NISM Series VIII: Equity Derivatives

Certification Examination
1. An index option is a __________________.
__________________.
Debt instrument
Derivative product [Correct answer NOT selected]
Cash market
Cash market  product
Money market instrument

. !he purchase o" a share in one market and the simultaneous sale in a di""erent market to
 bene"it "rom price di""erentials is known as ____________.
____________.
Mort#a#e
Arbitra#e [Correct answer NOT selected]
$ed#in#
%peculation

&. 'inancial
&. 'inancial  derivatives provide the "acility "or __________.
%peculation
$ed#in#
Arbitra#in#
All o" the above
above [Correct answer NOT selected]

(. )perational risks include losses due to ____________.

*nade+uate disaster plannin#
plannin# [Correct answer NOT selected]
!oo
!oo much o" mana#ement control
*ncome tax re#ulations
,overnment policies

-. *mpact cost is low when the li+uidity in the system is poor.

!rue
'alse [Correct answer NOT selected]

. /ou sold one 0/ %tock  'utures

 'utures contract  at 2s. 34 and the lot si5e is 1677. 8hat is
your pro"it 9:; or loss 9<;6 i" you purchase the contract back at 2s. -=
1677
1-677 [Correct answer NOT selected]
<1-677
<1677

3. /o
/ou have taken a short position o" one contract
contrac t in >une 0/ "utures 9contract multiplier
-7; at a price o" 2s. &6(77. 8hen you closed this position a"ter a "ew days6 you reali5ed that
you made a pro"it o" 2s. 176777. 8hich o" the "ollowin# closin# actions would have enabled
you to #enerate this pro"it= 9/ou may i#nore brokera#e costs.;
%ellin# 1 >une 0/ "utures contract  at &77
?uyin# 1 >une 0/ "utures contract  at &77
?uyin# 1 >une 0/ "utures contract at &77 [Correct answer NOT selected]
%ellin# 1 >une 0/ "utures contract  at &77

4. 8hich o" the "ollowin# is closest to the "orward price o" a share6 i" Cash @rice  2s.3-76
'orward Contract Maturity   months "rom date6 Market *nterest rate  1B=
33.-
3- [Correct answer NOT selected]
4(7
(7.4

. *" you have sold a 0/ "utures contract  9contract multiplier -7; at &177 and bou#ht it
 back at &&776 what is your #ainloss=
A loss o" 2s. 176777 [Correct answer NOT selected]
A #ain o" 2s. 176777
A loss o" 2s. -6777
A #ain o" 2s. -6777

17. A calendar spread contract in index "utures attracts ___________.

%ame mar#in as sum o" two independent le#s o" "utures contract
Eower mar#in than sum o" two independent le#s o" "utures contract [Correct answer NOT
selected]
$i#her mar#in than sum o" two independent le#s o" "utures contract
 Fo mar#in need to be paid "or calendar spread positions
11. Client A has purchased 17 contracts o" December series and sold 3 contracts o" >anuary
series o" the F%G Fi"ty "utures. $ow many lots will #et cate#ori5ed as re#ular 9non<spread;
open positions=
17
3
& [Correct answer NOT selected]
13

1. *n an e+uity scheme6 "und can hed#e its e+uity exposure by sellin# stock index "utures.
!rue [Correct answer NOT selected]
'alse

1&. Mar#ins in H'uturesH tradin# are to be paid by _______.

)nly the buyer
)nly the seller
?oth the buyer and the seller [Correct answer NOT selected]
!he clearin# corporation
1(. 8hen the near le# o" the calendar spread transaction on index "utures expires6 the "arther
le# becomes a re#ular open position.
!rue [Correct answer NOT selected]
'alse

1-. %ellin# short a stock means ___________.

%eller does not own the stock he is supposed to deliver [Correct answer NOT selected]
%eller has to deliver the stock within a short time
%eller owns the stock he is supposed to deliver
%eller has more than a yearHs time to deliver the stock which he sold

1. !he buyer o" an option cannot lose more than the option premium paid.
!rue only "or Guropean options
!rue only "or American options
!rue "or all options [Correct answer NOT selected]
'alse "or all options

13. Cost o" carry model states that ______________.

@rice o" 'utures  %pot : Cost o" Carry [Correct answer NOT selected]
@rice o" 'utures  %pot < Cost o" Carry
@rice o" 'utures  %pot @rice
@rice o" 'utures  Cost o" Carry

14. 8hat role do speculators play in the "utures market=

!hey take delivery o" the commodities at expiration
!hey produce the commodities traded at "utures exchan#es
!hey add to the li+uidity in the "utures markets [Correct answer NOT selected]
!hey trans"er their risk to the hed#ers

