NISM Series VIII - Equity Derivatives Exam
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Questions and Answers

How many calendar spread possibilities arise from three futures series of one, two, and three months?

  • 2
  • 1
  • 4
  • 3 (correct)

    • What is the term used to describe the ratio of change in option premium for a unit change in volatility?

  • Vega (correct)
  • Theta
  • Rho
  • Delta

    • When the price of a futures contract decreases, which of the following statements is true regarding the margin accounts?

  • The margin account of the buyer will be debited for the loss.
  • The margin account of the seller will be credited for the gain.
  • Both A and B. (correct)
  • Neither A nor B.

    • In the context of options, what does Vega primarily measure?

    <p>Sensitivity of option premium to changes in market volatility.</p> Signup and view all the answers

    What is the implication for the buyer of a futures contract when the contract price falls?

    <p>They will incur a loss and their margin account will be debited.</p> Signup and view all the answers

    Where should the initial margin for entering into an option contract be shown in the balance sheet?

    <p>Under Current Assets</p> Signup and view all the answers

    Which type of option allows the holder to buy the underlying asset at any time before the expiry date?

    <p>American call option</p> Signup and view all the answers

    Can foreign exchange be classified as a liquid asset for Clearing Members with the clearing corporation?

    <p>FALSE</p> Signup and view all the answers

    Is the book net worth criterion for Professional Clearing Members the same as that for Trading cum Clearing Members?

    <p>FALSE</p> Signup and view all the answers

    What type of option only allows the holder to exercise their right on the expiry date?

    <p>European call option</p> Signup and view all the answers

    Which of the following is NOT considered a liquid asset for Clearing Members?

    <p>Foreign exchange</p> Signup and view all the answers

    Which characteristic distinguishes American options from European options?

    <p>American options can be exercised any time before expiry</p> Signup and view all the answers

    What is the initial margin for entering an option contract debited to?

    <p>Stock Option Margin Account</p> Signup and view all the answers

    What does Theta represent in options trading?

    <p>The change in option premium due to time to expiry</p> Signup and view all the answers

    How can Unsystematic Risk be mitigated?

    <p>By diversifying the investment portfolio</p> Signup and view all the answers

    In which scenario are future prices generally more transparent than forward prices?

    <p>When trades are conducted in an organized and regulated exchange</p> Signup and view all the answers

    If interest rates rise, what is the expected effect on the premium of a CALL option?

    <p>The premium will increase</p> Signup and view all the answers

    Which of the following statements about Unsystematic Risk is true?

    <p>It is specific to certain companies or industries</p> Signup and view all the answers

    What distinguishes FUTURES contracts from FORWARD contracts?

    <p>Futures contracts are traded on regulated exchanges</p> Signup and view all the answers

    Which option represents a component of price risk unique to a specific security?

    <p>Unsystematic Risk</p> Signup and view all the answers

    Which factor does primarily influence the Theta of an option?

    <p>Time to expiration</p> Signup and view all the answers

    Which of the following certification exams is specifically related to Equity Derivatives?

    <p>NISM Series VIII: Equity Derivatives Certification Exam</p> Signup and view all the answers

    What type of certification does NCFM's Financial Markets: A Beginners Module provide?

    <p>Foundational knowledge of financial markets</p> Signup and view all the answers

    Which certification exam focuses on Investment Advisers at Level 2?

    <p>NISM Series X B: Investment Adviser (Level 2) Certification Exam</p> Signup and view all the answers

    Which of the following is NOT included in the list of NISM certification exams?

    <p>NISM Series IX: Financial Planning Certification Exam</p> Signup and view all the answers

    Which module is specifically related to dealing in derivatives?

    <p>NCFM Derivative Market (Dealers) Module</p> Signup and view all the answers

    What can lead to a penalty or suspension of a stock broker's registration under SEBI regulations?

    <p>Failure to pay required fees</p> Signup and view all the answers

    Which of the following scenarios could result in a stock broker's suspension?

    <p>The broker violates conditions of registration</p> Signup and view all the answers

    What is the maximum potential loss for a seller of a call option?

    <p>Unlimited as prices can rise significantly</p> Signup and view all the answers

    If a trader sells a futures contract and the prices rise, what will happen when he squares up the position?

    <p>He will make a loss</p> Signup and view all the answers

    What action could also result in the suspension of a stock broker besides not adhering to the code of conduct?

    <p>Manipulating market prices</p> Signup and view all the answers

    How does the financial position of a stock broker affect their registration status?

    <p>Poor financial health can lead to penalties</p> Signup and view all the answers

    Which of the following best describes a call option seller's belief regarding market prices?

