Derivatives Dealers(6)

Q1-In future contracts , the contract maturity period is defined by-

• The exchange 
• by the RBI
• by the parties to the contracts 
• by the government 

Q2-A long or short position in a future contract can be closed easily by initiating a reverse trade.

• True
• False
• True only in Mumbai
• True only in delhi

Q3-A warrant could be understood as

• A derivative instrument
• Akind of equity share
• A kind of debenture 
• A kind of financial bond 

Q4-Use of index future for hedging helps us eliminating the following risk

• Stock specific risk
• All possible risk  
• No risk 
• Market risk

Q5- Systematic risk is an investment risk peculiar to a company which can be reduced by diversifying one's portfolio

• False 
• True 
• True only in africa 
• True only in japan 

Q6- One of the method to control financial risk is to have

• Exposure limits 
• Un-interrupted power supply unit 
• Speculate heavily 
• None of the above

Q7-Credit risk on a derivative transaction includes

• Power outage 
• Riots in the country 
• Credit exposure in the event of default and the probability of a counter party's default.
• Bank strikes

Q8-In case on NSE Index futures, The mpnthly series matures on

• First Thursday of the month 
• Last Thursday of the month 
• First Wednesday of the month 
• Last Wednesday of the month  

Q9-Which of the following can be the underlying in a financial future ?

• Sugar
• T Notes
• Coffee
• Pork bellies 

Q-10-You sold January satyam futures @ Rs 248 and the lot size is 1200. What is your profit or loss If you purchase at Rs 274?

• -30,200
• -31200 
• -32200
• none of the above 

Solution-
Purchase Price : 274
Sales Price: 248
Loss per unit: 26
Lot size : 1200
Loss = (274-248)*1200 = 31200

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

Derivatives Dealers(4)

Q1-Which of the following is true ?

1. An american option can be exercised on an american option exchange 
2. An american option can be exercised on the expiration date.
3. An american option can be exercised on before the expiration date
4. An american option can be exercised on or before the expiration date. 

Q2-Expiration date is the date on or before which the option must be exercised

1. True
2. False
3. true only on USA
4. True only on japan 

Q3-The black-scholes model is used for the pricing of

1. Index futures 
2. option 
3. Equity share
4. Corporate debt 

Q4-A stock option is example of a

1. Commodity
2. Derivative instrument
3. Money market instrument
4. Foreign exchange contract

Q5-Who can write the option ?

1. Only market makers 
2. Only FIIS 
3. Any person  whether he owns underlying stock or not 
4. Any person owing underlying stock 

Q6-Selling long on the stock means ....

1. Seller does not own the stock he is suppose to deliver 
2. seller has to deliver the stock after a long time 
3. seller owns the stock  he is suppose to deliver  
4. seller  has to deliver the stock along with interest 

Q7-Purchase of a call option has expectation that stock price will

1. Increase 
2. Decrease 
3. Remain constant
4. None of the above 

Q8-Exercise price of option are specified by-

1.  Government 
2. Company 
3. Market makers 
4. Exchange

Q9-If you have bought a future contract and price drops , you will be making a profit.

1. True 
2. False 
3. Sometimes true
4. Some times false

Q10-The greater the number of participants in any market , generally lower the liquidity .

1. True 
2. False
3. True only for the year 2002
4. True only for the year 2001

Derivatives Dealers(3)

Q1-The derivatives contracts  initially developed in...

1. Commodities 
2. Futures
3. Options 
4. Cash  

Q2-The derivatives drive their name from their respective underlying asset

1.  True 
2. False

 Q3-The first contract to be launched on NSE was the nifty 50 index futures contracts

1. True
2. False

Q4-When SEBI allows exchange to trade  in index future

1. May 25, 2000
2. June 20, 2000
3. May 25, 2001
4. July 29, 2010

Q5-Maximum  expiration time for derivatives contract in NSE is

1. 3 months 
2. 4 months 
3. 6 months 
4. 1 year

Q6-The S&P CNX NIFTY index covers 21 sectors of the Indian economy

1. True
2. False

Q7-Participants on a derivative market

1. Hedger
2. Speculator 
3. Arbitrageurs
4. All of them  

Q8-Who provide depth in the market

1. Hedger
2. Speculator
3. Arbitrager

Q9-In forward contracts , delivery date, price and quantity are negotiated 

1. True
2. False

Q10-In which contract price are not available in public domain.

