averse person can take some
risks)
Q You are interested in creating a perfect hedge for your

41.
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
UnAttempted
CORRECT 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 Mr. Shah purchased two futures contracts of Ambuja Cements

42.
Ltd at Rs. 180 (lot size 2000 shares). What will be his profit or
loss if he sells them at Rs 187.
Rs 14000
Rs 28000
Rs 20000
Rs 27500
UnAttempted
CORRECT ANSWER:
Rs 28000
Explanation:
Mr Shah bought at Rs 180 and sold at Rs 187, so he made a profit of Rs 7.
Lot size is Rs 2000 and he has purchased 2 lots, so 4000 shares x Rs 7 profit =
Rs 28,000
Q On what occasion from the below, the derivative segment of

43.
the stock market has to report to SEBI ?
Occasions when the 90% Value at Risk (VaR) limit has been
violated
Occasions when the 96.5% Value at Risk (VaR) limit has been
violated
violated
violated
UnAttempted
CORRECT ANSWER:
Occasions when the 99% Value at Risk (VaR) limit has been violated
Explanation:
Some of the reports which a derivatives segment of a Stock Exchange has to
provide to SEBI are:
- Occasions when the 99% Value at Risk limit has been violated
- Defaults by broker-members
- Daily market activity report
- Daily market report
Q When a person sells a call option, he has an –

44.
Bullish view
Bearish view
Long term view
None of the above
UnAttempted
CORRECT ANSWER:
Bearish view
Explanation:
A call option seller has a neutral to bearish perspective regarding the underlying
price.
A call option buyer has a bullish view.
Q You have bought a CALL of Ambuja Cements of Strike price of

45.
Rs 200 of January. To close the position, you will Sell a CALL
of same strike price of January. True or False ?
False
True
UnAttempted
CORRECT ANSWER:
True
Explanation:
When you buy a CALL option, it can only be squared up by selling the same CALL
option.
Q When a person sells a put option, he has an –

46.
Bullish view
Bearish view
Mixed view
Long term view
UnAttempted
CORRECT ANSWER:
Bullish view
Q In the Options segment, if you buy a CALL, you expect the

47.
market / scrip to move _____
Down
Up
One cannot buy a Call in options market
Remain range bound
UnAttempted
CORRECT 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 The right to buy an asset for a certain price on or before a

48.
specified date is the characteristics of a _____________.
American Put Option
American Call Option
European Put Option
European Call Option
UnAttempted
CORRECT ANSWER:
American Call Option
Explanation:
A Call Option gives the holder the right to buy the underlying asset on or before
a particular date for a certain price.
Therefore, an American Call option gives the holder the right to buy an asset for
a certain price on or before a specified date.
expiry date/day of the contract. In India, all Index and stock options are European)
Q The spot price of Grasim Industries Ltd share is Rs 900, the
49.
call option of Strike Price Rs 850 is _____ .
At the money
Out of the money
In the money
None of the above
UnAttempted
CORRECT ANSWER:
In the money
Explanation:
In call options, when the Spot price is higher than Strike price - that call option is
In the Money.
Q A calendar spread contract in index futures attracts higher

50.
margin than sum of two independent legs of futures contract.
False
True
UnAttempted
CORRECT 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 When a stock which is part of the index has a stock split, it

51.
does not have an impact on the index.
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
Stock Split has an effect on Options, Strike Price etc. but has no impact on the
index as such.
Q Generally the Future prices converge to Spot prices on expiry

52.
day - True or False?
False
True
UnAttempted
CORRECT ANSWER:
True
Explanation:
Future Price essentially means Spot Price + Cost of Carry ie. interest cost etc.
On the expiry day ie. the last day, the cost of interest etc. will be nil, so the Future
Price and Spot price should ideally be same.
Q Rho is ______ .
53.
is the change in option price given a one percentage point change
in the risk-free interest rate
the change in option price given a one-day decrease in time to
expiration
speed with which an option moves with respect to price of the
underlying asset
a measure of the sensitivity of an option price to changes in market
volatility
UnAttempted
CORRECT ANSWER:
is the change in option price given a one percentage point change in the risk-
free interest rate
Explanation:
Please memorise : Rho = change in INTEREST rate.
Q ETFs is basket of securities that trade like individual stock on

54.
an exchange- True or False ?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
Exchange Traded Funds (ETFs) is basket of securities that trade like individual
stock on an exchange. They have number of advantages over other mutual funds
as they can be bought and sold on the exchange.
Since, ETFs are traded on exchanges intraday transaction is also possible.
Q A long position in a January future contract can be reversed

55.
by a short position in that stock futures of February month –
True / False ?
False
True
UnAttempted
CORRECT ANSWER:
False
Explanation:
A position in futures can be reversed by squaring up in the same month and not
in a different month. So in the above case the position can be reversed by selling
the stock future in January month.
Q The mark to market debits for stock futures are done on a –

56.
Daily basis
Weekly basis
Monthly basis
Hourly basis when markets are very volatile
UnAttempted
CORRECT 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 positions - for both Index and Stocks are marked to market
on a daily basis.
Q You have sold one lot of JSW Steel futures for Rs 300 (lot size
57.
2000) expecting that this share price will go down. But you
also wants to protect yourself against any loss of more than
Rs 10,000. What should you do ?
Place a limit order to buy at Rs 305
Place a stop loss buy order at Rs 295
Place a limit sell order at Rs 305
UnAttempted
CORRECT ANSWER:
Explanation:
As you have sold a futures contract, you will make a loss when the price will move
up.
You do not want to make a loss of more then Rs 10,000. The lot size is 2000.
10,000 / 2000 = 5 - which means if the price moves up by Rs 5 ( from 300 to 305)
, you will make a loss of Rs 10,000.
So you will put a STOP LOSS buy order at 305. Which means in case the prices
move up, the trade will be executed and the contract will be squared up at Rs 305,
resulting in a maximum loss of Rs 10,000.
Q A risky trader / speculator believes that the future price of

58.
ABC company will fall and being a smart trader he will
________________ .
buy ABC futures now and sell them later when it falls
wait till the price of ABC futures and cash market price become
same
sell ABC futures now and buy them later when the price falls
will do nothing as he had suffered a loss in his previous trade
UnAttempted
CORRECT ANSWER:
sell ABC futures now and buy them later when the price falls
Q You are long in ICICI Bank Ltd futures at price Rs 500. The
59.
prices rises to Rs 520 next day. The Mark to Market margin
will be credited to your account. True or False ?
False
True
UnAttempted
CORRECT ANSWER:
True
Explanation:
You are long means you have bought ICICI bank futures at Rs 500. Next day the
price rises to Rs 520, which means there is a Mark to Market gain of Rs 20. So Rs
20 x the lot size, this amount will be credited in your ledger account with the
broker.
Q Option Premium consists of two components –

60.
Intrinsic value and time value
Sum of Call and Put premium
Premium value and time value
Intrinsic value and premium
UnAttempted
CORRECT ANSWER:
Intrinsic value and time value
Explanation:
Option premium consists of two components - intrinsic value and time value. 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. Therefore, only in-the-money options have
intrinsic value whereas at-the-money and out-of-the-money options have zero
intrinsic value. The intrinsic value of an option can never be negative.
For eg - If the spot price is Rs 200, and the call option premium of a Rs 195 strike
price is Rs 25, then Rs 5 is the intrinsic value ( 200 - 195 ) and balance Rs 20 is
time value.
Q With a fall in interest rates, the premium on CALL Options will
61.
_______.
Rise
Fall
No Effect
None of the above
UnAttempted
CORRECT ANSWER:
Fall
Explanation:
When the interest rates falls, the cost of carry also falls, thus reducing the
premium on call options.
On the other hand, the premium on put options will rise with a fall in interest rates.
Q ____________ pays the initial margin when entering into a

62.
futures contract.
The Buyer
The Seller
Both Buyers and Sellers
None of the above
UnAttempted
CORRECT 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 You have bought a CALL of ITC Ltd. of Strike price of Rs 200

63.
of January. To close the position, you will SELL a PUT of
same strike price of January. True or False ?
False
True
UnAttempted
CORRECT ANSWER:
False
Explanation:
If you have bought a CALL option, then to close the position you will have to sell
a CALL option Rs 200 strike price.
Q If you have a long position in futures contract, you can square

64.
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
UnAttempted
CORRECT 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 Mr. Singh purchases a call option on a stock at Rs. 10 per call

65.
with strike price of Rs. 140. If on exercise date, stock price is
Rs. 168 , ignoring transaction cost, Mr. Singh will choose
_______
To exercise the option
Not to exercise the option
May or may not depending on the balance he has in his bank
account
May or may not depending on the recommendation of experts
UnAttempted
CORRECT ANSWER:
To exercise the option
Explanation:
Mr Singh has purchased a CALL and on the expiry day he is in a profitable postion
as the price of the stock has risen and the spot price is above the strike price. So
he will exercise his option.
Q Hedgeing is a tool used to protects ones portfolio against any

66.
downturn by going short in index. True or False ?
True
False
UnAttempted
CORRECT ANSWER:
True
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 Derivative clearing members are required to maintain a net

67.
worth of minimum Rs 4 crores.
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
The minimum networth for Clearing members of the derivatives clearing
corporation/house shall be Rs.300 Lakhs (Rs 3 crores). The networth of the
member shall be computed as follows:
- Capital + Free reserves
- Less non-allowable assets which are :
o Fixed assets
o Pledged securities
o Member’s card
o Non-allowable securities (unlisted securities)
o Bad deliveries
o Doubtful debts and advances
o Prepaid expenses
o Intangible assets
o 30% marketable securities
Q An option which would give a zero cash flow to its holder if it

