Nism Mock 4.pdf

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

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NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

THIS IS A MOCK EXAM TO TEST YOUR PREPARATIONS. PLEASE SOLVE THESE 100 QUESTIONS IN 2 HOURS. THE ANSWERS ARE PROVIDED IN THE END.

Question 1 (a) (b) (c) (d)

On expiry, the Forward contracts are settled by _____________. Difference in price Cash delivery of the asset payment of margins

Question 2 (a) (b) (c) (d)

On expiry, the settlement price for Wipro will be the ________ Last half hour weighted average price of Wipro Futures Closing price of Wipro in the cash market Opening price of Wipro in the cash market The last traded price of Wipro in the cash market

Question 3

On the Balance Sheet date, the balance in the initial margin equity index account should be shown separately under the head ________.

(a) (b) (c) (d)

Question 4 (a) (b) (c) (d)

Prepaid Expenses Outstanding balance current assets current liabilities

Dividends which are ________of the market value of the underlying stock would be deemed to be extra ordinary dividends. below 10 % above 10 % below 20 % above 20 %

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Question 5 (a) (b) (c) (d)

Question 6

(a) (b) (c) (d)

Question 7

(a) (b) (c) (d)

In futures trading, the profits are received and the losses are paid ________. on expiry ie. last Thrusday of the month on a weekly settlement basis on a fortnightly settlement basis on a daily settlement basis

Even though there are no price bands applicable in derivatives segment, to avoid erroneous order entry operating price ranges are kept and the operating price range for index futures is ____. 5% 10% 15% 20%

An investor has ICICI Bank shares in his portfolio. He wants to protect against the downslide in this stock as he thinks the market may go down. What should he do ? Buy ICICI Put Option Buy ICICI Call Option Buy Nifty futures Buy Bank Nifty

Question 8

In case of open position of any NRI exceeding the specified limit, the penalty charged on the clearing member for each day of the violation would be _______.

(a)

1 % of the value of quantity in violation per client or Rs 100000 per client which ever is lower

(b)

1 % of the value of quantity in violation per client or Rs 100000 per client which ever is higher

(c)

2 % of the value of quantity in violation per client or Rs 200000 per client which ever is lower

(d)

2 % of the value of quantity in violation per client or Rs 200000 per client which ever is higher

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Question 9 (a) (b) (c) (d)

26th Jan is the last Thursday of the month which is a public holiday. So the derivative contract for the Jan series will expire on __________. 25th Jan 26th Jan 27th Jan 31st Jan

Question 10 (a) (b) (c) (d)

____________ is at the lowest level of hierarchy of a trading firm. Speculator Dealer Branch Manager Regional Manager

Question 11

You have purchased Jan call option at Rs 100 for a premium of Rs 18. What will be your breakeven ?

(a) (b) (c) (d)

Question 12

(a) (b) (c) (d)

Question 13 (a) (b) (c) (d)

Rs 100 Rs 82 Rs 118 Rs 18

any member or client who increases his existing positions or has created a new position in a F&O banned security, the client/trading members will be subject to a penalty 1% of the value of increased position subject to a minimum of Rs.________ and maximum of Rs.____________. 5000 , 100000 5000, 50000 10000, 100000 10000, 25000

The intrinsic value of a call option is _____________. the amount the option is OTM the amount the option is ITM the amount the option is ATM None of the above

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Question 14 (a) (b) (c) (d)

Question 15

(a) (b) (c) (d)

The theoretical future price is considered for _________ is case a futures contract is not traded during the day. the opening price the daily mark to mark settlement price premium settlement last traded price

Mr Suraj buys stock futures 1000 shares at Rs 260 and sells 800 the same day at Rs 263. The settlement price for the day was Rs 256. What will be his MTM profit / loss ? Profit of Rs 2400 Profit of Rs 1600 Loss of Rs 800 Loss of Rs 2400

Question 16 (a) (b) (c) (d)

Which of these PUT options are OTM - Out of the Money ? Spot price 130 , Strike price 100 Spot price 100 , Strike price 100 Spot price 100 , Strike price 130 None of the above

Question 17

ABC stock is quoting at Rs 475 in the cash market. The call option for 450 call is quoted at Rs 35. What is the intrinsic value of this option ?

