Podcast
Questions and Answers
What does NISM and SEBI explicitly disclaim regarding the information in the workbook?
What does NISM and SEBI explicitly disclaim regarding the information in the workbook?
- Ownership of the content
- Totality and completeness of information (correct)
- Legal liability for accuracy and adequacy (correct)
- The need for updates after publication
Which of the following is NOT a focus area of NISM Certification Examinations?
Which of the following is NOT a focus area of NISM Certification Examinations?
- Derivative Securities Operations
- Equities
- Legal Ethics (correct)
- Mutual Funds
What is the primary purpose of the School for Certification of Intermediaries (SCI) at NISM?
What is the primary purpose of the School for Certification of Intermediaries (SCI) at NISM?
- To monitor stock market regulations
- To manage risk assessments for investment portfolios
- To provide direct investment advice to clients
- To develop and administer Certification Examinations (correct)
What do the certification and CPE programs aim to achieve in the securities markets?
What do the certification and CPE programs aim to achieve in the securities markets?
Which of the following statements is true regarding questions in the NISM Certification examination?
Which of the following statements is true regarding questions in the NISM Certification examination?
What role does certification play in the careers of students and job aspirants in the securities markets?
What role does certification play in the careers of students and job aspirants in the securities markets?
Who contributed to the development and review of the workbook?
Who contributed to the development and review of the workbook?
Under which regulations are NISM certifications mandated?
Under which regulations are NISM certifications mandated?
What is a derivative primarily defined as?
What is a derivative primarily defined as?
Which of the following is NOT considered an underlying asset for derivatives?
Which of the following is NOT considered an underlying asset for derivatives?
Which historical event is associated with the speculative boom in tulip futures?
Which historical event is associated with the speculative boom in tulip futures?
What significant milestone occurred in the 13th Century regarding derivatives?
What significant milestone occurred in the 13th Century regarding derivatives?
Which of the following is a key risk associated with derivatives trading?
Which of the following is a key risk associated with derivatives trading?
What is one of the significances of derivative markets?
What is one of the significances of derivative markets?
During which period did the futures market in rice develop in Japan?
During which period did the futures market in rice develop in Japan?
What should you know about the nature of derivatives?
What should you know about the nature of derivatives?
What was the change in the index value from January 1, 1995 to the new calculated value?
What was the change in the index value from January 1, 1995 to the new calculated value?
What is a primary consequence of tailor-made contracts not being available on exchanges?
What is a primary consequence of tailor-made contracts not being available on exchanges?
Which stock had the highest new market capitalization after the price change?
Which stock had the highest new market capitalization after the price change?
What is counterparty risk?
What is counterparty risk?
How is the free float market capitalization index defined in the context of market indices?
How is the free float market capitalization index defined in the context of market indices?
What happens if the market price of rice rises above the contract price at maturity?
What happens if the market price of rice rises above the contract price at maturity?
What was the total market capitalization of the stocks on January 1, 1995?
What was the total market capitalization of the stocks on January 1, 1995?
How do futures contracts address the limitations of forward contracts?
How do futures contracts address the limitations of forward contracts?
Which of the following contributes to the total market capitalization of the stocks in the index?
Which of the following contributes to the total market capitalization of the stocks in the index?
What is one major characteristic of futures contracts?
What is one major characteristic of futures contracts?
Which stock showed the least percentage increase in market capitalization?
Which stock showed the least percentage increase in market capitalization?
What distinguishes futures contracts from forward contracts?
What distinguishes futures contracts from forward contracts?
How is the new value of the index calculated?
How is the new value of the index calculated?
Which risk is also referred to as default risk or credit risk?
Which risk is also referred to as default risk or credit risk?
Which stock had the lowest old market capitalization?
Which stock had the lowest old market capitalization?
In a futures market, who decides all terms of the contract except the price?
In a futures market, who decides all terms of the contract except the price?
What happens to the open interest if A closes their short position by buying back 50 contracts?
What happens to the open interest if A closes their short position by buying back 50 contracts?
On March 2, what was the total trading volume for the day?
On March 2, what was the total trading volume for the day?
How is the price band for a futures contract determined on its first trading day?
How is the price band for a futures contract determined on its first trading day?
What happens to the open interest after C closes their long position by selling 100 contracts?