68.
were exercised immediately is know as _______ .
At the money option
Out of the money option
In the money option
None of the above
UnAttempted
CORRECT 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 In a Derivatives Market, the person who takes the risk are
69.
_______
Arbitrageurs
Speculators
Hedgers
None of the Above
UnAttempted
CORRECT 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 In the Option segment, if you buy a CALL at a premium of Rs

70.
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
UnAttempted
CORRECT ANSWER:
Unlimited
Explanation:
When you buy a CALL option, your losses are limited to the extent of premium
paid, but your profits, theoretically 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 An Out of the Money option will have :

71.
More than 1 intrinsic value
Zero intrinsic value
Negative intrinsic value
None of the above
UnAttempted
CORRECT ANSWER:
Zero intrinsic value
Explanation:
Intrinsic value in options is the in-the-money portion of the option's premium. For
example, If a call options strike price is Rs15 and the underlying stock's market
price is at Rs 25, then the intrinsic value of the call option is Rs 10.
Option premium consists of two components - intrinsic value and time value. 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. Therefore, only in-the-money options have
intrinsic value whereas at-the-money and out-of-the-money options have zero
intrinsic value. The intrinsic value of an option can never be negative.
Q Derivatives market helps shift of speculative trades from

72.
unorganized market to organized market. True or False ?
True
False
UnAttempted
CORRECT ANSWER:
True
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 Beta of a portfolio is 1.3 and the portfolio value is Rs 9,00,000.

73.
The benchmark index level is 8000 and one futures contract
lot size is 75. Calculate the number of contracts required for a
good hedge?
5 contracts
4 contracts
3 contracts
2 contracts
UnAttempted
CORRECT ANSWER:
2 contracts
Explanation:
Hedge Ratio = Value of the portfolio x Beta of the portfolio / Value of index futures
contract
= 9,00,000 x 1.3 / 8000

= 146.25
Contracts required for a good hedge = 146.25 / Contract size = 146.25 / 75 = 1.95
Since one cannot hedge 1.95 contracts, the hedge will be for 2 futures contracts.
Q In futures contract, the clearing house / clearing corporation

74.
practically becomes the counter party for all transactions -
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:

executed on the F&O Segment of the Exchange.

Q If you buy a PUT option at premium of Rs 37 at the Strike Price

75.
of Rs 260, then the maximum possible loss on this position is
______
Unlimited
Rs 37
Rs 297
Rs 223
UnAttempted
CORRECT 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 Hedging would ensure that your profits are always on the

76.
higher side compared to an unhedged position - State True or
False ?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
Hedging controls your losses but also controls your profits. It does not ensure
higher profits.
An open position can give you more profits or more losses.
Q If the tick size of a scrip is 5 paise and the spot price of that
77.
scrip is Rs. 70, what will be the next upward tick ?
69.95
70.005
70.05
70.50
UnAttempted
CORRECT ANSWER:
70.05
Explanation:
Tick size is the minimum move allowed in the price quotations. So a 5 paise tick
size will lead to a upward tick of .05.
Q Forward contracts are OTC contracts - True or False ?

78.
True
False
UnAttempted
CORRECT 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 Mr Prashant has bought one lot of ABC futures for Rs 75 (lot

79.
size 2000) expecting that this share will go up. But he also
wants to protect himself against any loss of more than Rs
3000. What should he do ?
Put a stop loss sell order at Rs 74
Put a stop loss sell order at Rs 73.5
Place a buy order for 2000 shares of ABC at Rs.76.50 per
None of the above
UnAttempted
CORRECT ANSWER:
Put a stop loss sell order at Rs 73.5
Explanation:
Mr. Prashant has bought one lot ie. 2000 shares and does not want to have a loss
of more than Rs 3000. So 3000 / 2000 = Rs 1.50. So per share he should not lose
more than Rs 1.50.
His buying price is Rs 75. So 75 - 1.50 = 73.50 will be his stop loss price price.
When the share falls to Rs 73.50 , he will stand to lose Rs 3000.
Q The settlement in futures contract happen only in __________

80.
.
Cash
Physical Delivery
Cash or Delivery
None of the above
UnAttempted
CORRECT ANSWER:
Cash or Delivery
Explanation:
SEBI has now permitted physical deliveries also.
Q You have a short position in LPQ Stock futures at Rs 350 (one

81.
lot size is 500 shares) and you have made a profit of Rs 28000.
To do this you will have to :
Sell one lot ar Rs 406
Sell one lot at Rs 294
Buy one lot at 406
Buy one lot at Rs 294
UnAttempted
CORRECT ANSWER:
Buy one lot at Rs 294
Explanation:
Profit = Rs 28000 , Lot size = 500 , So per share profit = 28000/500 = Rs 56
Since he has a short position, he will be in a profit if the share falls and he buys
at a lower price.
So the price has to fall by Rs 56 from Rs 350 = Rs 294

Q OTC derivative market is less regulated market because these
82.
transactions occur in private among qualified counterparties,
who are supposed to be capable enough to take care of
themselves. True or False
False
True
UnAttempted
CORRECT ANSWER:
True
Explanation:
In an OTC market, no exchange is involved.
Q Theta is ___________.
83.
is the change in option price given a one percentage point change
in the risk-free interest rate
a measure of the sensitivity of an option price to changes in market
volatility
the change in option price given a one-day decrease in time to
expiration.
speed with which an option moves with respect to price of the
underlying asset.
UnAttempted
CORRECT ANSWER:
the change in option price given a one-day decrease in time to expiration.

Explanation:
Theta is the change in option price given a one-day decrease in time to expiration.
It is a measure of time decay.
Q The Over the counter options are ____________ .

84.
calculated based on the delta.
standardised options
customised options
always in the money options
UnAttempted
CORRECT 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 Mr. X does not hold any shares of ABC company so he cannot

85.
write a CALL option on it - State True or False?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
Any one, whether he holds the underlying asset or not, can buy / write options.
Q An equity index option like NIFTY OPTION is a___________.

86.
Treasury instrument
Debt instrument
Derivative Product
Cash market product
UnAttempted
CORRECT ANSWER:
Derivative Product
Explanation:
Nifty options are derived from the NSE index ie. Nifty and so its an derivative
product.
Q If a trader buys a put option with a higher strike price and

87.
sells a put option with a lower strike price, both of the same
underlying then this strategy is called ________ .
Bullish Spread
Bearish Spread
Straddle
Butterfly spread
UnAttempted
CORRECT ANSWER:
Bearish Spread
Explanation:
Bearish Vertical Spread using puts - The trader is bearish on the market and so
goes long in one put option by paying a premium. Further, to reduce his cost, he
shorts another low strike put and receives a premium.
Q A trader sells a lower strike price CALL option and buys a

88.
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
UnAttempted
CORRECT 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 It is recommended but not compulsory that all Stock
89.
Exchanges of India have a uniform settlement cycle. True or
False ?
False
True
UnAttempted
CORRECT ANSWER:
True
Explanation:
Uniform settlement cycle across all exchanges is recommended but the

exchanges can fix their settlement cycle as per their wish and what suits them
best.
Q A low level of initial margin increases the possibility of

90.
defaults of a stock broker - State True or False ?
True
False
UnAttempted
CORRECT 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 The daily settlement of all open positions in futures contract

91.
is called ________ .
Exercising of the futures contract
Mark to Market settlement
VaR settlement
None of the above
UnAttempted
CORRECT ANSWER:
Mark to Market settlement
Explanation:
In futures market, the contracts have maturity of several months. So to safe gaurd
against substantial rise /fall in the prices, profits and losses are settled on day-
to-day basis – called mark to market settlement.
The exchange collects these margins from the loss making traders and pays to
the gainers on day-to-day basis.
Q The Derivative markets mostly comprises of –

92.
Long term investors
Hedgers
Speculators
Both 2 and 3
UnAttempted
CORRECT ANSWER:
Both 2 and 3
Explanation:
Long term investors buy stocks in Cash market for delivery. Hedgers and
Speculators are active in the derivative markets.
Q As per the Income Tax Act, any loss on derivatives

93.
transaction can be set-off against _____ income in the same
year.
Any other business
House property
Salary
Capital gains
UnAttempted
CORRECT ANSWER:
Any other business
Explanation:
Finance Act, 2005 implies that income or loss on derivative transactions which
are carried out in a “recognized stock exchange” is not taxed as speculative
income or loss. Thus, loss on derivative transactions can be set off against any
other income during the year (except salary income).
Q Delta is the change in option price given a one-day decrease
94.
in time to expiration - State True or False ?
True
False
UnAttempted
CORRECT ANSWER:
False
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 _______ measure of the sensitivity of an option price to

95.
changes in market volatility.
Rho
Theta
Gamma
Vega
UnAttempted
CORRECT ANSWER:
Vega
Explanation:
Vega represents the amount of price changes in an option in reaction to a 1%
change in the volatility of the underlying asset.
Volatility measures the amount and speed at which price moves up and down,
and is often based on changes in recent, historical prices in a trading instrument.
Vega changes when there are large price movements (increased volatility) in the
underlying asset, and falls as the option approaches expiration.
Vega = Change in an option premium/ Change in volatility
Q Clearing Corporation acts as a legal counterparty to all trades

96.
on F&O segment and also guarantees their financial
settlement. True / False.
True
False
UnAttempted
CORRECT ANSWER:
True
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.