(a) (b) (c) (d)

Question 18 (a) (b) (c) (d)

Rs 50 Rs 35 Rs 25 Rs 70

On expiration, the time value of an option will be _________. zero 1 10 100

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Question 19 (a) (b) (c) (d)

Question 20

(a) (b) (c) (d)

Question 21 (a) (b) (c) (d)

Question 22 (a) (b) (c) (d)

The adjustment factor for a stock which issues a Bonus in the ratio A : B is _______. (A + B) / B (A - B) / B (A + B) x B (A-B)XA

The normal trading in the derivative banned scrip is resumed after the open outstanding position comes down to _____ or below of the market wide position limit. 90% 85% 80% 75%

Buying calls at a strike of 5100 and selling calls at a strike of 5300 is an example of ____________. Calendar Spread Bull Spread Bear Spread Arbitrage Spread

The payoff for a person who sells a future contract is simillar to the payoff of a person who ___________an asset. Hedges goes long in shorts speculates in

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Question 23 (a) (b) (c) (d)

Question 24 (a) (b) (c) (d)

Question 25

(a) (b) (c) (d)

Question 26

(a) (b)

An Option Contract which will not be exercised on the expiry date is ________. an Out of the Money option an Deep in the Money option an In the Money option None of the above

Spot Value of Nifty is 5880. An investor buys one month Nifty 5950 call option for a premium of Rs 12. This option is _________. In the Money At the Money Out of the Money The data is insufficient

A persons own a portfolio of Rs 5 lacs which has a beta of 1. The current Nifty is 5000. He would like to protect his portfolio against a fall of more than 10%. Put options are available at four strike prices. Which strike price will give the required protection ? 5500 5000 4900 4500

Value of taxable securities transaction relating to an option in securities shall be the option premium, in case of sale of an option in securities True or False ? TRUE FALSE

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Question 27

(a) (b) (c) (d)

Question 28 (a) (b) (c) (d)

Question 29

(a) (b) (c) (d)

Question 30 (a) (b) (c) (d)

What is the outstanding future position on which initial margin will be charged - Client A purchases 800 shares and Client B purchases 200 shares and sells 1000 shares ? NIL 800 shares 1000 shares 1600 shares

On exercise of an option the buyer / holder of an option will recognise the option premium as __________. Deferred Income Income Expense None of the above

An trader sells one ABC share future contract at Rs 542 and buys back the same at Rs 491. What is his Profit / Loss ? The market lot is 500 shares. - Rs 27,600 - Rs 25,500 Rs 27,600 Rs 25,500

In India, the first exchange traded financial derivative commenced with the trading of _________. interest rate futures index options index futures stock option

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Question 31 (a) (b) (c) (d)

Nifty Put option of strike price 5000 is selling at a premium of Rs 30. At what index level will it break even for the buyer of the option ? 5000 4970 5030 5060

Question 32 (a) (b) (c) (d)

Margins can be deposited by Trading Members in the form of _________. Cash / Cheque only Cash and Fixed Deposits only Cash , Fixed Deposits, Approved securities and Bank Guarantee 50% Cash and Bal in Approved Securities

Question 33 (a) (b) (c) (d)

Delivery based settlement in single stock futures is provided by ________. BSE NSE OTCEI None of the above

Question 34

What will be the payoff if a stock future was bought at Rs 100 and sold at Rs 87 ? The lot size is 1000 shares.

(a) (b) (c) (d)

Question 35 (a) (b) (c) (d)

NIL 13000 -13000 -8700

In a STOP LOSS BUY order, the Limit Price is ___________. Greater than the trigger price Greater than or equal to the trigger price Less than the trigger price Less than or equal to the trigger price

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Question 36 (a) (b)

Time Spread is also known as Vertical Spread - True or False ? TRUE FALSE

Question 37

The parties for the Futures contract have the flexibility of closing out the contract prior to the maturity by squaring off the transactions in the market - True or False ?

(a) (b)

TRUE FALSE

Question 38 (a) (b) (c) (d)

Time value of an option is the difference between ___________. its Strike price and premium its strike price and spot price its premium and spot price its premium and intrinsic value

Question 39 (a) (b) (c) (d)

Equity Index options are a form of __________. Swapations Options on Futures Basket Options Special Warrants

Question 40

Mr P is long in 4 Nifty contracts at Rs. 5945. Nifty future closes at 5905. What is the mark to market for Mr P ? ( Nifty contract is of 50 )

(a) (b) (c) (d)

NIL 8000 5000 -8000

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Question 41 (a) (b) (c) (d)

The relationship between _________ and _________ is represented by Cost of Carry. Spot price and Cash price Spot price and Future Price Spot price and Call Option price Spot price and Put Option price

Question 42 (a) (b) (c) (d)

A bull spread can be created only by ______. Buying and selling Futures Buying and selling Cash and Futures Buying and selling Options Buying and selling ETF's

