500 in One Nism

NISM SERIES VIII
EQUITY DERIVATIVES EXAM

QUESTION SET 1
NISM SERIES VIII – EQUITY DERIVATIVES EXAM

QUESTION SET 1
Question 1 A client can use cross margining across Cash and Derivatives
segment - True or False ?
(i) TRUE
(ii) FALSE
Question 2 When a Client default in making payment in respect of Daily

Settlement, the action taken is .
(i) the client is given 2 days to clear the payments
(ii) the contract is closed out
(iii) the broker pays the money and the client refunds to him in 7 working
days
(iv) the client can give bank guarantee in 2 working days to avoid the
contract being closed out.
Correct Answer 1 TRUE
Answer A client can use the margin he has paid in any segment provided he
Explanation has signed on the necessary declarations in the account opening forms
etc.
Correct Answer 2 the contract is closed out

NISM SERIES VIII
QUESTION SET 1
Question 3 At the year-end, any balance in the "Deposit for Mark-to-Market

Margin Account" should be shown as a deposit under the head
"Current Assets" - True or False ?
(i) TRUE
(ii) FALSE
Question 4 Put option gives the buyer a right to the underlying asset.
(i) Sell
(ii) Buy
(iii) Speculate
(iv) None of the above
Correct Answer 4 Sell
Answer Option, which gives buyer a right to buy the underlying asset, is called
Explanation Call option and the option which gives buyer a right to sell the
underlying asset, is called Put option.
NISM SERIES VIII
QUESTION SET 1
Question 5 If all things remain constant throughout the contract period, the
option price will always in price by expiry.
(i) Fall
(ii) Rise
(iii) Either Rise or Fall
(iv) None of the Above
Question 6 The Non Cash Component of Liquid Assets which are given as a
form of margin can include Equity Shares which are physical form
- True or False ?
(i) FALSE
(ii) TRUE
Correct Answer 5 Fall
Answer Even if the price of the underlying remains constant, the option price
Explanation will fall due to Time Decay.
This the advantage of Time Decay is used by the Option Sellers.
Correct Answer 6 FALSE
Answer Non Cash Component can include Equity Shares as per Capital Market
Explanation Segment which are in demat form (and not in physical form), as
specified by clearing corporation from time to time deposited with
approved custodians
NISM SERIES VIII
QUESTION SET 1
Question 7 If the Initial Margin is changed then it will apply only to fresh
contracts and not to previous outstanding contracts - True or
False ?
(i) TRUE
(ii) FALSE
Question 8 Impact cost is low when the liquidity in the system is poor
(i) TRUE
(ii) FALSE
Answer Initial Margin, if changed, will apply to all outstanding contracts and
Explanation not only to fresh contracts.
Answer Impact cost is said to be low when large orders can be executed
Explanation without moving the prices in a big way.
So when volumes / liquidity will be high the impact cost will be low.
NISM SERIES VIII
QUESTION SET 1
Question 9 The advantage of time decay usually goes to .

(i) Option Buyers
(ii) Option Sellers
(iii) Long Term Investors
(iv) Short Term Investors
Question 10 Churning means .

(i) A specialized arbitrage between Futures and Options
(ii) Excessive unwarranted trading by brokers/agents for generating
commissions
(iii) Delta Hedging using Rho and Theta
(iv) Specialized Portfolio Management
Correct Answer 9 Option Sellers
Answer If all things remain constant throughout the contract period, the option
Explanation price will always fall in price by expiry due to time decay.
Thus option sellers are at a fundamental advantage as compared to
option buyers as there is an inherent tendency in the price to go down.
Correct Answer Excessive unwarranted trading by brokers/agents for generating

10 commissions
Answer Churning refers to when securities professionals making unnecessary

Explanation and excessive trades in customer accounts for the sole purpose of
generating commissions.
NISM SERIES VIII
QUESTION SET 1
Question 11 When different Clearing Members clear for client/entities in Cash

and Derivatives segments they are required to enter into
necessary agreements for availing cross margining benefit - True
or False ?
(i) TRUE
(ii) FALSE
Question 12 To facilitate Foreign Institutional Investors, SEBI has allowed

them to make weekly payments of Mark to Market Margin due to
their huge volumes of trading - True or False ?
(i) TRUE
(ii) FALSE
Correct Answer TRUE