The Clearing and Settlement process comprises of three main activities, viz.,
Clearing, Settlement and Risk Management.
Q Arbitrage is a tool used to protects ones portfolio against any

97.
downturn by going short in index. True or False ?
True
False
UnAttempted
CORRECT ANSWER:
False
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 A call option is said to be ____________, when spot price is

98.
higher than strike price.
At the money
Out of the money
In the money
European
UnAttempted
CORRECT ANSWER:
In the money
Explanation:
A call option with a strike price that is lower than the market price of the
underlying asset, or a put option with a strike price that is higher than the market
For example, consider a stock that is trading at Rs 100. For such a stock, call
options with strike prices below Rs 100 would be In the money calls ( ie Rs 80, Rs
90 calls) while put options with strike prices above Rs 100 (Rs 110 , Rs 120 calls
etc.)would be In the money puts.
For easy understanding, those calls or puts which are profitable are In the
Money.
Q In index futures, if the near leg of the calendar spread

99.
transaction expires then the farther leg becomes a regular
open position.
True
False
UnAttempted
CORRECT ANSWER:
True
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 A short seller ___________.

100.
Must own the share
Must own at least 75% of the shares
Need not own the shares
None of the above
UnAttempted
CORRECT 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 1. The relationship between the spot price and the future price is
known as _____ .
Dividend
Risk premium
Payout difference
Cost of Carry
UnAttempted
CORRECT ANSWER:
Cost of Carry
Explanation:
Cost of Carry is the relationship between futures prices and spot prices. For
equity derivatives, carrying cost is the interest paid to finance the purchase less
(minus) dividend earned.
Q 2. Longer the time to maturity of a PUT option, higher will be its

________ .
Arbitrage value
Technical and Fundamental value
Intrinsic value
Time value
UnAttempted
CORRECT ANSWER:
Time value
Explanation:
Time value of the option depends upon how much time is remaining for the option
to expire. Longer the time to maturity, higher will be the time value.
The effect of time to expiration on both call and put options is similar to that of
volatility on option premiums. Generally, longer the maturity of the option greater
is the uncertainty and hence the higher premiums. If all other factors affecting an
option’s price remain same, the time value portion of an option’s premium will
decrease with the passage of time.
Q 3. The price of Stock P and the price of stock Q is the same at

Rs. 500. If every thing else is constant and if Stock P is more
volatile than Stock Q, the call option on ______ will be priced
higher.
Stock P
Stock Q
Both calls will be equally priced
Inadequate information
UnAttempted
CORRECT ANSWER:
Stock P
Explanation:
More the volatility in a stock, higher will be its price of its call and put option as
compared to less volatile stocks of the same price.
Vega is the measure of the sensitivity of an option price to changes in market

volatility. It is the change of an option premium for a given change in the
underlying volatility.
Q 4. Identify the correct statement with respect to a short position
in a PUT option.
Short position in a put option can be closed out by executing a long
position in a put option with any exercise date and exercise price
position in a put option with the same exercise date and exercise
price
Short position in a put option can be closed out by executing a
short position in a call option with the same exercise date and
exercise price
position in a call option with the same exercise date and exercise
price
UnAttempted
CORRECT ANSWER:
Short position in a put option can be closed out by executing a long position
in a put option with the same exercise date and exercise price
Explanation:
A short position in a Put Option can be closed out (squared up) only by buying
the same Put Option of the same exercise date and exercise (strike) price.
Q 5. Which of these is not included in the Indian equity derivatives

market ?
Individual stock options
Individual stock futures
Options on equity market indices
UnAttempted
CORRECT ANSWER:
Explanation:
Although NSE and BSE allows trading in interest rate futures but it is not a part
of equity derivatives.
Q 6. The last Thursday is usually the last trading day of a future

series. If its a holiday on this day then which will be last
trading day?
The next working day
The previous working day
The first day of the next month
Two days after
UnAttempted
CORRECT ANSWER:
The previous working day
Explanation:
Expiration Day: This is the day on which a derivative contract ceases to exist. It
is the last trading day of the contract. Generally, it is the last Thursday of the
expiry. If the last Thursday is a trading holiday, the contracts expire on the
previous trading day.
Q 7. Which tax is applicable on the transactions done on a

recognised Indian stock exchange?
Stock Subversion Tax
Derivatives Transaction Tax
Securities Trading Tax
UnAttempted
CORRECT ANSWER:
Explanation:
Securities Transaction Tax (STT) is levied on every purchase and sale of

securities that are listed on the Indian stock exchanges. STT is levied on
transactions involving equity, derivatives and equity oriented mutual funds.
Q 8. Option premium is the price which is paid by the _______ .

Option seller to option buyer
Option buyer to option seller
Option buyer and option seller to the exchange
Option buyer and option seller to a third party
UnAttempted
CORRECT ANSWER:
Option buyer to option seller
Explanation:
Option Premium is the price which the option buyer pays to the option seller.
Q 9. A 'Closing buy transaction' is a buy transaction which will

have the effect of offsetting a ______ .
Long position
Short position
Cross position
High position
UnAttempted
CORRECT ANSWER:
Short position
Explanation:
Creating a Short Position means selling the asset on an exchange with a view to
buy it back when the price falls.
So a Closing Buy transaction will be used to buy back / offset the short position
created.
Q Which of these is an order with a time condition?

10.
Market Order
Limit Order
Stop Loss order
Good Till Cancelled Order
UnAttempted
CORRECT ANSWER:
Good Till Cancelled Order
Explanation:
Good Till Cancel (GTC) is a type of order that enables client to place buying and
selling orders with specifying time interval for which instruction of request
remains valid. The maximum validity of a GTC order is 365 days.
Q Mr. Subu has buy position in a stock, he can cover his long
11.
position in the stock by selling ____ .
Any index stock of equal quantity
Any security of equal quantity
The same stock and same quantity
Any 'A' group stock of equal quantity
UnAttempted
CORRECT ANSWER:
The same stock and same quantity
Explanation:
To square up / cover a long position, the same quantity of the same stock has to
be sold.
Q For extra-ordinary dividends above 5% of the market value of
12.
the underlying security, the amount of dividend is _____ the
strike price of options on the stock.
divided by
subtracted from
added to
multiplied to
UnAttempted
CORRECT ANSWER:
subtracted from
Explanation:
In case of declaration of "extra-ordinary" dividend by any company, the total

dividend amount (special and / or ordinary) would be reduced from all the strike
prices of the option contracts on that stock. The revised strike prices would be
applicable from the ex-dividend date specified by the exchange.
Q Initial Margin can be paid by ________ .

13.
Bank guarantee
Bank transfer of funds
Acceptable securities
All of the above
UnAttempted
CORRECT ANSWER:
All of the above
Explanation:
This can be paid by Cash, Bank Guarantee, Fixed Deposit Receipts and approved
securities etc.
Q Which of these is true for an 'In-the-money' option ?

14.
'In-the-money' has a negative intrinsic value
'In-the-money' option has zero time value
'In-the-money' option cannot be profitably exercised by the holder
immediately
'In-the-money' has a positive intrinsic value
UnAttempted
CORRECT ANSWER:
'In-the-money' has a positive intrinsic value
Explanation:
In-the-money (ITM) option: This option would give the option holder a positive
cash flow, if it were exercised immediately.
The intrinsic value of an option refers to the amount by which the option is in-
themoney i.e., the amount an option buyer will realize, before adjusting for
premium paid, if he exercises the option instantly. Therefore, only in-the-money
options have intrinsic value whereas at-the-money and out-of-the-money options
have zero intrinsic value.
The intrinsic value of an option can never be negative.
Q A CALL OPTION will give the buyer the _______ .

15.
Right to sell the underlying asset
Right to buy the underlying asset
Obligation to sell the underlying asset
Obligation to buy the underlying asset
UnAttempted
CORRECT ANSWER:
Right to buy the underlying asset
Explanation:
A call option gives the buyer the right but not the obligation to buy from the seller
an underlying asset at the prevailing market price on or before the expiry date.
Q In the derivatives exchange, the networth requirement for a

16.
clearing member is less than that of a non-clearing member -
State whether true or false?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
In a derivative exchange, the networth requirement for a clearing member is

higher than that of a non-clearing member.
Q The New York stock exchange has two important indices -

17.
Dow Jones (DJIA) and Standard and Poor 500 (S&P 500). The
DJIA is a _______ index where as the S&P 500 is a ______
index.
Very Liquid , Very Illiquid
Fully Diversified, Fully Concentrated
Narrow , Broad
Broad , Narrow
UnAttempted
CORRECT ANSWER:
Narrow , Broad
Explanation:
The Dow Jones Industrial Average (DJIA) a stock market index of 30 prominent
companies listed on stock exchanges in the United States.
The Standard and Poor's 500, or simply the S&P 500, is a stock market index
tracking the stock performance of 500 large companies listed on stock exchanges
in the United States.
Therefore, Dow Jones can be considered as narrow index as it covers only 30

companies where as S&P is a broad index as it covers 500 companies.
Q Identify the correct statement for 'In-the-money' Call Option?
18.
Strike price will be higher than the market price
Strike price will be zero
Exercise price would be equal to the market price
Strike price will be lower than the market price
UnAttempted
CORRECT ANSWER:
Strike price will be lower than the market price
Explanation:
In-the-money (ITM) option: This option would give the option holder a positive
cash flow, if it were exercised immediately.
A call option is said to be ITM, when market price is higher than strike price.
(A put option is said to be ITM when market price is lower than strike price)
Q A Clearing member has to deposit liquid assets with the