Question 43

One of the eligibility criteria of a stock which can be traded in the derivative segment is that it shall be chosen from amongst the top 100 stock in terms of average daily market capitalization and average daily traded value in the previous six months on a rolling basis - True or False ? TRUE FALSE

(a) (b)

Question 44 (a) (b) (c) (d)

Question 45 (a) (b) (c) (d)

The penalty levied for the 9th instance of margin / limit violation in a month is ___________. 0.07% per day 0.07% per day + Rs.5,000/0.07% per day + Rs.20,000/- + Rs 10,000 as per days None of the above

Potentially unlimited profits and limited losses is the risk reward for _______. Buyer of a futures contract Buyer of a call option Seller of a futures contract Seller of a call option

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Question 46 (a) (b) (c) (d)

The main objectives of Trade Guarantee Fund is / are ____________. To inculcate confidence in the minds of market participants To protect the interest of the investors in securities To guarantee settlement of bonafide transactions of the members of the exchange All of the above

Question 47 (a) (b) (c) (d)

Initial Margin is monitored by ___________. The Exchange Clearing Corporation SEBI The Trading Members

Question 48

The spot price of a stock is Rs 200. A trader buys the Rs 195 strike price call option by paying a premium of Rs 10. On expiry the settlement price is Rs 220. What is the net profit for the trader ?

(a) (b) (c) (d)

Question 49 (a) (b)

Question 50 (a) (b) (c) (d)

Rs 25 Rs 15 Rs 10 NIL

Mr Mohit buy 3 Call options of strike price 200 when the spot price was 190 at a premium of Rs 16. Will he have to pay STT ? Yes No

Long Strangle is a strategy with ________. Limited Profits and limited lossses Limited losses and unlimited profits Limited Profits and unlimited lossses Unlimited Profits and unlimited lossses

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Question 51 (a) (b) (c) (d)

A calendar spread will attract ____________ margin. Higher Zero Lower None of the above

Question 52

For calculation of minimum net worth of members of derivative exchange, the non allowable assets include -

(a) (b) (c) (d)

members card doubtful debts and advances pledged securities all of the above

Question 53 (a) (b) (c) (d)

To do arbitrage between over priced futures, we will have to __________. Buy futures and sell cash Buy futures and buy cash Buy cash and sell futures Sell futures and sell cash

Question 54

Any person or persons acting in concert who together own _____ or more of the open interest shall be required to report this fact to the exchange.

(a) (b) (c) (d)

Question 55 (a) (b) (c) (d)

10% 12% 20% 15%

The value of a call option decreases with a ___________ in spot price. increase decrease no change either increase or decrease

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Question 56 (a) (b)

Counterparty risk is the risk arising due to a failure of a political party of the central government - True or False ? TRUE FALSE

Question 57 (a) (b) (c) (d)

The daily settlement of all open positions in futures contract is called Mark to Market settlement (MTM) Exercising of the futures contract Interim Settlement VaR settlement

Question 58

Nifty consists of securities having __________ market capitalisation stocks. Large Medium Small All of the above

(a) (b) (c) (d)

Question 59 (a) (b) (c) (d)

Question 60 (a) (b) (c) (d)

The open position of a Trading Member is arrived by ___________. Adding up all his proprietary positions Adding up all his clients net outstanding positions Adding both - his proprietary positions and all his clients net outstanding positions None of the above

If a stock exchange introduces physical settlement in stock derivatives in a phased manner, the same should be completed in _____________. three months six months nine months one year

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Question 61 (a) (b) (c) (d)

Income or loss on derivative transactions which are carried out in a recognized stock exchange______________. is not taxed as speculative income or loss loss can be set off against any other income during the year can be carried forward to subsequent assessment years all of the above

Question 62 (a) (b) (c) (d)

A seller of an Option __________ pays premium gives delivery of underlying receives premium receives delivery of underlying

Question 63 (a) (b) (c) (d)

A protective put payoff is similar to that of ___________. Short Futures Long Call Long Futures Short Call

Question 64

In the F&O segment of NSE one can trade in the following derivative instruments except __________.