11
Correct Answer FALSE

12
Answer A SEBI registered FIIs and its sub-account are required to pay initial
Explanation margins, exposure margins and mark to market settlements in the
derivatives market as required by any other investor ie. daily.
NISM SERIES VIII
QUESTION SET 1
Question 13 As a special provision for NRI, the Mark to Market Margin payable
them can be done on a consolidated weekly basis True or False ?
(i) FALSE
(ii) TRUE
Question 14 SEBI's centralized web based complaints redress system which

provides online access 24 x 7 is called .
(i) SERA
(ii) SEBI COMPSYS
(iii) SWCOMP
(iv) SCORES

13
Answer All types of investors have to make daily payments of Mark to Market
Explanation margins
Correct Answer SCORES

14
Answer SEBI Complaints Redress System - SCORES
Explanation
NISM SERIES VIII
QUESTION SET 1
Question 15 STT is applicable on all transactions for both futures and

option contracts.
(i) Buy
(ii) Sell
(iii) Both Buy and Sell
(iv) No STT on Futures Trading
Question 16 A Manager / Dealer in the Cash market with a registered Trading

Member, can also become a Manager / Dealer in the Derivatives
segment without any additional formalities â€“ True or False
(i) TRUE
(ii) FALSE
Correct Answer Sell

15
Answer Securities Transaction Tax (STT) is paid only on the sale side of F&O
Explanation transactions.

16
Answer Apart from other formalities , he will also have to clear the Derivatives
Explanation Exam.
NISM SERIES VIII
QUESTION SET 1
Question 17 As per the regulations, the minimum contract value of a futures

contract shall not be less than Rs. 1 Lakh - True or False ?
(i) TRUE
(ii) FALSE
Question 18 Accounting for open options as on the balance sheet date is

shown under the "Equity Index/Stock Option Premium Account"
True or False ?
(i) TRUE
(ii) FALSE

17
Answer The minimum contract value shall not be less than Rs. 2 Lakhs.
Explanation
Correct Answer TRUE

18
NISM SERIES VIII
QUESTION SET 1
Question 19 In the Arbitration procedure, the arbitrator conducts the

arbitration proceeding and passes the award normally within a
period of months from the date of initial hearing.
(i) one
(ii) two
(iii) three
(iv) four
Question 20 The option premium is decided by .

(i) SEBI
(ii) Stock Exchanges
(iii) By buyers and sellers
(iv) By Stock Brokers
Correct Answer Four

19
Correct Answer By buyers and sellers
20
Answer SEBI and Stock Exchanges decide the rules and provide the platform
Explanation for trading.
The option prices are decided by the buyers and sellers based on the
spot price, time value, volatility and many other factors.
NISM SERIES VIII
QUESTION SET 1
Question 21 Equities can also be traded through Professional Clearing

Members.
(i) TRUE
(ii) FALSE
Question 22 ETFs is basket of securities that trade like individual stock on an

exchange- True or False ?
(i) TRUE
(ii) FALSE

21
Answer Professional clearing member clears the trades of his associate Trading
Explanation Member and institutional clients. He need not be a member of an
exchange.
Correct Answer TRUE

22
Answer Exchange Traded Funds (ETFs) is basket of securities that trade like
Explanation individual stock on an exchange. They have number of advantages
over other mutual funds as they can be bought and sold on the
exchange.
Since, ETFs are traded on exchanges intraday transaction is also
possible.
NISM SERIES VIII
QUESTION SET 1
Question 23 An option which would give a negative cash flow to its holder if it
were exercised immediately is know as .
(i) At the money option
(ii) In the money option
(iii) Out of the money option
Question 24 On what occasion form the below, the derivative segment of the
stock market has to report to SEBI ?
(i) Occasions when the 90% Value at Risk (VaR) limit has been violated
(ii) Occasions when the 96.5% Value at Risk (VaR) limit has been violated
(iii) Occasions when the 95% Value at Risk (VaR) limit has been violated
(iv) Occasions when the 99% Value at Risk (VaR) limit has been violated
Correct Answer Out of the money option

23
Answer Out of the Money option is a loss making option and would give the
Explanation holder a negative cash flow if it were exercised immediately. A call
option is said to be OTM, when spot price is lower than strike price.
And a put option is said to be OTM when spot price is higher than
strike price.
For eg. If the spot price of a stock is Rs 100, then the Call Option of
strike price of Rs 105 is Out of the Money.
Correct Answer Occasions when the 99% Value at Risk (VaR) limit has been
24 violated
NISM SERIES VIII
QUESTION SET 1
Question 25 As an option moves more In The Money, the absolute value of

