Derivatives Dealers 19

1-The buyer of an option can lose no more than the option premium paid
a) True
b) False

2-Only shareholders of company can write an option.
a) True
b) False

3-Stock price is same as
a) Strike price
b) Exercise price
c) Price of the underlying
d) None of the above

4-Higher the volatility of the stock, lower the premium the call option would fetch.
a) True
b) False 

5-Daily Mark-to-market margin for index futures contract
a) is calculated on the daily closing price of index futures
b) is calculated on the basis of weighted average of the index.
c) is calculated on the basis of average of last 30 minutes values of the index.
d) None of the above

6-The margin requirements for the derivatives segment would be prescribed by
a) The SEBI
b) The Stock Exchange
c) The RBI
d) None of the above

7-Margins’ in ‘Futures’ trading are to be paid by
a) only the buyer
b) only the seller
c) both the buyer and seller
d) the clearing corporation

8-The derivatives market would be under the same governing council as the cash segment in one
exchange
a) True
b) False

9-You have bought Satyam Call strike price Rs. 240 at a premium of Rs.25. Lot size is 1,200. What is your profit (+) or loss(-) if you sell the Call at Rs 40?
a) Rs.19,000
b) Rs.17,000
c) Rs.18,000
d) None of these

10-. . . . .S&P CNX Nifty is based on the price of 50 securities only.
a)True
b)False 

Derivatives Dealers 18

1-. . . . .Stock index futures are financial futures.
a) True
b) False

2-Volatility of prices of the underlying assets and dividend yield do not affect the option values.
a) True
b) False

3-In an In-the-money call option the exercise price would be lower that the market price.
a) True
b) False
c) True only in Mumbai
d) None of the above

4-Intrinsic value of an option cannot be negative.
a) True
b) False

5-Premium of Infosys call option can be more than market price of Infosys.
a) True
b) False
c) True only in USA
d) True only in Japan

6-With decrease in strike price, the premium on call decreases.
a) True
b) False
c) True only in USA
d) True only

7-Buyer of OTM put option is
a) bullish - payer of premium
b) bullish - receiver of premium
c) bearish - payer of premium
d) bearish - receiver of premium

8-An investor entering into a bear spread is expecting
a) increase in the price of underlying asset
b) decrease in the price of underlying asset
c) no change in the price of underlying asset
d) Cannot Say

9-In an European option, the exercise date and expiration date
a) always differ.
b) may be the same.
c) are necessarily the same.
d) None of the above.

10-Time value and Intrinsic value together comprise option premium.
a) True
b) False

Derivatives Dealers 17

1-A forward contract is an agreement to buy a certain asset at a certain future date for a price to be
determined in the future.
a) True
b) False
c) True only in Europe
d) True only in Africa

2-In the olden days, the area within the exchange where trading was conducted through open outcry,was known as the Pit.
a) True
b) False
c) none of the above

3-If the price of the underlying asset rises sharply after the initiation of a futures contract
a) the long position becomes profitable
b) the long position becomes unprofitable
c) the short position becomes profitable
d) none of the above

4-You can buy index futures in India regardless of whether you own the index shares or not.
a) True
b) False
c) True only in Mumbai
d) True only in Delhi

5-A scarce supply of the actual commodity generally causes futures price to fall.
a) True
b) False
c) True only in Mumbai
d) True only in Delhi

6-How are prices fixed in case of a forward contract?
a) They are decided at the time of entering into the contract.
b) They are decided at the end of the contract period
c) They are decided and revised from time to time based on market condition
d) None of the above

7-Future contracts are usually much more liquid than the Forward contracts
a) True
b) False
c) None of the above

8-The settlements of a forward contracts takes place on the date of  maturity
a) True
b) False
c) None of the above

9-You bought January Satyam Futures @ Rs 268 and the lot size is 1,200. What is your profit (+)
or loss(-) if you sell at Rs 225 ?
a) -50,600
b) -51,600
c) -52,600
d) None of these

10-  . . . . . .The stock index future were first introduced at CBOT in USA
a) True
b) False (Ans-Kansas city board of trade)

Derivatives Dealers 16

Q1. If an option is out of the money and the strike price of the option is lower than the spot
price of the underlying, then we are referring to ____.

• A Put Option
• A Call option
• An European Option
• An American option

Q2. Nifty is at 5200. A put option at 5000 strike price is trading at Rs . 150. What is the
intrinsic value of the option?