1. Forward
2. Future
3. Options
4. Cash

  

Derivatives Dealers (2)

Q1-If some one is 'bearish' in the market ? 

1. He expects market to rise 
2. He expects market to fall
3. He expects market to close 
4. Hes expects to market to close. 

Q2-The value of a derivatives instrument 

1. Is fixed
2. Depends on the value of an underlying asset
3. Is reset at fixed level
4. None of the above

Q3-In which market contract of each party faces of risk of default?

1. Forward 
2. Cash 
3. Futures 
4. Options

Q4-The future contract are thus refined Forward  contract in terms of standardization, performance, guarantee and liquidity  .

1. True
2. False

 Q5-A farward contract has zero value for both the parties involved .

1. True
2. False

Q6-A long or  a short position in a Futures contract can be closed easily by initiating a reserve trade

1. True 
2.  False

Q7-The  market impact cost on a trade of rs 3 million of the full NIFTY works out to be about 0.5%.This means  that if NIFTY is at 2000, a buy order will go through at roughly ....

1. 2010
2. 2050 
3. 2500 
4. None of the above 

Q8-If liquidity is poor , impact cost would be ....

1. High
2. Low 
3. Moderate 
4. None of the above

Q9-At the point of entering into the future contract 

1. Both the buyers and seller pay initial margin to the exchange
2. The buyer alone pays initial margin to the exchange
3. The seller alone pays the initial margin 
4. No margin are payable to the exchange by the buyer or the seller

Q10-If you have bought a future contract and the the price drops, you will be making a profit

1. True
2. False
3. Sometimes true
4. Some times false

Derivatives Dealers (1)

Introduction to derivatives 

Q1-future trading commenced first on -----

1.  Chicago board of trade      
2. Chicago board options exchange 
3. Chicago mercantile  exchange 

Q2-The underlying asset for a derivatives contract can be -----

1. equity
2. interest rate 
3. commodities 
4. all of them 

Q3-Derivatives first emerged as .... products 

1. speculating 
2. hedging 
3. volatility
4.  risky

Q4-who are the participant in the derivative market ?

1. hedger 
2. speculators
3. arbitrageurs
4. all of them 

Q5-The first exchange traded in financial derivative in india commenced with the trading of .....

1. index futures
2. stock options 
3. index options 
4. interest rate futures

Q6-NIFTY includes the ..... most liquid stocks that trade on NSE

1. 30
2. 50
3. 100
4. 500

Q7-The indian company which provides professional index management services is ....

1. IISL( India Index Services Limited)
2. S&P( standard and poors)
3. NCCL
4. CRISIL

Q8-Impact cost measure the ..... 

1. liquidity of the stock 
2. return on the stock 
3. volatility of the stock 

Q9-Index funds are .... managed 

1. passively
2. actively
3. family 
4. none of the above

Q10-The market price of a product or a commodity is

1. Determined by demand only
2. Determined by supply only
3. Determined by demand and supply 
4. influenced by government manipulation  

Derivatives Dealers Module (set 2)

Mock Test Paper 

Q.1 Theta is also referred to as the _________ of the portfolio 

(a) time decay
(b) risk delay
(c) risk decay
(d) time delay

Q.2 All of the following are true regarding futures contracts except 
(a) they are regulated by RBI
(b) they require payment of a performance bond
(c) they are a legally enforceable promise
(d) they are market to market

Q.3 Clearing Members (CMs) and Trading Members (TMs) are required to collect upfront initial margins from all their Trading Members/Constituents.
(a) FALSE
(b) TRUE

Q.4 All open positions in the index futures contracts are daily settled at the 
(a) mark-to-market settlement price
(b) net settlement price
(c) opening price
(d) closing price

Q.5. An American style call option contract on the Nifty index with a strike price of 3040 expiring on the 30th June 2008 is specified as ’30 JUN 2008 3040 CA’. 
(a) FALSE
(b) TRUE