19.
Clearing Corporation but these liquid assets cannot comprise
entirely of _________ .
Equity Shares
T Bills (Treasury Bills)
Cash
Fixed Deposits
UnAttempted
CORRECT ANSWER:
Equity Shares
Explanation:

various margins and liquid Net-worth requirements. The total liquid assets
comprise of at least 50% of the cash component and the rest is non-cash
component – This means 50% to 100% can be the cash component. Non-cash
component cannot be more than 50%.
All collateral deposits are segregated into cash component and non-cash
component. Cash component means cash, bank guarantee, fixed deposit
receipts, T-bills and dated government securities. Non-cash component means
all other forms of collateral deposits like deposit of approved demat equity
securities.
Q A trader has sold a ABC futures contract (contract multiplier

20.
50) at 2500 and bought it back at 2700, what is the gain/loss
for the trader?
A gain of Rs. 10,000
A loss of Rs. 10,000
A gain of Rs. 15,000
UnAttempted
CORRECT ANSWER:
Explanation:
You had sold ABC futures believing that its price will fall down, but it has risen -
so there will be a loss.
2500 - 2700 = -200 Loss

-200 x 50 shares = - Rs 10000
Q Identify the CORRECT statement?

21.
The margins paid by institutional investors are higher than retail
investors
Margins in derivatives trading depend on volatility and price
movement of the underlying
The margins paid by retail investors are higher than institutional
investors
There are no margins on derivatives trading for Institutional
investors
UnAttempted
CORRECT ANSWER:
Margins in derivatives trading depend on volatility and price movement of the

underlying
Explanation:
Margins payable for a derivative instrument depends on the level of volatility in

prices of that instrument. As high volatility assets carry more risk, the exchange
would charge higher initial margin on them.
(Both Institutional investors and Retail investors pay the same margin)
Q If the futures price is declining but open interest is increasing,

22.
it indicates a ________ .
Bullish trend
Bearish trend
No trade trend
None of the above
UnAttempted
CORRECT ANSWER:
Bearish trend
Explanation:
If the futures price is declining but open interest is increasing, it indicates a build-
up of short positions and a bearish trend. Traders usually tend to go short on the
futures in such a scenario.
Q Intraday trading can be done in the case of _______ .

23.
All ETF units
All active mutual fund units
All index mutual fund units
All of the above
UnAttempted
CORRECT ANSWER:
All ETF units
Explanation:
Exchange Traded Funds (ETFs) is basket of securities that trade like individual
stock, on an exchange. They have number of advantages over other mutual funds
units as they can be bought and sold on the exchange. Since, ETFs are traded on
exchanges, intraday transaction is possible.
Q Everest Ltd. entered into a contract with Bank of Baroda

24.
under which Everest Ltd will receive interest at 7.5% p.a. and
pay interest to Bank of Baroda at MIBOR on a principal of Rs.
25 crore for a period of 3 years from today. This contract is
known as ______ .
Swap
Option contract
Futures contract
Forward contract
UnAttempted
CORRECT ANSWER:
Swap
Explanation:
A Swap is an agreement made between two parties to exchange cash flows in the
future according to a prearranged formula. Swaps are, broadly speaking, series
of forward contracts. Swaps help market participants manage risk associated
with volatile interest rates, currency exchange rates and commodity prices.
Q As strike price of put option is taken down, its intrinsic value

25.
______ .
Goes up
Goes down
Does not change
None of the above
UnAttempted
CORRECT ANSWER:
Goes down
Explanation:
The intrinsic value of an option refers to the amount by which the 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 a put option which is In-the-money, the intrinsic value is the excess of Strike
price (X) over the spot price (S). Thus, the intrinsic value of put option can be
calculated as X-S, with a minimum value possible as zero.
For eg – If strike price is 100 and spot price is 90, the intrinsic value is 10
If the strike price is reduced to 95, the intrinsic value will be 5.
Q SCORES is: __________

26.
Customer Due Diligence and e-KYC system
Exchange’s Margin Reporting System
Collateral Reporting System of Clearing Corporation
SEBI’s web-based complaints redressal system
UnAttempted
CORRECT ANSWER:
SEBI’s web-based complaints redressal system

Explanation:
SEBI’s web based complaints redressal system is called SCORES (Sebi

COmplaints REdress System).
SCORES is a centralized grievance management system with tracking

mechanism to know the latest updates and time taken for resolution.
Q Everest Mutual Fund had floated a new fund offer and

27.
received Rs. 500 crores from the investors. The fund manager
of this fund is planning to invest this amount over the next
one month in buying 25 high growth stocks. He can hedge the
risk in this planned purchase of stock by executing
__________ .
A long hedge using put options on each of the 25 stocks
A short hedge using future contracts on each of the 25 stocks
A long hedge using index futures
A short hedge using index futures
UnAttempted
CORRECT ANSWER:
A long hedge using put options on each of the 25 stocks
Explanation:
A long hedge can be created for all the 25 stocks using put options as follows :
The fund manager sells the put options of the 25 stocks as per required quantity.
He has now locked his prices. If the price falls, he can buy them in the spot market
(at lower prices) and square up his put options at a loss.
If the prices rise, he squares up is options at a profit and buys in the spot market
at a higher price.
Therefore, in both the situations, his purchase price is not affected.

Q When there is high volatility in the stock markets, the Bid-Ask
28.
spreads will generally _______ .
widen
narrow
will become zero
There will no change in the bid-ask spreads
UnAttempted
CORRECT ANSWER:
widen
Explanation:
Gap between the bid and ask prices is known as the bid-ask spread.
Volatility measures the severity of price changes for a security. When volatility
is high, price changes are drastic. Bid-ask spreads usually widen in highly
volatile environments, as investors and market makers attempt to take
advantage of agitated market conditions.
Q If all other features are same, an American Call Option will not
29.
have a value less than that of European option.
The above statement is FALSE
The above statement is TRUE
Value depends on market conditions and this cannot be
ascertained
UnAttempted
CORRECT ANSWER:
The above statement is TRUE
Explanation:
American option: In case of an American option, the owner (buyer/holder) of such

option can exercise his right at any time on or before the expiry date/day of the
contract
European option: In case of a European option, the owner (buyer/holder) of such

option can exercise his right only on the expiry date/day of the contract
American options are generally valued higher than European options

as American options allow option holders to exercise the option at any time
prior its maturity date, thus increasing the value of the option to the holder
relative to European options, which can only be exercised at maturity.
In India, all index and stock options are European style options.
Q The equity shares which have been given by the clearing

30.
members to the clearing corporation as a part of liquid assets
are generally NOT marked to market on a regular basis - State
True or False?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
The equity shares which are kept with clearing corporation as a part of liquid
assets are marked to market at regular intervals to check if their value has fallen
down. If there is a fall, additional liquid assets will have to be kept.
( For eg, In NSE, the securities are valued based on the closing price of the security at NSE.
The value of the securities is reduced by such haircut as may be prescribed by the Clearing
Corporation from time to time to arrive at the collateral value of the security. The hair cut
applicable shall be as specified in the monthly circular for approved list of securities. Only the
value net of applicable haircuts shall be considered as the value of the securities pledged.
Valuation of securities are done by approved custodians at periodic intervals as specified by
the Clearing Corporation from time to time.)
Q In the Indian derivatives exchange, the matching of bids and

31.
offers take place _____ .
online and immediately
at the day's end
at the end of each hour
at the end of each minute
UnAttempted
CORRECT ANSWER:
online and immediately
Explanation:
In India, derivatives platforms offer an order driven market, wherein orders match
automatically online on price time priority basis.
Orders, as and when they are received, are first time stamped and then
immediately processed for potential match. If a match is not found, then the
orders are stored in different 'books'.
Q _______ gives the right to sell an asset for a certain price on
32.
or before a specified date.
European Call option
European Put option
American Call option
American Put option
UnAttempted
CORRECT ANSWER:
American Put option
Explanation:
A Put Option gives the holder the right to sell the underlying asset on or before a
particular date for a certain price.
expiry date/day of the contract. In India, all Index and stock options are European)
Q Identify the CORRECT statement from the given options -

33.
A professional clearing member has the permission to trade on his
own account as well as clear trades for others
A member, who is registered as self-clearing member on
derivatives exchange can also clear trades of other trading
members
A trading member on a registered derivatives exchange need not
be registered with SEBI
A member. who is registered as trading member on derivatives
exchange will not have clearing rights
UnAttempted
CORRECT ANSWER:
A member. who is registered as trading member on derivatives exchange

will not have clearing rights
Explanation:
A trading member can trade either on behalf of their clients or on their own
account. They do not have clearing rights.
A Trading cum Clearing Member can clear and settle their own proprietary trades,
their clients' trades as well as trades of other Trading Members and Custodial
Participants.
Q As per the Income Tax Act, any loss on derivatives