• 150
• 200
• 0
• 350

Q3. Which of the following is an exchange traded contract?

• Futures on Nifty
• Forward contract on oil
• A 10 year loan
• An interest rate swap

Q4. All December 2009 stock Futures contracts traded on NSE will expire on :

• 3rd Thursday of December 2009
• Exchanges decides on expiry day and will update the investors on 1st December 2009
• Last Thursday of December 2009
• Last Friday of December 2009

Q5. Nifty is at 3900. What should be the fair price of Nifty futures expiring 180 days from
today. Risk free rate is 8% p.a.

• 4027
• 4083
• 4059
• 4031

Q6. Derivatives help in ____.

• Improving Market Efficiency
• Risk Management
• Price Discovery of the underlying
• All of the above

Q7. An investor is long 2 contracts of Nifty futures purchased at Rs. 5035 each. The next morning a scam is disclosed of a large company because of which markets sell off and Nifty
futures goes down to Rs. 4855. What is the mark to market for the investor? (1 Nifty contract is 50 shares).

• Rs. 18000
• Rs. -9000
• Rs. 9000
• Rs. -18000

Q8. 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. State true or false.

• FALSE
• TRUE

Q9. An investor has Unitech shares in her portfolio. RBI is increasing interest rates which is
negative for the stock. She wants to protect the downside in the stock as she feels RBI will
decide on increasing interest rates in the next 3 months. What should she do?

• Buy 2 month put option of Unitech
• Buy 1 month put option of Unitech
• Buy 3 month put option of Unitech
• Buy 3 month call option of Unitech

Q10. An investor sells 3 lots of Nifty futures at Rs. 5231 each. On that day Nifty closes at Rs.
5310 in the futures market. What is the mark to market for the investor if any? One lot of Nifty
is 50 shares

• Profit of Rs. 13000
• Profit of Rs. 11000
• Loss of Rs. 11850
• Loss of Rs. 10000

Derivatives Dealers 15

Q1. Nifty futures is trading at Rs. 3975 and an investor buys a 4000 call for current month
for Rs. 100. What should be the closing price of Nifty only above which the investor starts to
make Profits if he holds his long option position? 1 lot of Nifty = 50 shares.

• 4000
• 4100
• 4075
• 3975

Q2. An investor buys 2 contracts of TCS futures for Rs. 570 each. He sells of one contract at
Rs. 585. TCS futures closes the day at Rs. 550. What is the net payment the investor has to
pay/ receive from his broker? 1 TCS contract = 1000 shares

• Receive Rs. 15000 from the broker
• Pay Rs. 5000 to the broker
• Receive Rs. 5000 from the broker
• Pay Rs. 20000 to the broker

Q3. Nifty futures is trading at Rs. 4955. An investor feels the market will not go beyond
5100. He can ____.

• Sell 5000 Nifty put
• Sell 5100 Nifty put
• Sell 5100 Nifty Call
• Sell 5000 Nifty call

Q4. The maximum expiry for individual stock options contract is :

• 6 months
• 3 months
• 1 months
• 2 months

Q5. SBI is trading at Rs. 1800 in the cash market. What would be the price of SBI futures
expiring three months from today. Risk free rate = 8% p.a.

• 1844
• 1836
• 1895
• 1814

Q6. Security descriptor for stock Futures contract is :

• OPTSTK
• FUTSTK
• OPTIDX
• FUTIDX

Q7. Nifty futures is trading at Rs. 3325 and an investor buys a 3400 call for current month
for Rs. 100. What should be the closing price of Nifty only above which the investor starts to
make Profits if he holds his long option position? 1 lot of Nifty = 50 shares.

• 3400
• 3325
• 3500
• 3425

Q8. Like Futures contracts there is daily settlement of options contracts.

• depends on the expiry
• TRUE
• FALSE
• depends if the option is call or put

Q9. An investor bought a put option on a stock with a strike price Rs. 2000 for Rs. 200. The
option will be in the money when _______.

• The stock price is greater than Rs. 2200
• The stock price is less than Rs. 2000
• The stock price is less than Rs. 1800
• The stock price is greater than Rs. 2000

Q10. The value of a put option is positively related to all of the following EXCEPT:

• exercise price
• risk-free rate
• time to maturity

Derivatives Dealers 13

Q1.Which of the following cannot be an underlying asset for financial derivative contract?