1. /ou sold a @ut option on a share. !he strike price o" the put was 2s.(- and you received
a premium o" 2s.( "rom the option buyer. !heoretically6 what can be the maximum loss on
this position=
1 [Correct answer NOT selected]
7
7
(

7. Current @rice o" 0/ %tock is 2s. 4. 2s. 7 strike call is +uoted at 2s. (-. 8hat is the
*ntrinsic Ialue=
1
 [Correct answer NOT selected]
(-
7
1. A european call option #ives the buyer the ri#ht but not the obli#ation to buy "rom the
seller an underlyin# at the prevailin# market price Jon or be"oreJ the expiry date.
!rue
'alse [Correct answer NOT selected]

. A put option #ives the buyer a ri#ht to sell how much o" the underlyin# to the writer o" the
option=
Any +uantity
)nly the speci"ied +uantity 9lot si5e o" the option contract; [Correct answer NOT selected]
!he speci"ied +uantity or less than the speci"ied +uantity
!he speci"ied +uantity or more than the speci"ied +uantity

&. An in<the<money option is _____________.

An option with a ne#ative intrinsic value
An option which cannot be pro"itably exercised by the holder immediately
An option with a positive intrinsic value [Correct answer NOT selected]
An option with 5ero time value

(. An option with a delta o" 7.- will increase in value approximately by how much6 i" the
underlyin# share price increases by 2s =
2s 1 [Correct answer NOT selected]
2s 
2s (
!here would be no chan#e

-. Gxchan#e traded options are _______________.

%tandardised options [Correct answer NOT selected]
Always in<the<money options
Customised options
Always out<o"<the money options

. $i#her the price volatility o" the underlyin# stock o" the put option6 ______________.
$i#her would be the premium [Correct answer NOT selected]
Eower would be the premium
 Fil 95ero; would be the premium
Iolatility does not e""ect put value

3. *n which option is the strike price better than the market price 9i.e.6 price di""erence is
advanta#eous to the option holder; and there"ore it is pro"itable to exercise the option=
)ut<o" the money option
*n<the <money option [Correct answer NOT selected]
At<the<money option
$i#her<the<money option
 4. Mr. 0 purchases 177 put option on stock % at 2s. &7 per call with strike price o" 2s. 47.
*" on exercise date6 stock price is 2s. &-76 i#norin# transaction cost6 Mr. 0 will choose
 _____________.
!o exercise the option
 Fot to exercise the option [Correct answer NOT selected]
May or may not exercise the option dependin# on whether he is in his hometown or not at
that time
May or may not exercise the option dependin# on whether he like the company % or not

. !hree Call series o" 0/ stock < >anuary6 'ebruary and March are +uoted. 8hich will
have the lowest )ption @remium 9same strikes;=
>anuary [Correct answer NOT selected]
'ebruary
March
All will be e+ual

&7. 8hich is the ratio o" chan#e in option premium "or the unit chan#e in interest rates=
Ie#a
2ho [Correct answer NOT selected]
!heta
,amma

&1. *" you sell a put option with strike o" 2s. (- at a premium o" 2s.(76 how much is the
maximum #ain that you may have on expiry o" this position=
4-
(7 [Correct answer NOT selected]
7
7-

&. *" an investor buys a call option with lower strike price and sells another call option with
hi#her strike price6 both on the same underlyin# share and same expiration date6 the strate#y
is called ___________.
?ullish spread [Correct answer NOT selected]
?earish spread
?utter"ly spread
Calendar spread

&&. )n the derivative exchan#es6 all the orders entered on the !radin# %ystem are at prices
exclusive o" brokera#e.
!rue [Correct answer NOT selected]
'alse
&(. A trader has bou#ht 177 shares o" 0/ at 2s.347 per share. $e expects the price to #o up
up but wants to protect himsel" i" the price "alls. $e does not want to lose more than 2s.1777
on this lon# position in 0/. 8hat should the trader do=
@lace a limit sell order "or 177 shares o" 0/ at 2s.337 per share
@lace a stop loss sell order "or 177 shares o" 0/ at 2s.337 per share [Correct answer NOT
selected]
@lace a limit buy order "or 177 shares o" 0/ at 2s.37 per share
@lace a limit buy order "or 177 shares o" 0/ at 2s.337 per share

&-. *nvestor A wants to sell 7 contracts o" Au#ust series at 2s.(-77 and *nvestor ? wants to
sell 13 contracts o" %eptember series at 2s.(--7. Eot si5e is -7 "or both these constracts. !he
*nitial Mar#in is "ixed at B. $ow much *nitial Mar#in is re+uired to be collected "rom both
these investors 9sum o" initial mar#ins o" A and ?; by the broker=
6376777
-6767-7 [Correct answer NOT selected]
6&67-7
(6176777

&. A member has two clients C1 and C. C1 has purchased 477 contracts and C has sold
77 contracts in Au#ust 0/ "utures series. 8hat is the outstandin# liability 9open position;
o" the member towards Clearin# Corporation in number o" contracts=
477
1377 [Correct answer NOT selected]
77
177

&3. A de"aultin# memberHs clients positions could be trans"erred to ____________ by the

Clearin# Corporation.
Another solvent member [Correct answer NOT selected]
!he Gxchan#e
A suspense account
Grror account

&4. ClientsH positions cannot be netted o"" a#ainst each other while calculatin# initial mar#in
on the derivatives se#ment.
!rue [Correct answer NOT selected]
'alse

&. Mark<to<market mar#ins are collected ___________.