Delta will .
(i) Increase
(ii) Decrease
(iii) Remain same
Question 26 Ms. Patil sold four futures contract of Bata India Ltd at Rs 820 (lot
size 250 shares). What is her profit or loss if she purchases back
the contracts at Rs 806.
(i) Rs 3500
(ii) Rs 9500
(iii) Rs 14000
(iv) Rs 16000
Correct Answer Increase

25
Answer Delta for call option buyer is positive. This means that the value of the
Explanation contract increases as the share price rises.
Correct Answer Rs 14000

26
Answer Ms. Patil sold Bata India shares at Rs 820 and bought back at Rs 806.
Explanation So she made a profit of Rs 14 per share.
Total quantity sold - 250 x 4 lots = 1000
So total profit is Rs 14 x 1000 = Rs 14000.
NISM SERIES VIII
QUESTION SET 1
Question 27 If the price of Infosys stock rises, the call option premium will also
rise.
(i) TRUE
(ii) FALSE
Question 28 measures change in delta with respect to change in

price of the underlying asset.
(i) Vega
(ii) Rho
(iii) Gamma
(iv) Theta
Correct Answer TRUE

27
Answer A rise in spot prices will lead a rise in the intrinsic value and so the
Explanation option premium will rise.
Correct Answer Gamma

28
Answer Gamma measures change in delta with respect to change in price of
Explanation the underlying asset.
Gamma = Change in an option delta/ Unit change in price of
underlying asset
Gamma signifies the speed with which an option will go either in-the-
money or out-of-the-money due to a change in price of the underlying
asset.
When the option is deep in or out of the money, gamma is small.
When the option is near or at the money, gamma is at its largest.
NISM SERIES VIII
QUESTION SET 1
Question 29 Diversification is used to control Systematic Risks - True or False ?

(i) TRUE
(ii) FALSE
Question 30 Ms. Geeta goes long in a PUT option of a higher strike price and
shorts another PUT option of a lower strike price, of the same
scrip and same expiry. This strategy is called .
(i) Bullish Spread
(ii) Bearish Spread
(iii) Calendar spread
(iv) Straddle

29
Answer Systematic risks are risks which are associated with movement of entire
Explanation market due to economic / political and other factors. These cannot be
controlled by diversifying ones portfolio as the entire portfolio will fall
in case of a negative news.
The Systematic risks can be controlled by hedging in the F&O section.
Correct Answer Bearish Spread

30
Answer Bearish Spread - The trader is bearish on the market and so goes long
Explanation in one put option by paying a premium. Further, to reduce her cost,
she shorts another low strike put and receives a premium.
NISM SERIES VIII
QUESTION SET 1
Question 31 The initial margin in derivatives is fixed depending on the

volatility of the stock. True / False ?
(i) FALSE
(ii) TRUE
Question 32 If you SELL a PUT option at premium of Rs 30 at the Strike Price of

Rs 200, lot is of 400 shares, then the maximum possible loss is
(i) Rs 6000
(ii) Rs 68,000
(iii) Rs 80,000
(iv) Unlimited
Correct Answer TRUE

31
Answer If the stock is very volatile it could result in looses to the trader in a
Explanation short period of time. So to safe guard the trading member and the
trader, higher initial margin are levied on volatile stocks.
Correct Answer Rs 68,000

32
Answer When you sell a PUT option, you believe the share will rise. In case it
Explanation falls you make a loss and theoretically the price can become zero.
So in the above example if the price falls from 200 to zero, you make a
loss of Rs 200.
You have received a premium of Rs 30. So the loss will be Rs 200 - Rs
30 = Rs 170
Rs 170 x 400 (lot size) = 68000
NISM SERIES VIII
QUESTION SET 1
Question 33 Margins are collected on a

(i) 3 hour basis
(ii) Daily basis
(iii) T+2, so on a two day basis
(iv) Weekly basis, Monday to Friday.
Question 34 Index futures is

(i) An OTC product
(ii) A Cash market security
(iii) A derivative product
(iv) An call or put option
Correct Answer Daily basis

33
Correct Answer A derivative product
34
Answer The future price of an index is derived from the spot / cash price. So
Explanation Index Future is a derivative product.
NISM SERIES VIII
QUESTION SET 1
Question 35 NSE Nifty consists of stocks.