1. Equity index
2. interest rate
3. commodities 
4. foreign exchange

Q2. in an option contracts, the option lies with the . . . .

1. buyer 
2. seller 
3. both
4. exchange 

Q3. the potential returns on a future positions are 

1. limited 
2. unlimited 
3. a function of the volatility of the index 
4. none of the above

Q4. The maximum brokerage chargeable by trading member in relation to trades effected in the contracts on the f&o segment of the nse  is fixed at . . .  of the contract value, exclusive of satutory levies.

1. 1.5%
2. 2.0%
3. 1%
4. 2.5%

Q5. The best buy order for a given future contracts is the order to buy the index at the . . . . . .

1. highest price
2. lowest price
3. average of the highest and lowest price 
4. none of the above 

Q6. SPAN is a . . . . .based margining  system

1. portfolio 
2. options
3. futures
4. derivatives 

Q7. The regulatory framework for the derivative market in india has been developed by  the . . . .

1. L.C.Gupta committee
2. A.C.Gupta committee
3. J.R.Verma committee 
4. None of the above

Q8. The clearing member has to maintain a minimum liquid networth of . . . .

1. 35 Lakh
2. 80 Lakh
3. 50 Lakh 
4. 20 Lakh

Q9. The daily settlement price for index futures shall be decided by

1. SEBI
2. the Reserve Bank of India
3. the Clearing Corporation / house
4. None of the above

Q10. You bought January Satyam Futures @ Rs 268 and the lot size is 1,200. What is your profit (+)or loss(-) if you sell at Rs 225 ?

1.  -50,600
2. -51,600
3. -52,600
4. None of these

Derivatives Dealers 12

Q1. Liquidity risk can be caused by

1. sale of large number of shares which depress price significantly.
2. high market capitalisation
3. failure of VSAT.
4. low market capitalisation

Q2.The securities which are not delivered in the clearing house during pay-in, are purchased by the clearing house from the market. This process is known as

1. close-out
2. penalty
3. auction
4. upla badla

Q3. Forward contract is a good means of avoiding price risk, but it also entails element of risk because

1. The contract is not standardised
2. The party to the contract may not honour its part of obligation and default.
3. The contract value is fixed
4. None of the above

Q4. The shares of XYZ Ltd are currently quoted at Rs 100. Futures on this share are quoted at Rs 110. In what situation would you buy these futures?

1. You expect the price of the share to move up by 5%
2. You expect the price of the share to move up by 7%
3. You expect the price of the share to move up by 25%
4. You expect the price of the share to move up by 8%

Q5.A trader bought 10 Jan Sensex contracts at the BSE. How will the trader close out this position in the market?

1. Sell 10 Jan sensex contracts
2. Sell 15 Feb. nifty contracts
3. Buy 15 March sensex contracts
4. Buy 15 March nifty contracts

Q6. An Over The Counter option

1. is a standardised contract traded on an Exchange
2. is a contract tailored to suit individual requirements
3. is an option on stocks of pharmaceutical companies
4. can be bought from any option writer

Q7. An investor is bullish on a particular stock, but does not possess liquid cash to buy the scrip.What should he do?

1. buy an index-future
2. wait till he saves enough money
3. do nothing
4. buy an option on the particular stock

Q8. Three Call series of Sesa goa  - March, April and May are quoted. Which will have the lowest Option Premium?

1. April
2. May
3. March
4. All will be equal

Q9. the amount that must  be deposited in the margin account at the time a future contracts is first entered into is known as . . . . .

1. Initial Margin
2. Mark-to-Market
3. Maintenance Margin
4. None of the above

Q10. Index Options, have index as the underlying.

1. True 
2. False 
3. True not in India
4. False not  in india

Derivatives Dealers 10

Q1. At the end of each trading day, the Clearing House process of settling your account on a cash basis(funds added to your balance if your position has made a profit, deducted if you sustained a loss) is called:
a) Marking to the market.
b) Performance bond call.
c) Maintenance performance bond call.
d) Initial performance bond call.