(a) (b) (c) (d)

Question 65 (a) (b) (c) (d)

index based futures individual stock options index based options individual warrant options

A spread that is designed to profit if the prices goes down is called ________. Hedge Spread Arbitrage Spread Bull Spread Bear Spread

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Question 66 (a) (b) (c) (d)

Which of the following Act governs the trading of derivatives in India ? SEBI Act 1992 Capital Issue (Control) Act 1947 Securities Contract ( Regulation ) Act 1956 Companies Act

Question 67 (a) (b) (c) (d)

When an trader buys a put option, he _____________. is neutral and wants less movement in market he is bearish and wants the market to fall he is bullish and want the a market to rise he is neutral but will benefit from any large movement in the market

Question 68 (a) (b) (c)

Delta is _______ . speed with which an option moves with respect to price of the underlying asset the change in option price given a one-day decrease in time to expiration is the change in option price given a one percentage point change in the riskfree interest rate

(d)

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

Question 69

The Final Settlement Price in Options is the Closing price of such underlying security on the last trading day of the options contract - True or False, TRUE FALSE

(a) (b)

Question 70 (a) (b) (c) (d)

Exercise settlement for options contract takes place at _________. closing price of the underlying settlement price of the futures contract closing price of the option contract closing price for the month contract

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Question 71 (a) (b) (c) (d)

Currently the future contracts are settled on ______ basis. T+0 T+1 T+2 T+5

Question 72 (a) (b) (c) (d)

An exchange traded option after maturity __________ . Can be traded in the spot market Can be traded for next 7 days Cannot be traded None of the above

Question 73

When compared to cash market, there are more chances that an investor does not properly understand the risks involved in the derivatives market.

(a) (b)

Question 74

(a) (b) (c) (d)

Question 75 (a) (b) (c) (d)

TRUE FALSE

An investor takes an short position on nifty by selling 10 lots at 5500. When he squares up the position he finds that he has made a profit of Rs 25000. The lot size of Nifty is 50. Which of the following actions helped the investor this profit ? buying 10 lots at 5475 selling 10 lots at 5550 selling 10 lots at 5450 buying 10 lots at 5450

Of the below mentioned contracts, which are traded on registered derivative exchanges in India? Daily Options Future Contracts Forward Contracts Swapations

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Question 76 (a) (b) (c) (d)

Question 77 (a) (b) (c) (d)

Question 78 (a) (b)

A farmer agrees to sell 100 tonnes of sugarcane to a factory after 2 month at a specific price. What is this type of contract known as ? Swapation Future Contract Forward Contract None of the above

The market price of a share is Rs 120 and the 110 call is quoted at Rs 24, what is the intrinsic value of this call option ? 10 20 30 130

Generally the Future prices converge to Spot prices on expiry day - True or False? FALSE TRUE

Question 79 (a)

A PUT option gives the option writer the obligation but not the right to sell the underlying asset at a specified price.

(b)

the option writer the right but not the obligation to buy the underlying asset at a specified price.

(c)

the option holder the right but not the obligation to buy the underlying asset at a specified price.

(d)

the option holder the right but not the obligation to sell the underlying asset at a specified price.

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Question 80 (a) (b) (c) (d)

What is the intrinsic value of a CALL option ? The amount the option is At the Money The amount the option is Out of the Money The amount the option is In the Money The amount the option is Over the Money

Question 81

Mr. Kailash has bought 200 shares of Reliance Industries at Rs.850 per share. He expects the price to go up but wants to protect himself if the price falls. He does not want to lose more than Rs. 4000 on this long position. What should the he do? Place a limit buy order for 200 shares Rs.830 per share Place a limit sell order for 200 shares Rs. 830 per share Place a stop loss sell order for 200 shares Rs.830 per share Place a limit buy order for 200 shares at Rs.870 per share

(a) (b) (c) (d)

Question 82 (a) (b)

All the trades and open positions on a derivative exchange are guaranteed by the Clearing Corporation and it becomes a legal counter party. TRUE FALSE

Question 83 (a) (b) (c) (d)

What does Value-at-risk measures ? value of a volatile portfolio Risk level of a financial portfolio Value of illiquid shares portfolio Index PE value

Question 84

A member has two clients Rohit and Mohit. Rohit has purchased 100 contracts and Mohit has sold 300 contracts in March Tata Steel futures series. What is the outstanding liability (open Position) of the member towards Clearing Corporation in number of contracts?

