Derivative Contracts and Expiry Quiz

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Questions and Answers

What is the expiry policy for contracts when the expiry day falls on a trading holiday?

Contracts expire on the previous trading day. (correct)

Contracts expire on the next trading day.

Contracts automatically renew until the next trading day.

Contracts are void and need to be reissued.

Which of the following describes the expiry cycle for monthly index contracts?

Monthly index contracts have a 6-month expiry cycle.

Monthly index contracts have a 1-year expiry cycle.

Monthly index contracts have a 3-month expiry cycle. (correct)

Monthly index contracts have an indefinite expiry cycle.

What defines a long dated option contract?

All option contracts with expiry of more than 9 months. (correct)

Options that have expiry cycles only in March and June.

Any option contract with an expiry of less than 6 months.

Options that can only be exercised before expiry.

How often do weekly option contracts expire?

Specific day of the week. Signup and view all the answers

Which of the following statements is true regarding stock futures and options?

All contracts are physically settled. Signup and view all the answers

When was currency futures trading first introduced in Indian financial markets?

<ol start="2008"> <li></li> </ol> Signup and view all the answers

Which of the following is NOT a pair on which currency futures contracts are traded?

AUDINR. Signup and view all the answers

What is the frequency of the introduction of a new contract following the expiry of the near month contract?

On the next trading day. Signup and view all the answers

What distinguishes a futures contract from a forward contract?

Futures contracts are standardized and traded on exchanges. Signup and view all the answers

What is a unique feature of options compared to futures contracts?

Options provide the right but not the obligation to buy or sell. Signup and view all the answers

Which of the following types of contracts are primarily traded in the over-the-counter (OTC) market?

Swaps Signup and view all the answers

What financial instruments are included in equity derivatives?

Futures and Options based on stocks or stock indices Signup and view all the answers

What does a put option allow the buyer to do?

Sell the underlying asset at a predetermined price Signup and view all the answers

Which of the following best describes weekly options?

Options that are available for a maximum of one week maturity Signup and view all the answers

What is the contract expiration cycle for equity index options in India?

Contracts available up to three years with quarterly and half-yearly expirations Signup and view all the answers

Which of the following is not a characteristic of futures contracts?

They have a flexible delivery time and place. Signup and view all the answers

What is the final settlement price for currency futures such as USDINR and EURINR?

The FBIL reference rate Signup and view all the answers

When do monthly currency futures contracts expire?

Two working days prior to the last business day of the expiry month Signup and view all the answers

Which entities introduced currency futures in India?

National Stock Exchange, BSE, and MSEI Signup and view all the answers

For which currency options are contracts available?

Monthly and weekly contracts for certain currency pairs Signup and view all the answers

Which statement regarding cash settlement of currency derivatives is true?

All Exchange Traded Currency Futures and Options are cash settled in INR Signup and view all the answers

How many serial monthly contracts are available in currency options trading?

3 serial monthly contracts followed by 3 quarterly contracts Signup and view all the answers

When were currency futures first launched at the National Stock Exchange of India?

August 29, 2008 Signup and view all the answers

What is the purpose of the FBIL in the context of currency derivatives?

To serve as an independent benchmark for reference rates Signup and view all the answers

Study Notes

Derivative Contract Expiry

Derivative contracts (OTC and exchange-traded) expire on the previous trading day if the expiry date is a holiday.
New contracts are introduced the day after the near-month contract expires.

Monthly Index Contracts

Monthly index contracts generally have a 3-month expiry cycle.
Long-dated options contracts can have a 3-year expiry cycle with quarterly (March, June, September, December) or half-yearly (June, December) expiries.
Contracts with an expiry of over 9 months are considered long-dated/long-term options.

Weekly Options

Weekly option contracts expire on a specific day of the week.
A new weekly contract is introduced the day after the current week's contract expires.

Stock Futures and Options

Stock futures and options are chosen by exchanges based on SEBI's guidelines (market capitalization, trading volume etc.).
Weekly and monthly expiry options are available.
Monthly stock futures and options expire on the last Thursday of the expiry month.
If the last Thursday is a holiday, expiry shifts to the previous trading day.
Stock futures and options contracts are physically settled.

Currency Derivatives

Currency futures were introduced in 2008, trading in USDINR, EURINR, GBPINR, JPYINR and cross-currency pairs (EURUSD, GBPUSD, USDJPY).
Currency futures and options are traded on a separate "Currency Derivatives Segment."
Currency futures contracts have a maximum 12-month trading cycle.
Monthly contracts for currency futures are settled two business days before the last business day of the expiry month at 12.30 pm.
The final settlement price is based on the FBIL reference rate.
Currency options also include monthly and weekly contracts with similar expiry rules.
Currency futures/options are cash settled in INR.
Weekly contracts expire on Fridays at 12.30 pm.

Interest Rate Derivatives

Interest rate futures were introduced in the market and currency options were introduced in 2019.

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Description

Test your understanding of derivative contracts, including their expiry cycles and the differences between monthly, weekly, and long-dated options. This quiz covers key concepts related to stock futures and options as well. Assess your knowledge on these financial instruments!