What happens to the open interest after C closes their long position by selling 100 contracts?
Which of the following best describes a 'long position'?
Which of the following best describes a 'long position'?
What was the total open interest after D closes their short position by buying back 100 contracts on March 4?
What was the total open interest after D closes their short position by buying back 100 contracts on March 4?
What is the maximum allowable price for a contract if the previous day’s closing price was Rs.100 and the price band is 10%?
What is the maximum allowable price for a contract if the previous day’s closing price was Rs.100 and the price band is 10%?
If C goes long in 100 contracts and D goes short in 100 contracts on March 2, what is the new open interest?
If C goes long in 100 contracts and D goes short in 100 contracts on March 2, what is the new open interest?
Flashcards
Derivative
Derivative
A contract or product whose value is derived from another asset (the underlying).
Underlying Asset
Underlying Asset
The asset whose value determines the value of a derivative.
Forward Contract
Forward Contract
A non-standardized agreement to buy or sell an asset at a set price in the future.
Futures Contract
Futures Contract
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Clearing Corporation
Clearing Corporation
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Long Position (Futures)
Long Position (Futures)
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Short Position (Futures)
Short Position (Futures)
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Open Interest
Open Interest
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Price Band (Futures)
Price Band (Futures)
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Index
Index
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Market Capitalization Weighted Method
Market Capitalization Weighted Method
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Free-Float Market Cap
Free-Float Market Cap
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Equity Derivatives
Equity Derivatives
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Counterparty Risk
Counterparty Risk
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Illiquidity
Illiquidity
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NISM
NISM
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SEBI
SEBI
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Study Notes
###Â Derivatives
- A derivative is a contract or a product whose value is derived from the value of some other asset known as the underlying.
- There are many types of underlying assets for derivatives, including metals, energy resources, agri commodities, and financial assets.
- The history of derivatives may be mapped back to several centuries, with evidence as far back as the 12th century.
- The first documented futures market for rice was developed in Japan at Dojima, near Osaka in the late 17th century.
Index
- There are various methods for calculating index value, including the market capitalization weighted method and the free-float market capitalization index.
- The market capitalization weighted method takes the sum of the market price multiplied by the quantity of shares for each stock in the index.
- Free-float market capitalization index uses the weights of each security based on free float market cap, the amount of equity readily available for trading.
Forwards
- Forward contracts are non-standardized contracts between two parties to buy or sell an asset at a certain price on a future date.
- Tailored contracts and lack of availability on exchanges create illiquidity in forward contracts, making it difficult to exit before maturity.
- Counterparty risk in forward contracts represents the risk of economic loss due to the failure of the other party to fulfil their contractual obligation.
Futures
- Futures contracts are standardized forward contracts that are traded on an exchange, overcoming the limitations of forward contracts.
- The clearing corporation associated with the exchange guarantees settlement of these trades.
- Traders who buy futures contracts take a long position, while those who sell take a short position.
- The words buy and sell are figurative because no money or underlying asset changes hands when the deal is originated.
- Features of futures include a predetermined contract size, trading on an exchange, and standard terms, except for the price.
- Open interest represents the total number of outstanding contracts in the market.
- Price band is the price range within which a contract is permitted to trade during a day.
- Price band is calculated with respect to the previous day’s closing price of a specific contract.
- Positions in derivatives market include a long position, short position, and open position:
- Long position: outstanding unsettled buy position.
- Short position: outstanding unsettled sell position.
- Open position: positions that are not settled by the end of the trading day.
Equity Derivatives
- Equity derivatives are contracts whose underlying assets are stocks or indices.
- Equity derivatives provide investors with opportunities for leverage, speculation, and hedging against market risk.
###Â NISM and SEBI
- Both NISM and SEBI provide disclaimers for the information and materials they provide, especially regarding the totality, accuracy, adequacy or completeness of information and material.
- NISM and SEBI do not accept legal liability based on any information contained in their materials.
- The NISM certification examination will be largely based on the material in the course workbook, but NISM does not guarantee all questions in the exam will be from the covered material.
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Description
Explore the fascinating world of derivatives and index calculations in this quiz. Learn about various types of underlying assets, the history of derivatives, and the different methods for calculating index values. Test your knowledge on these financial concepts and their significance in the markets.