Q.6 Usually, open interest is maximum in the _______ contract. 
(a) more liquid contracts
(b) far month
(c) middle month
(d) near month


Q.7 An equity index comprises of ______. 
(a) basket of stocks
(b) basket of bonds and stocks
(c) basket of tradeable debentures
(d) None of the above

Q.8 Position limits have been specified by _______ at trading member, client, market and
FII levels respectively. 
(a) Sub brokers
(b) Brokers
(c) SEBI
(d) RBI

Q.9 An order which is activated when a price crosses a limit is _________ in F&O segment of NSEIL. 
(a) stop loss order
(b) market order
(c) fill or kill order
(d) None of the above


Q.10 Which of the following is not a derivative transaction? 
(a) An investor buying index futures in the hope that the index will go up.
(b) A copper fabricator entering into futures contracts to buy his annual
requirements of copper.
(c) A farmer selling his crop at a future date
(d) An exporter selling dollars in the spot market

Q.11 An investor is bearish about ABC Ltd. and sells ten one-month ABC Ltd. futures contracts at Rs.5,00,000. On the last Thursday of the month, ABC Ltd. closes at Rs.510. He makes a _________. (assume one lot = 100) 
(a) Profit of Rs. 10,000
(b) loss of Rs. 10,000
(c) loss of Rs. 5,100
(d) profit of Rs. 5,100109

Q.12 The interest rates are usually quoted on : 
(a) Per annum basis
(b) Per day basis
(c) Per week basis
(d) Per month basis

Q.13 After SPAN has scanned the 16 different scenarios of underlying market price and volatility changes, it selects the ________ loss from among these 16 observations
(a) largest
(b) 8th smallest
(c) smallest
(d) average

Q.14 Mr. Ram buys 100 calls on a stock with a strike of Rs.1,200. He pays a premium of Rs.50/call. A month later the stock trades in the market at Rs.1,300. Upon exercise he will receive __________. 
(a) Rs.10,000
(b) Rs.1,200
(c) Rs.6,000
(d) Rs.1,150

Q.15 There are no Position Limits prescribed for Foreign Institutional Investors (FIIs) in the F&O Segment. 
(a) TRUE
(b) FALSE

Q.16 In the Black-Scholes Option Pricing Model, when S becomes very large a call option is almost certain to be exercised 
(a) FALSE
(b) TRUE

Q.17 Suppose Nifty options trade for 1, 2 and 3 months expiry with strike prices of 1850,1860, 1870, 1880, 1890, 1900, 1910. How many different options contracts will be tradable? 
(a) 27
(b) 42
(c) 18
(d) 24


Q.18 Prior to Financial Year 2005 - 06, transaction in derivatives were considered as speculative transactions for the purpose of determination of tax liability under the Income-tax Act 
(a) TRUE
(b) FALSE

Q.19 ______ is allotted to the Custodial Participant (CP) by NSCCL. 
(a) A unique CP code
(b) An order identifier
(c) A PIN number
(d) A trade identifier

Q.20 An interest rate is 15% per annum when expressed with annual compounding. What is the equivalent rate with continuous compounding? 
(a) 14%
(b) 14.50%
(c) 13.98%
(d) 14.75%

Q.21 The favorable difference received by buyer/holder on the exercise/expiry date, between the final settlement price as and the strike price, will be recognized as ___________
(a) Income
(b) Expense
(c) Cannot say
(d) None

Q.22 The F&O segment of NSE provides trading facilities for the following derivative instruments, except 
(a) Individual warrant options
(b) Index based futures
(c) Index based options
(d) Individual stock options

Q.23 Derivative is defined under SC(R)A to include : A contract which derives its value from the prices, or index of prices, of underlying securities.
(a) TRUE
(b) FALSE


Q.24 The risk management activities and confirmation of trades through the trading system of NSE is carried out by _______. 
(a) users
(b) trading members
(c) clearing members
(d) participants