(a) (b) (c) (d)

100 300 400 200

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Question 85 (a) (b) (c) (d)

The speculators play an important role in the futures market because They buy in one market and sell in another for arbitrage gains. They transfer their risk to the hedgers They add to the liquidity to the futures markets They take delivery of the commodities at expiration

Question 86 (a) (b) (c) (d)

Mark-to-Market margins are collected on a _______ basis. monthly weekly bi weekly ie. Mondays and Thursdays daily

Question 87

Of the below mentioned options, in which option is the strike price better than the market price and therefore it is profitable to exercise the option? At-the-money option Out-of-the money option In the money option None of the above

(a) (b) (c) (d)

Question 88 (a) (b)

Question 89 (a) (b) (c) (d)

Are Broker-Members allowed on the Clearing Council of the Clearing Corporation of the derivatives segment ? Yes No

What does selling short a stock means ? Seller owns the stock he is supposed to deliver Seller has sufficient time to deliver the stock which he sold Seller does not own the stock he is supposed to deliver Seller has to deliver the stock within a short time

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Question 90 (a) (b)

Question 91 (a) (b) (c) (d)

Question 92 (a) (b)

Question 93 (a) (b)

Question 94 (a) (b) (c) (d)

One of the important duties of a trading member is to assess the financial soundness, genuineness and background of a new client - True or False ? TRUE FALSE

Of the below options, when will the April index future contract 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

Beta a measure of systematic risk of a security that cannot be avoided through diversification. TRUE FALSE

A long position in a PUT option can be closed by taking a short position in CALL option. TRUE FALSE

In India, the derivatives product can be traded by __________ . Brokers of NSE / BSE SEBI registered brokers SEBI registered brokers for trading in derivatives All of the above

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Question 95 (a) (b) (c) (d)

STT means Stock Trading Tax Stock Transaction Tax Securities Transaction Tax Securities Trading Tax

Question 96

You have bought a CALL of Ambuja Cements of Strike price of Rs 200 of January. To close the position, you will Sell a CALL of same strike price of January. True or False ?

(a) (b)

Question 97 (a) (b) (c) (d)

Question 98

(a) (b) (c) (d)

Question 99 (a) (b) (c) (d)

FALSE TRUE

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

Mr. Banerjee sells a put option of a higher strike price and buys a put option of a lower strike price, both on the same share and same expiration. This strategy is called _________. Bearish Spread Bullish Spread Calendar Spread Straddle

Main objectives of Trade Guarantee Fund (TGF) are : To protect the interest of the investors in securities. To inculcate confidence in the minds of market participants. To guarantee settlement of bonafide transactions of the members of the exchange. All of the above

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Question 100

(a) (b)

As per the rules, the minimum networth of clearing members who handle and clears/settles only deals executed by him is higher than those clearing members who handle institutional trades. FALSE TRUE

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

ANSWERS TO REAL FEEL MOCK EXAM QUESTIONS :

Correct Answer 1

delivery of the asset

Correct Answer 2

Closing price of Wipro in the cash market

Answer Explanation

The final settlement price is the closing price of the relevant underlying security in the Capital Market segment on the last trading day (expiry) of the futures contracts. (The Daily Settlement price is the closing price of the futures contract for the trading day)

Correct Answer 3

current assets

Correct Answer 4

above 10 %

Correct Answer 5

on a daily settlement basis

Correct Answer 6

10%

Answer Explanation

Correct Answer 7

Operating ranges and day minimum/maximum ranges are kept as below: • For Index Futures: at 10% of the base price • For Futures on Individual Securities: at 10% of the base price • For Index and Stock Options: A contract specific price range based on its delta value is computed and updated on a daily basis.

Buy ICICI Put Option

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Correct Answer 8

Answer Explanation

1 % of the value of quantity in violation per client or Rs 100000 per client which ever is lower In case of open position of any Client / NRI / sub-account of FII / scheme of MF exceeding, the specified limit following penalty would be charged on the clearing member for each day of violation: 1% of the value of the quantity in violation (i.e., excess quantity over the allowed quantity, valued at the closing price of the security in the normal market of the Capital Market segment of the Exchange) per client or Rs.1,00,000 per client, whichever is lower, subject to a minimum penalty of Rs.5,000/- per violation / per client.

Correct Answer 9

25th Jan

Correct Answer 10

Dealer

Correct Answer 11

Rs 118

Correct Answer 12

5000 , 100000

Correct Answer 13

the amount the option is ITM

Correct Answer 14

the daily mark to mark settlement price

Correct Answer 15

Profit of Rs 1600

Answer Explanation

Mr Suraj buys 1000 at 260 and sell 800 at 263. Here he makes a profit of Rs 3 X 800 shares = Rs 2400 For the balance open position of 200 shares, the settlement price is 256. Here there is a MTM loss of Rs 4 ( 260 - 256 ) Rs 4 x 200 shares = Rs 800 So Net profit : 2400 - 800 = Rs 1600

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Correct Answer 16

Spot price 130 , Strike price 100

Correct Answer 17

Rs 25

Answer Explanation

Correct Answer 18 Answer Explanation

Correct Answer 19 Answer 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 = 475 - 450 = Rs 25 The Option premium consists of two values : Intrinsic Value and Time Value In this example Rs 25 is the intrinsic value and Rs 10 is the Time Value.