34.
transaction can be set-off against which income in the same
year?
Income from Salary
Income from Capital Gains
Income from any other business
Income from House property
UnAttempted
CORRECT ANSWER:
Income from any other business
Explanation:
Finance Act, 2005 implies that income or loss on derivative transactions which
are carried out in a “recognized stock exchange” is not taxed as speculative
income or loss. Thus, loss on derivative transactions can be set off against any
other income during the year (except salary income).
Q Mr. Jones buys a put option with higher strike price and at the
35.
same time sells another put option with lower strike price,
both on the same underlying share and same expiration date.
This strategy is known as ______ .
Butterfly spread
Calendar spread
Bearish spread
Bullish spread
UnAttempted
CORRECT ANSWER:
Bearish spread
Explanation:
Bearish Vertical Spread using Puts : A trader is bearish on the market and so
goes long in one put option with higher strike price by paying a premium. Further,
to reduce his cost, he shorts another low strike put and receives a premium.
This is done on the same underlying with same expiry date.
Q A member has two client M and N. M has bought 300 contracts

36.
and N has sold 250 contracts in October ABC futures series.
Calculate the outstanding liability (open position) of the
member towards Clearing Corporation in number of
contracts?
550
50
300
NIL
UnAttempted
CORRECT ANSWER:
550
Explanation:
While calculating the outstanding liability of a member, the total of all clients open
position is taken into account. The positions cannot be netted against two clients.
So in the above case the total open position is 300 + 250 = 550 contracts.
Q In the books of account of the client, the balance in the Initial

37.
Margin account on the Balance Sheet date must be shown
under the head ________ .
Reserves and surplus
Investments
Current Liabilities
Current Assets
UnAttempted
CORRECT ANSWER:
Current Assets
Explanation:
The buyer and seller of futures contract and the seller/ writer of the options is
required to pay initial margin for entering into the such contract. It should be
debited to an appropriate account. In the balance sheet, such account should be
shown separately under the head "Current Assets".
Q Calculate the Intrinsic Value for the following Call option :

38.
Current price of the stock - Rs. 340. Call option of strike price
Rs. 300 is quoted at Rs. 56
Rs. 16
Rs. 40
Rs. 56
NIL
UnAttempted
CORRECT ANSWER:
Rs. 40
Explanation:
When the Strike Price is below the Spot Price, the Call Option is 'In the Money' ie.
profitable.
Intrinsic Value for a such a Call Option = Spot Price - Strike Price
= 340 - 300
= 40
Q To confirm whether a futures transaction is for hedging or for
39.
speculation is centered on ______ .
basic intention of the person entering into the transaction
whether there already exists a related commercial position which is
has a risk of loss due to price movement
whether the futures position is held till expiry date
whether the transaction has resulted in a profit or a loss
UnAttempted
CORRECT ANSWER:
whether there already exists a related commercial position which is has a

risk of loss due to price movement
Explanation:
Hedging basically means doing a trade 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.
An example of a hedge would be if you owned a stock, then sold a futures contract
stating that you will sell your stock at a set price, therefore avoiding market
fluctuations.
Q Who decides the daily settlement price for equity derivatives

40.
contracts?
ICAI
RBI
SEBI
The Clearing Corporation / The Exchange
UnAttempted
CORRECT ANSWER:
The Clearing Corporation / The Exchange
Explanation:
The exchange follows a daily settlement procedure for open positions in equity
index and stock futures contracts.
All open positions are settled daily based on the daily settlement price of the
futures contracts, which is calculated by the exchange on the basis of the last
half-an-hour weighted average price of that futures contract.
Q If there is a debit balance in the _________ , it represents

41.
anticipated loss on a futures contract.
Mark-to-market Margin account
Additional Margin account
Initial Margin account
Exposure Margin account
UnAttempted
CORRECT ANSWER:
Mark-to-market Margin account
Explanation:
Accounting for open interests as on the balance sheet date : Keeping in view
"prudence" principle, provisions should be created by a debit to the profit and
loss account for anticipated loss equivalent to the debit balance in the "Mark-to-
Market Margin Account".
Q Which of these strategy has a same pay-of profile as that of
42.
Covered Call strategy?
Bearish Call spread
Short Put strategy
Long Put strategy
Bullish Put spread
UnAttempted
CORRECT ANSWER:
Short Put strategy
Explanation:
Covered call : This strategy is used to generate extra income from existing
holdings in the cash market. If an investor has bought a stock and intends to hold
it for some time, then he would like to earn some income on the stockholding,
without selling the stock.
The covered call restricts the ‘upside’ or gains from the position while leaving a
scope for unlimited losses. Hence, the covered call is called a ‘synthetic short
put’ position.
Q Value-at-risk measures the ________ .

43.
Credit rating of the investor
Networth of the investor
Value of proprietary portfolio
UnAttempted
CORRECT ANSWER:

Explanation:
Value-at-risk measures the expected maximum loss, which may be incurred by a

portfolio over a given period of time and specified confidence level.
Q Arbitrageurs are considered to be critical link between ______

44.
.
Derivative markets in different locations
Cash market and derivatives market on the same exchange
Cash markets in different locations/exchanges
All of the above
UnAttempted
CORRECT ANSWER:
All of the above
Explanation:
An arbitrage is a deal that produces risk-free profits by exploiting a mispricing in

the market. A simple arbitrage occurs when a trader purchases an asset cheaply
in one location/ exchange and simultaneously arranges to sell it at another
location/ exchange at a higher price.
Therefore, arbitrage can be between cash and derivatives market on the same
exchange or cash markets in different exchanges or derivatives market in
different exchanges/locations etc.
Q The MTM (Mark-to-Market) margin is always equal to the Initial
45.
margin - True or False?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
The initial margin is collected only once, when the trader enters into a derivatives
contract. The initial margin is based on the Value-at-Risk (VaR) method etc.
The Mark-to-market margin is calculated and collected/paid on a daily basis

depending on the price movement of the security.
Q What is the lot size for contracts on individual stock

46.
futures/options ?
It differs from stock to stock
It is 1000 for all stocks
UnAttempted
CORRECT ANSWER:
It differs from stock to stock
Explanation:
Futures / Option contracts are traded in lots. The lot size or contract size for the
index and stock futures is determined by the exchange. Contract sizes are
different for each stock and index traded in the derivatives segment.
The contract size can be changed by the exchange from time to time, depending
upon the changes in the index level and stock prices.
Q Rho is linked to the ________ .

47.
Volatility of the stock / asset
Time to option expiry
Underlying asset price
UnAttempted
CORRECT ANSWER:
Explanation:
free interest rate.
Rho measures the change in an option’s price per unit increase in the cost of
funding the underlying.
Rho = Change in an option premium / Change in cost of funding the underlying.
Q An investor, who is anticipating a broad stock market fall, but

48.
is not willing to sell his entire portfolio of stocks, can offset
his potential losses by shorting a certain number of Index
futures.
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
Index derivatives are useful as a tool to hedge against the market risk. An investor
with a diversified equity portfolio, who wants to protect his portfolio from any
temporary correction in the stock market can sell index futures for this purpose.
Q If the share price of ABC share increases by Rs 5 and the

49.
delta of its option is 0.5, then by how much will the option
price rise ?
Rs. 5
Rs. 10
Rs. 2.50
Rs. 1
UnAttempted
CORRECT ANSWER:
Rs. 2.50
Explanation:
In this case the price has moved by Rs 5 and the delta is 0.5,
So Option Price will move by Rs 5 x 0.5 = Rs 2.50
Q The buyer of an option is one who has a _______ but not the
50.
______ to buy/sell the underlying asset in the contract.
Right , Obligation
Obligation , Right
Duty , Claim
Claim , Duty
UnAttempted
CORRECT ANSWER:
Right , Obligation
Explanation:
Buyer of an option: The buyer of an option is one who has a right but not the
obligation in the contract.
For owning this right, he pays a price called ‘option premium’ to the seller of this
right. He will have a right to buy the underlying asset in case of a call option and
will have a right to sell the underlying asset in case of a put option.
Q According to the corporate hierarchy for users defined in the

51.
trading system for stock exchanges, the exposure limits for
the branches of the broking firm can be defined only by the
________ .
Dealer
Branch Manager
Corporate Manager
Firm Manager
UnAttempted
CORRECT ANSWER:
Corporate Manager
Explanation:
In the Futures and options trading software, trading member will have a provision
of defining the hierarchy amongst users of the system. This hierarchy
comprises: Corporate Manager, Branch Manager and Dealer
Corporate Manager : As a user, it is the highest level in a trading firm. Corporate

Manager can perform all the functions such as order and trade related activities,
receiving reports for all branches of the trading member firm and also all dealers
of the firm. Along with this he can also define exposure limits for the branches of
the firm. This facility is available only to the corporate manager.
Q At a price level of Rs. 6300, what will be the value of one lot of
52.
ABC futures contract (Contract multiplier 50)?
Rs. 5,00,000
Rs. 3,15,000
Rs. 6,30,000
Rs. 4,25,000
UnAttempted
CORRECT ANSWER:
Rs. 3,15,000
Explanation:
The value of the futures contract is the Price X Lot size
= Rs 6300 X 50 = Rs 315000
Q In a one-month CALL option on PQR stock with a strike price

53.
of Rs. 700 is Out-of-the money. Identify which of these could
be the spot price of PQR stock?
Rs. 650
Rs. 700
Rs. 750
UnAttempted
CORRECT ANSWER:
Rs. 650
Explanation:
Out-of-the-money option is one with strike price worse than the spot price for the
holder of option. In other words, this option would give the holder a negative cash
flow if it were exercised immediately. A call option is said to be OTM, when spot
price is lower than strike price.
In the above question, the strike price is 700, therefore, when the spot price of
650, it will be Out-of-the-money call option.
Q Identify the FALSE statement with respect to Impact Cost.
54.
Impact cost is also to be considered while selecting stocks to be
included in the index
Impact cost is the same for the seller and the buyer of the stock
Impact cost varies as per the transaction size
Impact cost of a stock is a measure of its liquidity
UnAttempted
CORRECT ANSWER:
Impact cost is the same for the seller and the buyer of the stock
Explanation:
Impact cost represents the cost of executing a transaction in a given stock, for a
specific predefined order size, at any given point of time. It is the cost that a buyer
or seller of stocks incurs while executing a transaction due to the prevailing
liquidity condition on the counter.
Impact cost can be different for buyers and sellers. For eg. - If there less sellers
of a particular security in the market, then the impact cost will be higher for the
buyers and vice versa.
Q ________ is an example of a derivative on energy resources.