    <p>Prices will go down</p> Signup and view all the answers

    What could be a consequence for a stock broker if they fail to resolve investor complaints?

    <p>They can face penalties or registration issues</p> Signup and view all the answers

    What is the value of Nifty futures that should be sold to obtain a complete hedge for a portfolio worth Rs 25 lacs with a beta of 1.20?

    <p>Rs 30 lacs</p> Signup and view all the answers

    If a stock has a beta of 0.7 and you hold a buy position of Rs 3,00,000, how much Nifty should you sell to achieve a complete hedge?

    <p>Rs 2,10,000</p> Signup and view all the answers

    Which market participant is NOT primarily associated with a derivative market?

    <p>Long term investors</p> Signup and view all the answers

    What does a beta of 1 indicate about a stock's volatility compared to the market?

    <p>It is equally volatile.</p> Signup and view all the answers

    In a scenario where a portfolio has a beta greater than 1, what can be inferred about its price movement?

    <p>It's more volatile than the market.</p> Signup and view all the answers

    To hedge against a rising market, what position should an investor take in Nifty futures?

    <p>Sell Nifty futures</p> Signup and view all the answers

    If a stock's beta is 1.3, how much more volatile is it compared to the market?

    <p>30%</p> Signup and view all the answers

    Which of the following reflects a characteristic of a hedger in a derivative market?

    <p>Aims to minimize risk on existing positions</p> Signup and view all the answers

    Study Notes

    NISM Series VIII - Equity Derivatives Certification Examination

    • PASS4SURE is India's leading practice test bank for NSE, NISM, and BSE exams.
    • The practice test bank provides thorough preparation for the Equity Derivatives Certification Examination.
    • The question bank contains 400-500 practice questions and answers.
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    • The test includes 100 questions, and the total time allowed for the exam is 2 hours.
    • 60% passing marks and negative marking of 0.25% per wrong answer.
    • Viewing rights expire within 60 days of purchase.

    Example Questions and Answers

    • Question 1: Mr. Sam, an equity fund manager, is bearish on the market. How can he hedge his position?

      • Correct Answer: Sell index futures.
      • Explanation: As a fund manager, Mr. Sam already holds stocks. Selling index futures hedges against potential stock market declines.

    • Question 2: Is the minimum capital adequacy requirement for derivative clearing members higher than for spot market members?

      • Correct Answer: TRUE.
      • Explanation: Derivative brokers/dealers face higher risks than cash market members, thus requiring a higher capital adequacy.

    • Question 3: What is the Delta of a far out-of-the-money option?

      • Correct Answer: Near 0.
      • Explanation: Delta approaches zero as an option nears expiration.

    • Question 4: A penalty or suspension of registration for a stock broker from derivatives exchange can occur for various offenses.

      • Correct Answer: All of the above

    • Question 5: Can an equity-oriented mutual fund hedge its equity exposure by selling stock index futures?

      • Correct Answer: Yes.
      • Explanation: A fund manager can use index futures for hedging purposes, like if they anticipate market decline.

    • Question 6: A trader buys a January ABC stock futures contract at Rs. 768, with a lot size of 1200. What is the profit/loss if the position is squared off at Rs. 778?

      • Correct Answer: Rs. 12000.
      • Explanation: The profit is calculated as (Rs.778-Rs.768)*1200 = Rs. 12000

    • Question 7: Which complaints can an exchange take up for redressal?

      • Correct Answer: Excess brokerage charged by a broker.
      • Explanation: Complaints like claims for expenses or loss of opportunity for a disputed trade are outside the exchange's purview.

    • Question 8: A trader takes a short position in call option, but does not take any offsetting position in the underlying stock. What is this strategy known as?

      • Correct Answer: Writing a naked call.

    • Question 9: If there are three series of one, two, and three months futures open, how many calendar spread possibilities are there?

      • Correct Answer: Three calendar spreads (1 to 2, 2 to 3, and 1 to 3).

    • Question 10: What is Vega?

      • Correct Answer: Ratio of change in option premium for a unit change in volatility.

    • Question 11: When the price of a future contract decreases, what happens to the margin account of the seller?

      • Correct Answer: Seller's account is credited.

    • Question 12: What is a forward contract?

      • Correct Answer: A bilateral commitment between two parties to buy/sell an underlying asset at a future date at a specified price.

    • Question 13: Do brokers and dealers for derivative exchanges have to register with SEBI?

      • Correct Answer: TRUE.

    • Question 14: Are "Bulls" investors who believe the market will rise?

      • Correct Answer: TRUE.

    • Question 15: In forward contracts, are price limits specified by an authority?