Q.25 A dealer sold one January Nifty futures contract for Rs.250,000 on 15th January. Each Nifty futures contract is for delivery of 50 Nifties. On 25th January, the index closed at 5100. How much profit/loss did he make ? 
(a) Profit of Rs. 9000
(b) Loss of Rs. 8000
(c) Loss of Rs. 9500
(d) Loss of Rs. 5000

Q.26 Manoj owns five hundred shares of ABC Ltd. Around budget time, he gets uncomfortable with the price movements. Which of the following will give him the hedge he desires (assuming that one futures contract = 100 shares) ? 
(a) Buy 5 ABC Ltd.futures contracts
(b) Sell 5 ABC Ltd.futures contracts
(c) Sell 10 ABC Ltd.futures contracts
(d) Buy 10 ABC Ltd.futures contracts

Q.27 An investor is bearish about Tata Motors and sells ten one-month ABC Ltd. futures contracts at Rs.6,06,000. On the last Thursday of the month, Tata Motors closes at
Rs.600. He makes a _________. (assume one lot = 100) 
(a) Profit of Rs. 6,000
(b) Loss of Rs. 6,000
(c) Profit of Rs. 8,000
(d) Loss of Rs. 8,000


Q.28 The beta of Jet Airways is 1.3. A person has a long Jet Airways position of Rs. 200,000 coupled with a short Nifty position of Rs.100,000. Which of the following is TRUE?
(a) He is bullish on Nifty and bearish on Jet Airways
(b) He has a partial hedge against fluctuations of Nifty
(c) He is bearish on Nifty as well as on Jet Airways
(d) He has a complete hedge against fluctuations of Nifty


Q.29 Suppose a stock option contract trades for 1, 2 and 3 months expiry with strike prices of 85, 90, 95, 100, 105, 110, 115. How many different options contracts will be
tradable? 
(a) 18
(b) 32
(c) 21
(d) 42

Q.30 The bull spread can be created by only buying and selling 
(a) basket option
(b) futures
(c) warrant
(d) options

Q.31 A stock broker means a member of_______. 
(a) SEBI
(b) any exchange
(c) a recognized stock exchange
(d) any stock exchange

Q.32 Ashish is bullish about HLL which trades in the spot market at Rs.210. He buys 10 three-month call option contracts on HLL with a strike of 230 at a premium of Rs.1.05 per call. Three months later, HLL closes at Rs. 250. Assuming 1 contract = 100 shares,
his profit on the position is ____. 
(a) Rs.18,950
(b) Rs.19,500
(c) Rs.10,000
(d) Rs.20,000

Q.33 A January month Nifty Futures contract will expire on the last _____ of January
(a) Monday
(b) Thursday
(c) Tuesday
(d) Wednesday

Q.34 Which of the following are the most liquid stocks? 
(a) All Infotech stocks
(b) Stocks listed/permitted to trade at the NSE
(c) Stocks in the Nifty Index
(d) Stocks in the CNX Nifty Junior Index113

Q.35 In the books of the buyer/holder of the option, the premium paid would be ___________to ‘Equity Index Option Premium Account’ or ‘Equity Stock Option Premium Account’,as the case may be 
(a) Debited
(b) Credited
(c) Depends
(d) None

Q.36 Greek letter measures a dimension to_______________ in an option position
(a) the risk
(b) the premium
(c) the relationship
(d) None

Q.37 An option which gives the holder the right to sell a stock at a specified price at some
time in the future is called a 
(a) Naked option
(b) Call option
(c) Out-of-the-money option
(d) Put option

Q.38 Trading member Shantilal took proprietary purchase in a March 2000 contract. He bought 1500 units @Rs.1200 and sold 1400 @ Rs. 1220. The end of day settlement price was Rs. 1221. What is the outstanding position on which initial margin will be calculated? 
(a) 300 units
(b) 200 units
(c) 100 units
(d) 500 units

Q.39 In which year, foreign currency futures based on new floating exchange rate system
were introduced at the Chicago Mercantile Exchange 
(a) 1970
(b) 1975
(c) 1972
(d) 1974

Q.40 The units of price quotation and minimum price change are not standardised item in
a Futures Contract. 
(a) TRUE
(b) FALSE