55.
Silver futures
Copper futures
Natural gas futures
Rubber futures
UnAttempted
CORRECT ANSWER:
Natural gas futures

Explanation:
Derivatives are also based on energy resources such as Oil (crude oil, products,
cracks), Coal, Electricity, Natural Gas, etc.
Q Which function of the Exchange is focussed at maintaining

56.
stability in the derivatives market?
Risk Management
Investor grievance handling
Arbitration
Listing
UnAttempted
CORRECT ANSWER:
Risk Management
Explanation:
Derivatives market enables the shift of speculative trades from unorganized

market to organized market. Risk management mechanism and surveillance of
activities of various participants in organized space provide stability to the
financial system.
Q Which are the two most important things to be considered

57.
while constructing an index?
Liquidity and market capitalisation
Impact cost and tracking error
Risk and return
Diversification and liquidity
UnAttempted
CORRECT ANSWER:
Diversification and liquidity
Explanation:
A good index is a trade-off between diversification and liquidity. A well-diversified

index reflects the behaviour of the overall market/economy.
Q Mr. Surya has gone long on April Futures on ABC stock at

58.
1200. He will make a loss if futures price move to _______ .
1250
1375
1225
1175
UnAttempted
CORRECT ANSWER:
1175
Explanation:
A long futures position will be loss making if the price falls below the purchase
price. In the above question, the purchase price is Rs 1200. Therefore, when the
futures price moves to Rs 1175, there will be losses.
Q A trading member has to issue which of these documents to
59.
all its clients?
Risk Control Document
Risk Identification Document
Risk Disclosure Document
Risk Monitoring Document
UnAttempted
CORRECT ANSWER:
Risk Disclosure Document
Explanation:
Brokers are required to make their clients understand the risks involved in trading
derivatives and get a copy of the Risk Disclosure Document signed by their
clients at the time of client on-boarding.
The Risk Disclosure Document highlights the risk involved in trading on stock
exchanges, and the rights and obligations of the broker and their clients.
Q Which of these derivative contracts cannot be usually closed

60.
or reversed till their expiry?
Future contracts
Forward contracts
Exchange traded options
Exchange traded options on futures
UnAttempted
CORRECT ANSWER:
Forward contracts
Explanation:
two parties to the contract.
The tailor made contracts and their non-availability on exchanges creates

illiquidity in the contracts. Therefore, it is very difficult for parties to exit from the
forward contract before the contract’s maturity.
Q A buyer of Out-Of-the-Money (OTM) Call option is _______ .

61.
Bullish and pays the premium
Bullish and receives the premium
Bearish and pays the premium
Bearish and receives the premium
UnAttempted
CORRECT ANSWER:
Bullish and pays the premium
Explanation:
A buyer of a Call Option, whether ITM, ATM or OTM, is bullish and payer of
premium.
Q Mr. Manoj is Nifty trader and feels that Nifty has fallen sharply
62.
in the last few days to 17500 levels and should bounce back to
17700 levels over the next week. Which option based strategy
should Mr. Manoj use to back his view?
He should take a long position in 17500 call and short position in
17700 call
He should take a long position in 17500 put and short position in
17100 put
He should take a short position in 17500 call and short position in
17100 call
He should take a short position in 17500 call and long position in
17700 call
UnAttempted
CORRECT ANSWER:
He should take a long position in 17500 call and short position in 17700 call
Explanation:
As Mr. Manoj is bullish on the index, he will take a long position in Call option.
Also, as he feels that the index will not rise above 17700, he will take a short
position for it by selling the 17700 Call option.
(Buying a Call is bullish and selling a Call is a bearish/flat view)
Q A ______ is not a Trading Member but clears and settles the

63.
trades of Trading Members and institutional clients.
Trading cum clearing member
Custodial participant
Self clearing member
Professional clearing member
UnAttempted
CORRECT ANSWER:
Professional clearing member
Explanation:
Professional Clearing Member: Professional clearing member clears the trades

of his associate Trading Member and institutional clients. PCM is not a Trading
Member of the exchange. Typically banks or custodians become a PCM and clear
and settle for Trading Members as well as for Custodial Participants.
Q Identify which of these is NOT an example of hedge.

64.
A fund manager is expecting market volatility after RBI policy, buys
index put options to limit the loss on his portfolio
An exporter is expecting to receive dollars after 1 month, takes a
short position in one-month USDINR futures to lock in his dollar
price
Mr. Patil, a stock trader is bullish on the market and therefore buys
an out-of -the-money index call and sells an out-of-the-money
index put option
A trader with a short index futures position buys an out-of-the-
money call on the index so as to limit his loss
UnAttempted
CORRECT ANSWER:
Mr. Patil, a stock trader is bullish on the market and therefore buys an out-of
-the-money index call and sells an out-of-the-money index put option
Explanation:
A hedge is basically created to safeguard an existing position. It is to minimise
the losses or lock a profit.
In ‘A stock trader is bullish on the market and buys an out-of -the-money index
call and sells an out-of-the-money index put option’ - the trader has a view on the
market and makes a trading strategy accordingly. This is not hedging.
Q Speculators are those who wish to _____ risks whereas

65.
hedgers are those who wish to _____ risks.
Decrease, Increase
Take, Reduce
Reduce, Decrease
Increase, Take
UnAttempted
CORRECT ANSWER:
Take, Reduce
Explanation:
Derivatives market helps in transfer of various risks from those who are exposed
to risk but have low risk appetite to participants with high risk appetite.
For example, hedgers want to give away the risk where as traders/speculators are
willing to take risk.
Q What is the 'ASK PRICE'?

66.
It is the price at which market maker is prepared to lend
It is the price at which market maker is prepared to buy
It is the price at which market maker is prepared to sell
It is the price at which market maker is prepared to buy or sell as
per market conditions
UnAttempted
CORRECT ANSWER:
It is the price at which market maker is prepared to sell
Explanation:
Bid price is the price the buyer is willing to pay and Ask price is the price at which
the seller is willing to sell.
For eg. If the Bid-Ask price for a security is 100 – 101, this means 101 is the ask
price and this is the price at which the seller is willing to sell.
The term market maker refers to a firm or individual who actively quotes two-
sided markets in a particular security, providing bids and offers (known as Asks).
Q The terms of the contract are decided by mutual agreement

67.
between the parties in a futures contract. State whether True
or False?
True
False
UnAttempted
CORRECT ANSWER:
False
Explanation:
In futures market, the exchange (not the parties) decides all the terms of the
contract other than price.
(Forwards are bilateral over-the-counter (OTC) transactions where the terms of

the contract, such as price, quantity, quality, time and place are negotiated
between two parties to the contract)
Q When the order is 'Immediate-Or-Cancel' then the unmatched

68.
portion of the order is ________ .
Is added to the order book as a limit order
Is cancelled immediately
Executed after the normal trading hours
Is executed the next trading day
UnAttempted
CORRECT ANSWER:
Is cancelled immediately
Explanation:
Immediate or cancel (IOC) order: User is allowed to buy/sell a contract as soon

as this order is released into the trading system. An unmatched order will be
immediately cancelled. Partial order match is possible in this order, and the
unmatched portion of the order is cancelled immediately.
Q Which of the following is closest to the forward price of a
69.
share, if Cash Price = Rs.750, Forward Contract Maturity = 6
months from date, Market Interest rate = 12%?
795
840
940.8
772.5
UnAttempted
CORRECT ANSWER:
795
Explanation:
Forward/futures price of share can be calulated by adding the interest cost to its
current price.
6 months maturity means half year of interest cost.
12% of 750 = Rs. 90 is the full year interest cost
Half year interest cost = 90/2 = 45
750 + 45 = 795 is closest to six month forward price
Q The IPF (Investor Protection Fund) for the derivatives segment

70.
is ________ .
Same as that of cash segment
Independent of that of cash segment
There is no IPF in derivatives segment
100% Contributed by Ministry of Finance
UnAttempted
CORRECT ANSWER:
Independent of that of cash segment
Explanation:
Clearing corporations are required to have in place a Core Settlement Guarantee

Fund (Core SGF). The primary objective of the Core SGF is to have a fund for each
segment (for e.g., Cash, F&O, CD, etc.) to guarantee the settlement of trades
executed in the respective segment of the stock exchange.
The Investor Protection Fund Trust, based on the recommendations of the

Member and Core Settlement Guarantee Fund Committee, compensates the
investors to the extent of funds found insufficient in Defaulters' account to meet
the admitted value of claim.
Q Mr. Sriniwas takes a short position in a call option but does

71.
not take any offsetting position in the underlying stock. This
strategy is known as ______ .
Butterfly strategy
Protective put strategy
UnAttempted
CORRECT ANSWER:
Explanation:
Naked position in options market simply means a long or short position in any
option contract without having any position in the underlying asset.
When one sells (short) a call it is also known as 'writing' a call.
So the above strategy is - Writing a naked call option.
Q With regards to futures market, BASIS is the _______ .