(i) 25
(ii) 30
(iii) 50
(iv) 60
Question 36 When you buy a put option on a stock you are owning, this
strategy is called .
(i) Straddle
(ii) writing a covered call
(iii) calendar spread
(iv) protective put
Correct Answer 50
35
Correct Answer protective put

36
Answer Protective Put is a a risk-management strategy that investors can use
Explanation to guard against the loss of unrealized gains.
The put option acts like an insurance policy - it costs money, which
reduces the investor's potential gains from owning the security, but it
also reduces his risk of losing money if the security declines in value.
NISM SERIES VIII
QUESTION SET 1
Question 37 A trader buys a call and a put option of same strike price and
same expiry. This is called as .
(i) Butterfly
(ii) Short Straddle
(iii) Long Straddle
(iv) Calendar Spread
Question 38 Vega is .
(i) the change in option price given a one percentage point change in the
risk-free interest rate
(ii) a measure of the sensitivity of an option price to changes in market
volatility
(iii) the change in option price given a one-day decrease in time to
expiration
(iv) speed with which an option moves with respect to price of the
underlying asset
Correct Answer Long Straddle

37
Answer To do a long straddle strategy one has to buy a call and a put option
Explanation of the same strike price and expiry. Together, they produce a position
which will lead to profits if the market / stock is very volatile and it
makes a big move - either up or down. For eg- A person buys a Rs 200
call at Rs 30 and a Rs 200 put at Rs 20 of a stock. If the stock rises
significantly the call will rise greatly but his put will fall by maximum Rs
20. So he makes a good profit. If the stock falls significantly, he loses
his call money buy gains greatly in the put option as it rises. Thus the
Long Straddle is used when a trader expects a big move in the stock -
in any direction is ok
Correct Answer a measure of the sensitivity of an option price to changes in

38 market volatility
NISM SERIES VIII
QUESTION SET 1
Question 39 If a trader buys a put option with a higher strike price and sells a
put option with a lower strike price, both of the same underlying
then this strategy is called .
(i) Bullish Spread
(ii) Bearish Spread
(iii) Straddle
(iv) Butterfly spread
Question 40 A derivative contract made directly over telephone by two parties

is called futures contract - True or False ?
(i) TRUE
(ii) FALSE

39
Answer Bearish Vertical Spread using puts - The trader is bearish on the
Explanation market and so goes long in one put option by paying a premium.
Further, to reduce his cost, he shorts another low strike put and
receives a premium.

40
Answer Such contracts are called Forward or OTC contracts.
Explanation
NISM SERIES VIII
QUESTION SET 1
Question 41 Important element (s) of risk management is (are) :

(i) Monitoring capital adequacy requirements of members
(ii) Regular evaluation of trading members positions
(iii) Collection of Margins
(iv) All of the above
Question 42 A calendar spread will attract margin.

(i) Zero
(ii) Higher
(iii) Lower
Correct Answer All of the above

41
Correct Answer Lower

42
Answer Calendar spread position is a combination of two positions in futures
Explanation on the same underlying - long on one maturity contract and short on a
different maturity contract.
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.
NISM SERIES VIII
QUESTION SET 1
Question 43 Risk which are Non Systematic can be reduced by diversifying

ones portfolio.
(i) TRUE
(ii) FALSE
Question 44 Ask price is the price at which

(i) Buyer is willing to buy
(ii) Seller is willing to sell
(iii) Arbitrageur is willing to negotiate
(iv) Hedger is willing to buy
Correct Answer TRUE

43
Answer Specific risk or unsystematic risk is the component of price risk that is
Explanation unique to particular events of the company and/or industry. This risk is
inseparable from investing in the securities. This risk could be reduced
to a certain extent by diversifying the portfolio.
Correct Answer Seller is willing to sell

44
Answer Bid price is the price buyer is willing to pay and Ask price is the price
Explanation seller is willing to sell.
For eg. If the share price of Reliance Industry is Rs. 950 -951, then the
bid price is Rs 950 and ask price is Rs 951.
NISM SERIES VIII
QUESTION SET 1
Question 45 With a fall in interest rates, the premium on CALL Options will
.
(i) Rise
(ii) Fall
(iii) No Effect
Question 46 When an stock which is part of the index has a stock split, it does
not have an impact on the index.
(i) TRUE
(ii) FALSE
Correct Answer Fall

45
Answer When the interest rates falls, the cost of carry also falls, thus reducing
Explanation the premium on call options.
Correct Answer TRUE