      • Correct Answer: FALSE

    • Question 16: Are all 50 stocks in the NSE Nifty index equally weighted?

      • Correct Answer: FALSE.

    • Question 17: Does the clearing corporation provide exposure limits to clearing members based on the number of trading members using their services?

      • Correct Answer: TRUE.

    • Question 18: Is arbitrage the simultaneous purchase and sale of an asset to profit from price discrepancies?

      • Correct Answer: TRUE.

    • Question 19: Where is the initial margin for entering into an option contract shown in the balance sheet?

      • Correct Answer: Under current assets.

    • Question 20: What option gives the holder the right to buy a security at a certain price on/before a specific date?

      • Correct Answer: American Call Option.

    • Question 21: Can foreign exchange be part of liquid assets maintained by clearing members?

      • Correct Answer: FALSE

    • Question 22: Is the net worth criterion for professional clearing members the same as trading members?

      • Correct Answer: FALSE

    • Question 23: What is Theta?

      • Correct Answer: Time to expiry.

    • Question 24: What is unsystematic risk?

      • Correct Answer: Risk in a specific security; can be reduced by diversification.

    • Question 25: Are future prices usually more transparent than forward prices?

      • Correct Answer: TRUE.

    • Question 26: If interest rates increase, does the premium on a call option increase?

      • Correct Answer: TRUE.

    • Question 27: Ms. Gayatri bought a call option with a strike price of Rs. 300 when the spot price was Rs. 337. What is the intrinsic value?

      • Correct Answer: Rs. 37.

    • Question 28: What is the time value of an option?

      • Correct Answer: Difference between the premium and the intrinsic value

    • Question 29: How to hedge a portfolio of Rs 25 lacs with a beta of 1.20?

      • Correct Answer: Sell Nifty futures of Rs 30 lacs.

    • Question 30: A stock's beta is 0.7 and you own Rs 3,00,000 worth of the stock. How much Nifty futures should you sell to hedge your position?

      • Correct Answer: Sell Rs 2,10,000 Nifty futures.

    • Question 31: What types of participants are usually found in a derivative market?

      • Correct Answer: Speculators and Hedgers

    • Question 32: How to buy a futures contract of Tata Steel shares?

      • Correct Answer: Make margin payments as calculated by the exchange.

    • Question 33: Are forward contracts customizable per the parties' requirements?

      • Correct Answer: TRUE.

    • Question 34: What assets are under the Securities Contracts (Regulation) Act of 1956?

      • Correct Answer: Securities (e.g., shares, stocks, bonds).

    • Question 35: What is the strike price in an option contract?

      • Correct Answer: Price per share for purchasing/selling the underlying security.

    • Question 36: What actions could result in a penalty or suspension for a stock broker as per SEBI regulations?

      • Correct Answer: Any of the specified offenses

    • Question 37: What are the potential losses for a seller of a call option?

      • Correct Answer: Unlimited.

    • Question 38: If a trader sells a future contract and prices rise, what is the result on closing the position?

      • Correct Answer: The trader will make a loss.

    • Question 39: What standardizes underlying asset quality in futures contracts?

      • Correct Answer: Exchange.

    • Question 40: Who approves the bye-laws of an Indian Stock Exchange?

      • Correct Answer: SEBI

    • Question 41: Do clearing members with equal liquid assets have equal exposure limits?

      • Correct Answer: Yes

    • Question 42: What combination of Call/Put options creates a Bear spread?

      • Correct Answer: Selling a Call of a lower strike price and buying a Call of a higher strike price, or selling a Put of a lower strike price and buying a Put of a higher strike price.

    • Question 43: Are Treasury bills considered a permitted liquid asset for clearing members?

      • Correct Answer: Yes.

    • Question 44: If the spot price of ABC stock is Rs. 347 and the strike price of a call option is Rs. 325, what is the intrinsic value?

      • Correct Answer: Rs. 22

    • Question 45: What type of options are traded on a recognized exchange?

      • Correct Answer: Standardized options

    • Question 46: If a futures contract is sold at Rs. 260 and repurchased at Rs. 251, what is the profit/loss for a lot size of 1000?

      • Correct Answer: Rs. 9,000 profit.

    • Question 47: Who are responsible for margins in futures trading?

      • Correct Answer: Both the buyer and seller.

    • Question 48: What is an in-the-money option?

      • Correct Answer: Positive intrinsic value.

    • Question 49: Are orders on the derivative trading system exclusive of brokerage?

      • Correct Answer: TRUE.

    • Question 50: What is the term for buying and selling a security in different markets to benefit from price differences?

      • Correct Answer: Arbitrage.

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