72.
price of the underlying stock
difference in price between spot and future prices
risk free rate of interest
volatility in the stock
UnAttempted
CORRECT ANSWER:
difference in price between spot and future prices
Explanation:
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 If the futures price of a stock is ______ and open interest of

73.
the futures contract of that stock is ______, then it signals a
bullish trend.
Falling , Rising
Rising , Falling
Rising , Rising
Falling , Falling
UnAttempted
CORRECT ANSWER:
Rising , Rising
Explanation:
Traders can decide whether to buy or sell futures based on changes in the open
interest and the futures price.
For eg - If the futures price is rising and open interest of the futures contract is
also increasing, it signals a bullish trend. Traders usually prefer to go long the
futures in such situations.
Q Each forward contract can have a different delivery location, a

74.
different maturity date and a different contract size. State
whether True or False?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
Forward contract is a contractual agreement between two parties to buy/sell an
underlying asset at a certain future date for a particular price that is pre-decided
on the date of contract.
Since forwards are negotiated between two parties, the terms and conditions of
contracts are customized. Each contract can have a different delivery location,
maturity date and contract size.
Q State whether True or False - The Clearing Corporation of an

75.
Exchange has the power to disable a defaulting clearing
member from trading further.
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
The Clearing Corporation has powers to levy additional margins, special

margins, define maximum exposure limits and disable brokers from trading.
Q Mr. Ashish had purchased 25 PUT options on a stock X by

76.
paying a premium of Rs 20 per put (strike price of Rs 180). The
stock price has closed at Rs 240 on the exercise date. In such
a situation. Mr. Ashish will choose to _____ .
Exercise the option
Exercise the option but should decline giving delivery of the
underlying
Exercise the option as he likes the company X and its
management
UnAttempted
CORRECT ANSWER:
Explanation:
Mr. Ashish has bought Put options assuming that prices will fall and he will make
a profit.
But the price has risen and he is in a loss. So he will choose not to exercise his
option. His loss will be restricted to the premium paid.
Q What does 'Contract Month' mean?

77.
The month of beginning of the futures contract
The month of expiry of futures contract
The month in which the transaction is done
None of the above
UnAttempted
CORRECT ANSWER:
The month of expiry of futures contract
Explanation:
Contract month is the maturity (expiry) month of the contract.

For eg - A trader may buy a March month contract in January. But the contract
month will be March.
Q How can an open position in a futures contract be closed?

78.
It has to be closed compulsorily before maturity
It can be closed by intra day transactions only
It can be closed only at maturity
It can be closed anytime on or before the date of maturity through
reversed (square-off) transaction
UnAttempted
CORRECT ANSWER:
It can be closed anytime on or before the date of maturity through reversed

(square-off) transaction
Explanation:
A futures position can be closed anytime before the maturity date by squaring off
the transaction.
Q If you are a seller of put option, you expect ___________ of the

79.
underlying asset.
No change in the price
Increase in the price
Both of the above
Decrease in the price
UnAttempted
CORRECT ANSWER:
Both of the above
Explanation:
When you sell a put option you expect the price to rise. Even if the price remains
stable, you earn the option premium.
Therefore, a seller of a put options gains in both ways - stable price or increase
in price of the underlying.
Q An investor has implemented a Short Hedge using stock

80.
futures. This is done to protect ______ .
The investor’s existing stock holding against an anticipated price
fall
Against a price rise for a planned stock purchase in the future
Against both a stock price fall and stock price rise in the future
Against a fall in the market as a whole
UnAttempted
CORRECT ANSWER:
The investor’s existing stock holding against an anticipated price fall
Explanation:
A short hedge using stock futures is taken to hedge the price risk of a planned
future sale of a stock.
For eg. You are holding Reliance Industries share of Rs 10 lacs and need this
money after 3 months. You can sell the 3-month futures of Reliance Industries to
protect the amount which you need. Even if the price falls, the future amount is
secured by this hedge. This is call Short Hedge.
Q Which of these complaints against a trading member can the

81.
Exchange take up for redressal?
Any loss in a transaction which is not within the framework of an
exchange
Any claim for expenses done for pursuing the matter with ISC
Any claim for opportunity loss for a disputed trade
When excess brokerage is charged by the broker
UnAttempted
CORRECT ANSWER:
When excess brokerage is charged by the broker
Explanation:
- Excess Brokerage charged by Trading Member
etc.
Q As compared to the other financial products mentioned here,

82.
which one is more difficult to understand?
Treasury Bills issued by Government of India
Index mutual funds replicating index like Nifty
Index options on a broad-based equity index like Nifty
Index futures on a broad-based equity index like Nifty
UnAttempted
CORRECT ANSWER:
Index options on a broad-based equity index like Nifty
Explanation:
Options are complex financial instruments and difficult to understand when

compared to futures, bonds or mutual funds.
Q For setting limits on his trading members clearing through

83.
him, a Clearing Member will have to consult _______ .
SEBI
The Stock Exchange
The Clearing Member can set the limits on his own and no
consultation is required
UnAttempted
CORRECT ANSWER:
The Clearing Member can set the limits on his own and no consultation is
required
Explanation:
A trading terminal helps the Clearing Members to monitor the open positions of
all the Trading Members clearing and settling through him. A Clearing
Member may set limits for a Trading Member clearing and settling through him.
Clearing corporation assists the Clearing Member to monitor the intraday limits
set up by a Clearing Member and whenever a Trading Member exceed the limits,
it stops that particular Trading Member from further trading.
Q Strike price is that price at which the ________ can purchase

84.
(in case of a call) or sell (in case of put) the underlying asset
by exercising the option.
Option Buyer
Option Writer
Options Stock Exchange
UnAttempted
CORRECT ANSWER:
Option Buyer
Explanation:
An Option is a contract that gives the right, but not an obligation, to buy or sell
the underlying on or before a stated date and at a stated price. While buyer of
option pays the premium and buys the right, writer/seller of option receives the
premium with obligation to sell/ buy the underlying asset, if the buyer exercises
his right.
An option, which gives the buyer/holder a right to buy the underlying asset, is
called Call option and an option which gives the buyer/holder a right to sell the
underlying asset, is called Put option.
Q Identify the strategy which has a ‘limited potential gain with

85.
limited possible loss’.
Going short in At-the-money index put and going long in Out-of-
the-money index put option, both with the same expiry date
Going long in index put option
Going short in index call option
Going long in index call option
UnAttempted
CORRECT ANSWER:
Going short in At-the-money index put and going long in Out-of-the-money

index put option, both with the same expiry date
Explanation:
A limited gain and limited loss strategy can be implemented using either two calls
or two puts or both calls and puts. It cannot be implemented using a single Call
or Put.
Spreads involve combining options on the same underlying and of same type
(call/ put) but with different strikes and maturities. These are limited profit and
limited loss positions. They are primarily categorized into three sections as: ·
Vertical Spreads · Horizontal Spreads · Diagonal Spreads.
Q In India, when the option holder exercises a ITM Call Option

86.
on a stock, ________ .
He/she buys the underlying stock from the option writer at a pre-
specified price (strike price)
He/she sells the underlying stock to the option writer at a pre-
specified price (strike price)
He/she receives cash amount equal to excess of strike price of the
call option over the spot price (at the time of exercise)
He/she receives cash amount equal to excess of spot price (at the
time of exercise) over the strike price of the call option
UnAttempted
CORRECT ANSWER:
He/she buys the underlying stock from the option writer at a pre-specified
price (strike price)
Explanation:
Unlike index options, stock options are settled by physical delivery. All long ITM
options are automatically assigned by the exchange on the expiry day to short
positions in option contracts with the same series on a random basis. The final
settlement takes place by physical delivery in accordance with the settlement
schedule of the clearing corporation.
Q When the initial margin is kept at lower levels, it becomes

87.
attractive for market participants to transact in the derivatives
market - State whether True or False?
True
False
UnAttempted
CORRECT ANSWER:
True
Explanation:
The Clearing Corporation generally keeps the margins for derivatives trading on
the higher side as the risk of losses are high and it wants only financially strong
traders to trade in the derivatives market.
If the margins are kept on a lower side, many more traders will start trading in the
derivatives market.
Q Identify the TRUE statement with respect to Futures
88.
Contracts?
Futures contracts and Forward contracts are basically one and the
same
Futures contracts can be traded either on the OTC market or on an
exchange
Futures contracts can be traded only on OTC market
Futures contracts can be traded only on an exchange
UnAttempted
CORRECT ANSWER:
Futures contracts can be traded only on an exchange
Explanation:
A futures contract is similar to a forward, except that the deal is made through an
organized and regulated exchange rather than being negotiated directly between
two parties.
Futures are also standardized contracts (in terms of their lot size, maturity date,
etc.) so that they can be traded on the exchange. Indeed, we may say futures are
exchange traded forward contracts.
Q The Unique Client Code, which is allotted by the broker, is