Zero Time value decreases with passage of time and is zero on expiration.

(A + B) / B The adjustment factor for : Bonus Ratio – A: B Adjustment factor: (A+B)/B Stock Splits and Consolidations Ratio – A: B Adjustment factor: A/B Right Ratio – A: B and Issue price of rights is S. Adjustment factor: (P-E)/P Where P = Spot price on last cum date E = (P-S) x A / (A+B)

Correct Answer 20

80%

Correct Answer 21

Bull Spread

Answer Explanation

A bull spread is created when the underlying view on the market is positive but the trader would also like to reduce his cost on position. So he takes one long call position with lower strike and sells a call option with higher strike.

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Correct Answer 22

shorts

Correct Answer 23

an Out of the Money option

Correct Answer 24

Out of the Money

Correct Answer 25

4500

Answer Explanation

When a holder of a portfolio buys a Put Option he is protecting against a fall in the market because when the market falls the put option preimum rises. A 10% fall in 5000 Nifty means a fall till 4500. So if he buys a 4500 put option, and if the nifty falls to 4500 - his losses of more than 10% from the portfoilo devaluation will be compensate by the profits of Put Option rise

Correct Answer 26

. TRUE

Correct Answer 27

1600 shares

Answer Explanation

Client A net position = 800 shares Buy Client B net position = 800 shares Sell ( 1000 - 200 ) Initial Margin is paid on total of all outstanding postion ie 800 + 800 = 1600 shares.

Correct Answer 28

Expense

Correct Answer 29

Rs 25,500

Answer Explanation

The trader sells at Rs 542 (higher price) and buys back at Rs 491(lower price) so there is a profit. Rs 542 - Rs 491 = Rs 51 Rs 51 X 500 ( lot size ) = Rs 25,500

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Correct Answer 30

index futures

Correct Answer 31

4970

Answer Explanation

Buyer of a Nifty Put option expects the market to fall. He pays a premium of Rs 30. So when the market will fall by 30 points, the breakeven point will be reached. So when the index fall to 4970 (5000 - 30) - it will be the breakeven point.

Correct Answer 32

Cash , Fixed Deposits, Approved securities and Bank Gaurantee

Correct Answer 33

BSE

Answer Explanation

Correct Answer 34 Answer Explanation

Correct Answer 35 Answer Explanation

At present, derivative contracts on both individual stocks and on stock indices are cash settled on NSE but on BSE, derivative contracts on stock indices are cash settled while those on individual stocks are delivery based.

-13000 There will be a negative pay off as there is loss. Rs 100 - Rs 87 = Rs 13 x 1000 lot size = Loss of Rs 13000.

Greater than or equal to the trigger price A STOP LOSS BUY order is put when a trader wants to cover his short position. For eg - A trader short sells a share at Rs 100 expecting it to fall. But he will incurr losses if the price rises. So to protect himself against high losses he will put a STOP LOSS BUY order. Lets assume Rs 5 is the loss he can bear. So the Stop loss order will be Buy at 105 (Limit Price) when the share reaches 104.50 (Trigger Price). Trigger price can also be equal to Limit Price ie. 105. So the limit price is greater than or equal to trigger price.

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Correct Answer 36 Answer Explanation

FALSE Horizontal spread involves same strike, same type but different expiry options. This is also known as time spread or calendar spread.

Correct Answer 37

TRUE

Correct Answer 38

its premium and intrinsic value

Correct Answer 39

Basket Options

Correct Answer 40

-8000

Answer Explanation

Correct Answer 41 Answer Explanation

Correct Answer 42

Mr P is long in Nifty and price has fallen. So he will have to pay (-ve) 5945 - 5905 = -40 Qty : 4 lots X 50 = 200 M to M = -40 X 200 = -8000

Spot price and Future Price Cost of Carry is the relationship between futures prices and spot prices. In equity derivatives, carrying cost is the interest paid to finance the purchase less (minus) dividend earned if any For eg - If the spot price of share is Rs 100 and the one month future is trading at Rs 101, then Re 1 is the cost of carry.