Q.41 With the introduction of derivatives the underlying cash market witnesses _______
(a) lower volumes
(b) sometimes higher, sometimes lower
(c) higher volumes
(d) volumes same as before

Q.42 Clearing members need not collect initial margins from the trading members
(a) FALSE
(b) TRUE

Q.43 Which risk estimation methodology is used for measuring initial margins for futures/
options market? 
(a) Value At Risk
(b) Law of probability
(c) Standard Deviation
(d) None of the above

Q.44 The value of a call option ___________ with a decrease in the spot price. 
(a) increases
(b) does not change
(c) decreases
(d) increases or decrease


Q.45 Any person or persons acting in concert who together own ______% or more of the
open interest in index derivatives are required to disclose the same to the clearing
corporation.
(a) 35
(b) 15
(c) 5
(d) 1115

Q.46 NSE trades Nifty, CNX IT, BANK Nifty, Nifty Midcap 50 and Mini Nifty futures contracts
having all the expiry cycles, except.
(a) Two-month expiry cycles
(b) Four month expiry cycles
(c) Three-month expiry cycles
(d) One-month expiry cycles

Q.47 An investor owns one thousand shares of Reliance. Around budget time, he gets
uncomfortable with the price movements. One contract on Reliance is equivalent to
100 shares. Which of the following will give him the hedge he desires? 
(a) Buy 5 Reliance futures contracts
(b) Sell 10 Reliance futures contracts
(c) Sell 5 Reliance futures contracts
(d) Buy 10 Reliance futures contracts

Q.48 Spot Price = Rs. 100. Call Option Strike Price = Rs. 98. Premium = Rs. 4. An investor buys the Option contract. On Expiry of the Option the Spot price is Rs. 108. Net profit for the Buyer of the Option is ___. 
(a) Rs. 6
(b) Rs. 5
(c) Rs. 2
(d) Rs. 4

Q.49 In the NEAT F&O system, the hierarchy amongst users comprises of 
_______.
(a) branch manager, dealer, corporate manager
(b) corporate manager, branch manager, dealer
(c) dealer, corporate manager, branch manager
(d) corporate manager, dealer, branch manager

Q.50 The open position for the proprietary trades will be on a _______ [3 Marks]
(a) net basis
(b) gross basis

Q.51 The minimum networth for clearing members of the derivatives clearing corporation/
house shall be __________ 
(a) Rs.300 Lakh
(b) Rs.250 Lakh
(c) Rs.500 Lakh
(d) None of the above


Q.52 The Black-Scholes option pricing model was developed in _____. 
(a) 1923
(b) 1973
(c) 1887
(d) 1987

Q.53 In the case of index futures contracts, the daily settlement price is the ______.
(a) closing price of futures contract
(b) opening price of futures contract
(c) closing spot index value
(d) opening spot index value

Q.54 Premium Margin is levied at ________ level.
(a) client
(b) clearing member
(c) broker
(d) trading member

Q.55 In the Black-Scholes Option Pricing Model, as S becomes very large, both N(d1) and
N(d2) are both close to 1.0. 
(a) FALSE
(b) TRUE

Q.56 To operate in the derivative segment of NSE, the dealer/broker and sales persons are
required to pass _________ examination. 
(a) Certified Financial Analyst
(b) MBA (Finance)
(c) NCFM
(d) Chartered Accountancy
(e) Not Attempted

Q.57 The NEAT F&O trading system ____________. 
(a) allows one to enter spread trades
(b) does not allow spread trades
(c) allows only a single order placement at a time
(d) None of the above117

Q.58 Margins levied on a member in respect of options contracts are Initial Margin, Premium
Margin and Assignment Margin 
(a) TRUE
(b) FALSE

Q.59 American option are frequently deduced from those of its European counterpart
(a) FALSE
(b) TRUE

Q.60 Which of the following is closest to the forward price of a share price if Cash
Price = Rs.750, Futures Contract Maturity = 1 year from date, Market Interest
rate = 12% and dividend expected is 6%? 
(a) Rs. 795
(b) Rs. 705
(c) Rs. 845
(d) None of these