Q2. Daily mark-to-market margin payments arise on adverse positions resulting from price movements in futures.
a) True
b) False
c) True only in 2001
d) True only in 2012

Q3. Mark-to-market margins will be collected on a
a) Weekly basis
b) every 2 days
c) every 3 days
d) daily basis

Q4. Who will be eligible for clearing trades in stock futures?
a) All Indian citizens
b) All members of the BSE
c) Only members who are registered with the Derivatives Segment as Clearing Members
d) All of the above

Q5. The daily settlement price for index futures shall be decided by
a) SEBI
b) the Reserve Bank of India
c) the Clearing Corporation / house
d) None of the above

Q6.  An investor has open position of 10 contract long and 20 contract short in sensex future March and April series respectively. What are her open positions in March series after considering the spread position.
a) 0
b) 10
c) 20
d) None of these

Q7. If you have short sold a Sensex future at 3000 and bought it at 3100, what is your gain / loss?
a) A loss of Rs. 5000
b) A gain of Rs. 500
c) A gain of Rs. 5000
d) A loss of Rs. 500

Q8.S&P CNX Nifty is a market- capitalization weighted index
a) True 
b) False
c)none of the above

Q9. Computational methodology followed for construction of stock market indices are
a) Free Float Market Capitalization weighted Index
b) Market Capitalization weighted index
c) Price Weighted Index.
d) True all of them 

Q10. . . . . .  are private agreements between two parties to exchange cash flow in future according to prearranged formula , They can be regarded as portfolio of forward contracts .
a) Swaps 
b) warrants
c) baskets
d) leaps

Derivatives Dealers(9)

Q1.Which of the following is NOT an example of a forward contract?
a) An agreement to buy a car in the future at a specified price.
b) An agreement to buy an airplane ticket at a future date for a certain price
c) An agreement to buy a refrigerator today at the posted price.
d) An agreement to subscribe to a newspaper at a specified price at a future date.

Q2. Futures on individual stocks are allowed
a) on all stocks listed on the stock exchange
b) on few selected stocks only
c) on all stocks listed on all stock exchanges in India
d) on all stocks where price is more than Rs 100 per share

Q3.A rice exporter will be purchasing rice soon. He is afraid that higher prices could wipe out his potential profits. What can the rice exporter do in the futures market to minimize his price uncertainty?
a) He can sell Rice Futures.
b) He should buy Rice Futures
c) He cannot get any help from Futures and Options.
d) He should not get into Rice business.

Q4. An exchange traded futures contract is similar to an OTC (over the counter) derivative. Some common features are :
a) Both are tailored (e.g. non-standardised) instruments
b) Both require margin collection by a clearing house
c) Both are exposed to credit-risk i.e. risk of non-performance by counter party
d) None of the above

Q5. Derivatives are highly leveraged, which implies that
a) You can take a higher position with smaller investments using derivatives
b) You can take a lower position with higher investments using derivatives
c) You can take a higher position if you buy the underlying assets instead of buying derivatives
d) You should buy the underlying assets as you might make more profit on them rather than
derivatives

Q6.All options contracts expire on the .....
a) last friday of the month
b) last Thursday of the month
c) last tuesday of the month
d) none of the above

Q7. On the NSE's NEAT-F&O system, matching of trades takes place at the .....
a) active order price
b) passive order price
c) market price
d) none of the above

Q8. All futures and options contracts expires on the ......
a) last friday of the month
b) last thursday of the month 
c) last tuesday of the month
d) none of the above

Q9.The NEAT -F&o trading system supports an ......
a) order driven market 
b) demand driven market
c) price driven market
d) none of the above

Q10. At any time , the F&O segment of nse provides trading facilities for..... NIFTY futures contracts.
a) two
b) three
c) nine
d) none of the above

Derivatives Dealers(8)

Q1.You bought January Satyam Futures @ Rs 268 and the lot size is 1,200. What is your profit (+)
or loss(-) if you sell at Rs 225 ?
a) -50,600
b) -51,600
c) -52,600
d) None of these

Q2.An investor has buy position in a scrip, he can make his position nil in the settlement by
a) selling any security of equal quantity.
b) selling the same scrip and same quantity.
c) selling any index scrip of equal quantity
d) selling any A-group scrip for equal quantity.