89.
linked to the _________ .
Trading Account
Demat Account
Aadhaar card number
PAN CARD number
UnAttempted
CORRECT ANSWER:
PAN CARD number
Explanation:
In the process of on-boarding a new client, the broker allots a Unique Client Code
(UCC) to the client. The UCC is linked to the PAN of the client and serves as an
exclusive identification of the client.
Q If there are three series of one, two and three months futures
90.
open at a given point of time, how many calendar spread
possibilities can arise?
1
2
3
4
UnAttempted
CORRECT ANSWER:
Explanation:
The three calendar spreads can be between months 1 and 2, 2 and 3 and 1 and
3.
Q Which type of order will you place to buy/sell a certain

91.
quantity of a share at a specified price or better.
All or none order
Limit order
Market order
Good for day order
UnAttempted
CORRECT ANSWER:
Limit order
Explanation:
Limit order is an order to buy or sell a contract at a specified price. The user has
to specify this limit price while placing the order and the order gets executed only
at this specified limit price or at a better price than that.
Q Ms. Mishra sold a Put option of strike Rs 500 on PQR stock for
92.
a premium of Rs 50. The lot size is 1000. On expiry day, PQR
stock closed at Rs. 440. What is Ms. Mishra's net profit (+) or
loss (-) ?
+ 20,000
- 20,000
+ 10,000
- 10,000
UnAttempted
CORRECT ANSWER:
- 10,000
Explanation:
When one sells a put option, the view is bullish ie. price will rise. Here the price
has fallen by Rs 60 (500-440). So there is a loss of Rs 60.
When one sells an option, premium is received. Premium received is Rs 50.
Therefore Net loss = 60 - 50 = 10 x lot sixe of 1000 = 10000 loss.
Q The volatility estimation methodology __________ .

93.
Is known only to clearing corporations
Is known to all market participants
Is kept secret by the exchanges
Is known to only institutional clients
UnAttempted
CORRECT ANSWER:
Is known to all market participants
Explanation:

of the underlying stock, higher the premium.
Calculation of volatility is not a secret. There are many formulas available. For
example, many option traders calculate this expected volatility by running the
Black-Scholes model in the reverse order.
Q The calculation of premium of an option is a function of
94.
_______ .
The volatility of a stock
Time left to expiry and interest rates
The current stock price and strike price
All of the above
UnAttempted
CORRECT ANSWER:
All of the above
Explanation:
There are five fundamental parameters on which the option price depends upon:
1) Spot price of the underlying asset 2) Strike price of the option 3) Volatility of
the underlying asset’s price 4) Time to expiration 5) Interest rates
Q Mr. Deepak wants to buy 20 contracts of October series at Rs.

95.
3500 and Mr. Suraj wants to buy 12 contracts of November
series at Rs. 3600. Lot size is 50 for both these contracts. The
initial margin is fixed at 8%. How much initial margin is
required to be collected from both these traders by the
broker?
Rs. 5,84,500
Rs. 3,75,200
Rs. 6,12,600
Rs. 4,52,800
UnAttempted
CORRECT ANSWER:
Rs. 4,52,800
Explanation:
Intial Margin from Mr. Deepak
Rs 3500 X 20 contracts X 50 (lot size) X 8% = Rs. 2,80,000
Initial Margin from Mr. Suraj
Rs 3600 X 12 contracts X 50 (lot size) X 8% = Rs. 1,72,800
Total Margin = 280000 + 172800 = Rs. 4,52,800
Q Identify the TRUE statement -

96.
The clearing members set the limits for the trading members under
him
For enhanced risk management, the Clearing Corporation sets the
limits for the trading members
The trading members have to possess a higher level of book
networth than Clearing Members
The trading members should have the same level of Book networth
as that of Clearing Members
UnAttempted
CORRECT ANSWER:
The clearing members set the limits for the trading members under him
Explanation:
Each Clearing Member may have several Trading Members with him. The trading
limits for each such Trading Member are decided by Clearing Members on the
computerized trading system.
If the Trading Member reaches his position limit, he will not be able to enter any
fresh transactions which have the impact of increase his exposure. He will enter
only those transactions which have the impact of reducing his exposure. Thus,
new positions will not be permitted, but only squaring-off of existing positions
will be permitted.
Q Is the statement correct or incorrect - A hedged portfolio will

97.
give higher returns than unhedged portfolio at all times.
Correct
Incorrect
UnAttempted
CORRECT ANSWER:
Incorrect
Explanation:
Hedging controls your losses but also controls your profits. It does not ensure
higher profits.
An open position can give you more profits or more losses.
Q A trader has taken a short position of one contract in

98.
September ABC futures (Contract Multiplier 50) at a price of
Rs. 1200. When he closed this position after some days, he
realised that he has made a profit of Rs. 8000. Identify the
action which would have enabled him to generate this profit of
Rs. 8000.
Selling one September ABC futures contract at Rs. 1040
Selling one September ABC futures contract at Rs. 1080
Buying one September ABC futures contract at Rs. 1040
UnAttempted
CORRECT ANSWER:
Explanation:
The trader is short ie. he has sold ABC futures. He will make a profit when the
future price falls. His profit is Rs 8000 and lot size is 50, so per share he has to
get Rs 160 (8000 / 50) to make a profit of Rs 8000 (160 x 50)
So when the ABC futures falls to 1040 and the trader buys it to square up his
position, he will make a profit of Rs 8000.
Q A stock is trading at Rs 100. Mr. Ashwin buys a Straddle at a

99.
strike price of 100 and pays a premium of Rs.10 for the Call
option and Rs.5 for the Put option. Based on this information,
identify the correct statement.
The break-even point for the Call Option is Rs 110
The break-even point for the Put Option is Rs 95
This straddle has two break-even points
All of the above
UnAttempted
CORRECT ANSWER:
All of the above

Explanation:
Straddle strategy involves two different types of options (call and put) with the
same strike prices and same maturity. Therefore, it has two break-even points.
When a call of 100 is bought by paying premium of Rs 10, the breakeven point is
100+10 = Rs.110
When a put of 100 is bought by paying premium of Rs 5, the breakeven point is

100-5 = Rs. 95
Q _________ is a cost to the market participants but is not

100.
mentioned in the contract note.
Impact Cost
SEBI turnover fees
Exchange transaction charges
UnAttempted
CORRECT ANSWER:
Impact Cost
Explanation:
Impact cost is the cost that a buyer or seller of stocks incurs while executing a
transaction due to the prevailing liquidity condition on the counter. Lower the
liquidity, higher will be the impact cost.
The impact cost is not reflected in the contract notes.

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Q To whom is a high impact cost beneficial ?

Neither buyers nor sellers

Q Initial margin to be paid in derivatives is set up taking into

Higher the volatility, higher the initial margin

Q ______ is the ratio of change in option premium for a unit

Q In a derivatives exchange, the networth requirement for a

In a derivative exchange, the networth requirement for a clearing member is higher

Q The risk that cannot be controlled by diversification of

Systematic risk can be caused due to unfavourable reasons such as act of

Q Can a long position in a Put option can be closed out by taking

Q After the initiation of the futures contract, the price of the

A long position becomes profitable

Investors should be careful of opportunities that promise spectacular profits

Q What will be the Delta for a Far Out-of-the-money option?

Q The term mark-to-market means ________ .

Q The margining system for index futures is based on _______ .

As per the recommendations of Dr. L.C.Gupta Committee - Margins should be

Q A trader buys a January ABC stock futures contract at Rs 768

Lot size is 1200. So the total profit is Rs 10 X 1200 = Rs 12000

Q A Professional Clearing member of derivatives segment

does not have any trading rights

Q Theta is a measure of the sensitivity of an option price to

Vega : This is a measure of the sensitivity of an option price to changes in

Q Which one of these complaints against a trading member can

Claims regarding unauthorized transaction in the client’s account

Q In India, the clearing and settlement of derivatives trades

SEBI approved Clearing Corporation / Clearing House

The clearing and settlement of derivatives trades would be through a SEBI

Q Delta is the change in option price given a one percentage

Q Can a Clearing Member give 'Fixed Deposits' as part of liquid

Liquid Assets can be in the form of Cash, Cash Equivalents (Government

Q Vega measures change in delta with respect to change in price

Vega is a measure of the sensitivity of an option price to changes in market

Gamma measures change in delta with respect to change in price of the

Q A short position in a PUT option can be closed out by taking a

Q On final settlement, the buyer/holder of the option will

Q When the strike price increases, the premium on call option

Q Trading is allowed in Indian Equity markets in which of the

All of the above

Q Can the exercise price be more than or equal to or less than

Q On the derivatives futures market, if there are three series of

The NIFTY 50 index is a well-diversified 50 companies index reflecting overall

Q What does an Call Option gives the buyer ?

The right but not the obligation

Speculators/Traders - They try to predict the future movements in prices of

Q The money and securities which are deposited in a clients

The securities or money deposited by clients cannot be attached for meeting

Q In case there is a Stock Split of a company which is a part of

The index value will remain unchanged

Q 'Time Decay' is beneficial to the _______ .

Any fall in premium is advantageous to the option seller.

Q Identify the TRUE statement with respect to a Put option.

Q How is the forward contract, which is for hedging purpose,

The premium or discount will be amortized over the life of contract

Accounting for Forward Contract as per Accounting Standard - 11

When forward contract is for hedging

- Exchange difference (difference between the value of settlement date/ reporting

- Profit/ loss on cancellation/ renewal of forward contract are recognized in P&L