Buying and selling Options

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Correct Answer 43 Answer Explanation

Correct Answer 44 Answer Explanation

FALSE It shall be chosen from amongst the top 500 stock in terms of average daily market capitalization and average daily traded value in the previous six months on a rolling basis

0.07% per day + Rs.20,000/- + Rs 10,000 as per days Penalty for margin / limit violation is levied on a monthly basis based on slabs as mentioned below : 1st instance - 0.07% per day 2nd to 5th instance of disablement - 0.07% per day + Rs.5,000/- per instance from 2nd to 5th instance 6th to 10th instance of disablement - 0.07% per day + Rs.20,000/- ( for 2nd to 5th instance) + Rs.10000/- per instance from 6th to 10th instance

Correct Answer 45

Buyer of a call option

Correct Answer 46

All of the above

Correct Answer 47

Clearing Corporation

Correct Answer 48

Rs 15

Answer Explanation

Correct Answer 49 Answer Explanation

The Rs 195 strike price call option settlement price is Rs 220 - So there is profit of Rs 25 ( 220 - 195 ) He has paid Rs 10 as premium, so his net profit will be Rs 15 ( 25 - 10 )

No STT - Securities Transaction Tax is paid only by the seller in case of derivative contracts.

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Correct Answer 50 Answer Explanation

Correct Answer 51 Answer Explanation

Limited losses and unlimited profits The long strangle involves buying both a call option and a put option of the same underlying security. Like a straddle, the options expire at the same time, but unlike a straddle, the options have different strike prices. A strangle can be less expensive than a straddle if the strike prices are out-ofthe-money

Lower Calendar spreads carry only basis risk and no market risk ie. no risk even if market rises or falls by a big amount - hence lower margins are adequate.

Correct Answer 52

all of the above

Correct Answer 53

Buy cash and sell futures

Answer Explanation

For eg - If ABC stock is at Rs 100 in cash market and Rs 105 in one month futures, then to profit from it and do the arbitrage we will have to buy at 100 in cash and sell at 105 in futures.

Correct Answer 54

15%

Correct Answer 55

decrease

Correct Answer 56

FALSE

Answer Explanation

Correct Answer 57

Counterparty risk is the risk arsing due to the default by one of the parties to the transaction / contract.

Mark to Market settlement (MTM)

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Correct Answer 58

Large

Correct Answer 59

Adding both - his proprietary positions and all his clients net outstanding postions

Correct Answer 60

six months

Answer Explanation

A Stock Exchange may introduce physical settlement in a phased manner. On introduction, however, physical settlement for all stock options and/or all stock futures, as the case may be, must be completed within a period of six months.

Correct Answer 61

all of the above

Correct Answer 62

receives premium

Correct Answer 63

Long Call

Answer Explanation

A protective put payoff is similar to that of long call and is called synthetic long call position.

Correct Answer 64

individual warrant options

Correct Answer 65

Bear Spread

Correct Answer 66

Securities Contract ( Regulation ) Act 1956

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Correct Answer 67

he is bearish and wants the market to fall

Correct Answer 68

speed with which an option moves with respect to price of the underlying asset

Correct Answer 69

TRUE

Correct Answer 70

closing price of the underlying

Correct Answer 71

T+1

Answer Explanation

The trades of futures market are settled on T+1 working day basis. Brokers with a funds pay-in obligation are required to have clear funds in their account on or before 10.30 a.m. on the settlement day. The payout of funds is credited to the account of the members thereafter. The margins like Mark to Market have to be paid on the next day of trade and every subsequent days if there is a debit.

Correct Answer 72

Cannot be traded

Correct Answer 73

TRUE

Answer Explanation

Correct Answer 74 Answer Explanation

Derivatives market and mainly the options market are difficult to understand when compared to cash markets.

buying 10 lots at 5450 Total Nifty bought = 10 lots x 50 each lot = 500 Total profit made = 25000 Profit made on each Nifty = 25000 / 500 = Rs 50. The investor has sold Nifty. He will make a profit of Rs 25000 when fifty falls 50 points ie. from 5500 to 5450. So Rs 50 x 10 lots x 50 each lot = Rs 25000 profit.

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Correct Answer 75 Answer Explanation

Correct Answer 76 Answer Explanation

Correct Answer 77 Answer Explanation

Correct Answer 78

Future Contracts From the above 4 options, we have only future contracts traded on registered Indian stock exchanges.

Forward Contract A contract which is between two or more persons as per their agreed terms and in which no Stock Exchange or any other Exchange is involved is a Forward contarct.

10 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.

TRUE

Answer 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.

Correct Answer 79

the option holder the right but not the obligation to sell the underlying asset at a specified price.

Answer Explanation

In an PUT option, the buyer of the put, has the right, but not an obligation, to re-sell the asset at the strike price by the future date, while the other party, the seller of the put, has the obligation to repurchase the asset at the strike price if the buyer exercises the option.