)n a weekly basis
Gvery  days
Gvery & days
)n a daily basis [Correct answer NOT selected]
 (7. Ialue<at<risk measures ___________.
Ialue o" proprietary port"olio
2isk level o" a "inancial port"olio [Correct answer NOT selected]
 Fetworth o" an investor
Credit ratin# o" an investor

(1. A penalty or suspension o" re#istration o" a stock broker "rom derivatives
exchan#ese#ment under the %G?* 9%tock ?roker and %ub<broker; 2e#ulations6 1 can take
 place i" _______________.
!he stock broker "ails to pay "ees
!he stock broker violates the conditions o" re#istration
!he stock broker is suspended by the stock exchan#e
*n any o" the above situations [Correct answer NOT selected]

(. Clearin# corporation on a derivatives exchan#e becomes a le#al counterparty to all trades
and be responsible "or #uaranteein# settlement "or all open positions.
!rue [Correct answer NOT selected]
'alse

(&. *nitial mar#in collection is monitored by the _________.

2?*
Clearin# Corporation [Correct answer NOT selected]
%G?*
Mar#in )""ice

((. Ei+uid Assets maintained by Mr A 9Clearin# Member; are hi#her than that maintained by
Mr ? 9Clearin# Member;. 8hich o" the "ollowin# statements is true=
Mr A can enKoy hi#her exposure levels in "utures than Mr ? [Correct answer NOT selected]
Mr ? can enKoy hi#her exposure levels in "utures than Mr A
?oth Mr A and Mr ? enKoy the same exposure levels
 Fo need to maintain li+uid assets "or exposure in derivatives markets

(-. )n the Clearin# Council o" the Clearin# Corporation o" the derivatives se#ment6 broker<
members are allowed.
!rue
'alse [Correct answer NOT selected]

(. !he main obKective o" !rade ,uarantee 'und 9!,'; at the exchan#es is
 _________________.
!o #uarantee settlement o" bona"ide transactions o" the members o" the exchan#e
!o inculcate con"idence in the minds o" market participants
!o protect the interest o" the investors in securities
All o" the above [Correct answer NOT selected]
(3. Ialue<at<risk provides the ______________.
Gxpected maximum loss6 which may be incurred by a port"olio over a #iven period o" time
and speci"ied con"idence level [Correct answer NOT selected]
Ialue o" securities which are very risky
Ialue o" speculative stocks
!heoretical value o" illi+uid stocks in a port"olio

(4. 8ho is eli#ible "or clearin# trades in index options=

All *ndian citi5ens
All members o" the stock exchan#e
All national level distributors
)nly members6 who are re#istered with the Derivatives %e#ment as Clearin# Members
 [Correct answer NOT selected]

(. *" price o" a "utures contract decreases6 the mar#in account o" the buyer o" this "utures
contract is debited "or the loss.
!rue [Correct answer NOT selected]
'alse

-7. 8hen establishin# a relationship with a new client6 the tradin# member takes reasonable
steps to assess the back#round6 #enuineness6 bene"icial identi"y6 "inancial soundness o" such
 person and his investment obKectives.
!rue [Correct answer NOT selected]
'alse

51. at maturity of a future contract the spot price and future price must be
approximately the same because of

Marking to market

 The convergence property [Correct answer NOT selected]

!he open intrest

!he triple witchin# hour 

-. a port"olio o" & million ha sbeta o" 1.(7 a complete hed#e is obtained by _______ .

?uyin# rs & million o" ni"ty "ut.