Q3.The futures market has its own terminology. If a trader was long in the market, what would that
mean?
a) The trader sold a future contract
b) The trader bought a futures contract
c) The trader’s open positions exceeded his net worth
d) None of the above

Q4.Forward contracts can be cancelled with any counterparty in the market and not necessarily with the same counterparty with whom it was entered into
a) True
b) False
c) True only in Japan
d) True only in Africa


Q5.Hedgers and speculators strike a balance due to their needs as
a) Hedger has to take risk while speculator has to give up risk
b) Both hedgers and speculators have to take risk
c) Both hedgers and speculators have to give up risk
d) Hedger avoids risk while the speculator takes risk

Q6. If you have bought a Sensex future at 3200 and sold at 3600 what is your profit/loss?
a) loss Rs.18,000
b) gain Rs.20,000
c) gain Rs.18,000
d) loss Rs.20,000

Q7.An investor has open position of 10 contract long, 10 contract long and 10 contract short in sensex future March, April and May series respectively. What are her spreads across March-April?
a) 0
b) 10
c) 20
d) None of these

Q8.Otc derivatives are consider risky because
a)There is no formal house margin system .
b)they dont follow any formal rules .
c)they are not settled on a clearing
d)all of the above 

Q9.An investor has an open position of 10
contracts short and 23 contracts long in March
and April Series respectively. How many contracts
are covered under calendar spread?
a) 23
b) 13
c) 10
d) None of these

Q10. The existence of a derivatives market lends to complete market.
a)True
b)False

Derivatives Dealers(7)

Q1.cash market  is a market with immediate or near immediate delivery

• True
• False
• True in USA
• True Only on Euorope

Q2.Future contracts may or may not be traded on an exchange

• True 
• False
• True only on 2012
• True only 2002 

Q3. a future contracts is very standardized contracts that leaves very little (except the price) open to negotiation.

• True 
• False 
• True only in Mumbai
• True only Delhi

Q4 OTC Derivatives stand for ________.

• Over the Counter Derivatives
• Outstanding Transaction Credit Derivatives
• Options Trade Credit Derivatives
• Commodity price risks

Q5 Under normal circumstances the Futures price trades at a ____ price than the Spot price :

• Higher 
• Lower
• Same price as spot
• Depends on the type of contract

Q6.For stop-loss buy order, the trigger price is ______ the limit price.

• Less than
• Greater than
• Equal to
• None of the above

Q7.A Trading Member can trade __________

• on their own account
• on behalf of their clients
• on behalf of participants
• all of the above

Q8 . Index calculation frequency for NSE NIFTY 50 is _____

• Real Time 
• offline 
• Not mention by NSE

Q9. Currently the tick size in the scrip listed on the exchange is ______

• 5 paisa
• 10 paisa
• .o5 paisa
• none of the above

Q10. Which is not a part of security market

• Commodity
• Real state 
• Equity
• Derivaties

Derivatives Dealers(5)

Q1-A fund manager bullish on the market what should be his course of action ?

1. Buy index future 
2. Sell the index future
3. Sell his entire portfolio
4. None of the above

Q2-Tick size is

1. The minimum daily movement permitted in the price of the contract
2. The minimum permitted price movement during the entire life of the contract
3. The minimum permitted price movement in a futures contract 
4. None of the above

Q3-In the case of future the initial margin is paid only by seller and not by the buyers

1. True
2. False

Q4-If you have sold  june sensex future @4800 , you will make profit only if

1. Future price goes up
2. Future price go down 
3. None of the above

Q5-Generally higher the price volatility , higher would be intial margin requirement

1. True
2. True in africa  
3. True in Japan 
4. False

Q6-A derivative exchange faces

1. Legal risk
2. Operational risk
3. Liquidity risk
4. All of the above

Q7-The risk which is measured by a BETA value is called

1. Unsystematic risk
2. Systematic risk
3. Default risk
4. None of the above

Q8-a investor has done the following two spread trades in sensexfuture contracts what is her profit (+) or loss(-)? bought 10 contract jan-feb@2, sold 10  jan-feb @ 17

1. 1500
2. 7500
3. 375000
4. None of the above

Solution -
purchase price Rs- 2
sale price Rs- 17
Number of contracts- 10
Lot Size - 50
profit = (17-2) * 10 *50= 7500


Q9-At sensex future price level of 3000, what will be the value of one sensex  future contract

1. 3000
2. 300000
3. 150000
4. None of the above

Solution -
Sensex Price - 3000
Lot Size- 50
Value -  3000*50=150000

Q10-Taking position in futures opposite to that in cash market for protecting cash market holding is

1. Hedging
2. Speculating
3. Arbitrage
4. None of the above