Correct Answer 80

The amount the option is In the Money

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Correct Answer 81 Answer Explanation

Correct Answer 82 Answer Explanation

Correct Answer 83 Answer Explanation

Correct Answer 84 Answer Explanation

Correct Answer 85 Answer Explanation

Place a stop loss sell order for 200 shares Rs.830 per share Mr. Kailash will make a loss if the price of Relaince Industries fall. His loss bearing capacity is Rs 4000. Therefore 4000 / 200 shares = Rs 20. So if the shares fall by Rs 20, he will make a loss of Rs 4000. 850 - 20 = 830. Therefore 830 will be his stoploss price and he will place a stoploss order at Rs 830.

TRUE Clearing Corporation or the Clearing House is responsible for clearing and settlement of all trades executed on the F&O Segment of the Exchange. Clearing Corporation acts as a legal counterparty to all trades on this segment and also guarantees their financial settlement. The Clearing and Settlement process comprises of three main activities, viz., Clearing, Settlement and Risk Management.

Risk level of a financial portfolio 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.

400 For a member ie. Stock Broker, the liability will be the sum of all the contracts of all his clients. The contracts cannot be netted inbetween two clients. So in this case the sum of contracts is 100 + 300 = 400 contracts.

They add to the liquidity to the futures markets Speculators are typically risk-taking investors with expertise in the market(s) in which they are trading. Speculators take large risks, especially with respect to anticipating future price movements, in the hope of making quick gains. They trade quiet frequently and so add to the liquidity of the markets.

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Correct Answer 86 Answer Explanation

Correct Answer 87 Answer Explanation

Correct Answer 88 Answer Explanation

Daily 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.

In the money option In an In The Money Option, the strike price is better than market price. Such options have both Intrinsic Value and Time Value.

No No, broker members are not allowed on the Clearing Council of the Clearing Corporation of the derivatives segment.

Correct Answer 89

Seller does not own the stock he is supposed to deliver

Correct Answer 90

TRUE

Correct Answer 91

On the 1st trading day after last Thrusday in January

Answer Explanation

Correct Answer 92

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 Thrusday of January, on Friday the April contracts will be introduced and so we will have Feb-Mar-April contracts

TRUE

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Correct Answer 93 Answer Explanation

Correct Answer 94 Answer Explanation

Correct Answer 95 Answer Explanation

Correct Answer 96 Answer Explanation

Correct Answer 97 Answer Explanation

FALSE A long position in any option can be closed by selling that option and not in any other way. So a long position in a PUT option can be closed by selling that PUT option.

SEBI registered brokers for trading in derivatives Special permission has to be taken from SEBI for trading in derivatives.

Securities Transaction Tax Securities Transaction Tax (STT) is payable by the Trading Members / Brokers who collect the same from their clients. The current rate of STT in derivatives section is : a) On Sale of an Option - 0.017 % of the option premium b) On sale of Futures - 0.017 % of the total contract value c) When option is exercised - 0.125 % payable by purchaser.

TRUE When you buy a CALL option, it can only be squared up by selling the same CALL option.

The margin which is paid at the time of entering futures contract The amount one needs to deposit in the margin account at the time entering a futures contract is known as the initial margin.

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Correct Answer 98 Answer Explanation

Correct Answer 99

Correct Answer 100

Bullish Spread Bullish Spread using Puts - the call on the market is bullish, hence, the trader would like to short a put option. If prices go up, trader would end up with the premium on sold puts. However, in case prices go down, the trader would be facing risk of unlimited losses. In order to put a floor to his downside, he may buy a put option with a lower strike. While this would reduce his overall upfront premium, benefit would be the embedded insurance against unlimited potential loss on short put. This is a net premium receipt strategy.

All of the above

FALSE

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM

Practice Question Banks also available for :

NISM NISM Series I: Currency Derivatives Certification Exam NISM Series V A: Mutual Fund Distributors Certification Exam NISM Series VI: NISM Series VI - Depository Operations Certification Exam NISM Series VII: Securities Operations and Risk Management NISM Series VII: Equity Derivatives Certification Exam NISM Series III A: Securities Intermediaries Compliance certification Exam NISM Series X A : Investment Adviser (Level 1) Certification Exam NISM Series X B: Investment Adviser (Level 2) Certification Exam

NCFM NCFM Financial Markets: A Beginners Module NCFM Capital Market (Dealers) Module NCFM Derivative Market (Dealers) Module

BSE Certificate on Security Market (BCSM)

NISM SERIES VIII – EQUITY DERIVATIVES CERTIFICATION REAL FEEL MOCK EXAM