%ellin# rs (. milion on ni"ty "uture [Correct answer NOT selected]

?uyin# rs (. milion on ni"ty "uture

%ellin# o" rs & million o" ni"ty "ut

-&.suppose the company wipro taded at (77 in the cash market and three month wipro "utures
traded at (17 i" the transaction costs involved are 7.7(B what is the arbitra#e return possible

.1B per month

7.37B [Correct answer NOT selected]

7.47B

1.7B

-&. An export would _____ dollar "orward to lock exchan#e rate.

sell[Correct answer NOT selected]

 buy

hold

exchan#e

-(. automatic exercise o" the option contract means_____ 

All in Lthe Lmoney contracts are exercise automatically on the expiration day. [Correct
answer NOT selected]

--. Ms shetty ha sold 1777 calls on abc ltd at a strike price o" 2s 44- "or a premium o" rs 3
 per call on april 1 the closin# price o" e+uity shares o" abc ltd is 2s 47 on that day i" the call
option is assi#ned a#ainst her on that day what is her obli#ation on april 71=

@ay out o" 2s &77

@ay in o" 2s 777

@ay in o" 2s -777

@ay out o" rs 777 [Correct answer NOT selected]

-. clearin# members in ') se#ment are monitored by F%CCE )n the real time basis "or
 _______.

1. contact wise position limit violation

2ulNes violation

M!M value vioNation [Correct answer NOT selected]

All the above

-3. to calculate the mimimum net worth o" derivative clearin# members the non allowabke
assets includes
@led#ed securities members card

Doubt"ul debts and advances

All o" the above[Correct answer NOT selected]

-4. daily settlement mark to market mar#in o" e+uity index "utures should be credited
debited to

Mark to market mar#in Le+uity index "utures account [Correct answer NOT selected]

-. which o" the "ollowin# exchan#es was the "irst to start tradin# "inancial "utures

Chica#o mercantile exchan#e[Correct answer NOT selected]

7.the Chica#o board o" the trade was "ormed primarilt "or

@rovidin# a centralised location "or buyers and sellers to ne#otiate "orward contract in
commodities. [Correct answer NOT selected]

1. i" the annual risk "ree rate is 11B then r used in the black schools "ormula should be
7.17([Correct answer NOT selected]

. the current level o" the %@ CF0 Fi"ty is -(77 the annual dividend yield on the %@
CF0 is -B the annual risk "ree intrest rate is B the "air "uture price "or a contract on the
%@ CF0 Fi"ty due to expire & months "rom now should be Ans. -(1(

(fair value =Se(r!"#t#

$%. &erivatives brokers 'dealers should avoid recommending opening futures

'options unless!

 They have reasonable basis for belivinh that the cutomer has knoledge and
)nancial experience

 They have reasonable basis for beliving that the cutomer is applicable of
exaluating and )nancially able to bear the risk of the transaction

*oth of the above[Correct answer NOT selected]

(. suppose Fi"ty is at --77 in Fovember an investor Mr A Gxecutes a short stran#le by

sellin# a 2s -&77 Fi"ty @uts a premium o" rs & and a 2s -377 ni"ty call "or (& rs what will
 be his net payo"" i" ni"ty closes on expiry

Ans O [Correct answer NOT selected]

65. which of the following is true about option spread starategies?

Limited prot and llimited loss [Correct answer NOT selected]

. Mr y is bearish om market currently ni"ty is tradin# at -477 he short ni"ty option o" price
o" --77 at 2s &-7 and lon# a 777 call option at a premium o" 2s 77 what is the ?G@ "or
this strate#y=

Ans O--7 9?G@  loer strike : net premium recived ; --77:1-7

3. investors sell call and put option o" the same strike price and same expiry strate#y is
known as

%hort straddle

4. ehat is the maximum pro"it on lon# straddle option strate#y =

Pnlimited

. suppose ni"ty is at -(-7 on 3 th april an investor mr a enters into a short straddle by
sellin# a may rs --77 ni"ty put "or rs 4- and a may rs --77 ni"ty call "or rs 1 what is
maximum pro"it in this strate#y =

73 9premium resived 4-:1;

+,. . suppose ni"ty is at --77 in may an investor mr a executes a lon# stran#le by buyin# a rs
-&77 ni"ty put "or a premium o" rs & and a rs -377 ni"ty call "or rs (& what is the net payo""
i" ni"ty close at -477 on expiry

&( [Correct answer NOT selected]

31. %uppose ni"ty is at -477 in Fovember an investor Mr ram execute a short stran#le by
sellin# a rs -77 ni"ty put "or a premium o" rs ( and rs 777 ni"ty call "or rs 47 what will be
his maximum pro"it by this strate#y

1(( [Correct answer NOT selected] maximum pro"it on short stran#le is total premium
recived 9(:471((;

3. i" an investor has an short term neutral to moderately bullish view on the stock he holds
what optn strate#y he will apply

Coverd call [Correct answer NOT selected]

3&. mr a bou#ht xy5 ltd "or rs 77 nad simultaneously sell a call option at a strike pice o" rs
- what will be his ?G@=

-&- 9bep stock price Lcall premium recived; [Correct answer NOT selected]

3(. a collar strate#y is an extension o" covered call strate#y in this statement is "alse=

 Fo [Correct answer NOT selected]