46
Answer Stock Split has an effect on Options, Strike Price etc. but has no impact
Explanation on the index as such.
NISM SERIES VIII
QUESTION SET 1
Question 47 A Call Option is said to be OUT OF THE MONEY,

.
(i) when spot / market price is higher than strike price
(ii) when spot / market price is lower than strike price
(iii) when spot / market price is equal to strike price
(iv) strike price is zero
Question 48 If a company declares a dividend, what will be the effect on the

pricing of call options ?
(i) Call option price will rise

(ii) Call option price will fall
(iii) No effect on option pricing
Correct Answer when spot / market price is lower than strike price
47
Answer A call option is said to be OTM, when spot price is lower than strike
Explanation price - For eg - Market Price of XYZ stock is 200 and the trader has a
bought a call option of strike price 220, so he is in a loss. A put option
is said to be OTM when spot price is higher than strike price.
Correct Answer Call option price will fall

48
Answer Dividend are receivable only for shares which are bought in the cash
Explanation market. No dividend is receivable on F&O positions. So when the stock
becomes ex-dividend in cash market, the price generally falls to the
extent of dividend paid. This fall will be reflected in the Call option
premium in advance. So when a dividend is declared, the Call option
premium falls and Put option premium rises.
NISM SERIES VIII
QUESTION SET 1
Question 49 You have a short position in LPQ Stock futures at Rs 350 (one lot
size is 500 shares) and you have made a profit of Rs 28000. To do
this you will have to :
(i) Sell one lot at Rs 406
(ii) Sell one lot at Rs 294
(iii) Buy one lot at 406
(iv) Buy one lot at Rs 294
Question 50 In case of futures, the initial margin is paid only by the sellers.
(i) TRUE
(ii) FALSE
Correct Answer Buy one lot at Rs 294

49

50
Answer In case of futures, the initial margin is paid by both buyers and sellers.
Explanation In case of Options, the initial margin is paid only by the sellers.
NISM SERIES VIII
QUESTION SET 1
Question 51 Hedging would ensure that your profits are always on the higher
side compared to an unheeded position - State True or False ?
(i) TRUE
(ii) FALSE
Question 52 An index option like NIFTY OPTION is a .

(i) Treasury instrument
(ii) Debt instrument
(iii) Derivative Product
(iv) Cash market product

51
Answer Hedging controls your losses but also controls your profits. It does not ensure
Explanation higher profits.
Correct Answer Derivative Product

52
Answer Nifty options are derived from the NSE index ie. Nifty and so its an
Explanation derivative product.
NISM SERIES VIII
QUESTION SET 1
Question 53 What is a covered call ?

(i) Its a strategy to sell calls at various strike prices to profit from the
premium received
(ii) Its used to generate extra income from existing holdings in the cash
market.
(iii) Its a strategy of buying a call and sell its future for hedging
(iv) Its done by buying a call and put of the same strike price.
Question 54 Covered calls carry greater risk then Naked Calls True or False ?
(i) TRUE
(ii) FALSE
Correct Answer Its used to generate extra income from existing holdings in the
53 cash market.
Answer If an investor has bought shares and intends to hold them for some
Explanation time, then he would like to earn some income on that asset, without
selling it, thereby reducing his cost of acquisition.
So he sells a call option of that stock and benefits from the premium
received.

54
Answer In a naked call, the trader has to take a view on the market and
Explanation accordingly go long or short.
The covered call strategy is used to generate extra income from
existing holdings in the cash market.
Therefore, the naked call strategy is much riskier.
NISM SERIES VIII
QUESTION SET 1
Question 55 A common individual investor cannot write an option.

(i) TRUE
(ii) FALSE
Question 56 In futures contract, the clearing house / clearing corporation

practically becomes the counter party for all transactions - State
True or False ?
(i) TRUE
(ii) FALSE

55
Answer Writing an option means selling an option. Any person can write an
Explanation option after he has fulfilled the necessary formalities like client
registration, margin payments etc.
Correct Answer TRUE

56
NISM SERIES VIII
QUESTION SET 1
Question 57 Of the below options, which is more difficult to manipulate ?

(i) Individual Stocks
(ii) IT sector stocks
(iii) Stock Index
Question 58 The option seller has an obligation and since his losses can be
unlimited, he can be a potential risk for the stability of the
system. Therefore he has to pay .
(i) Extra Premium
(ii) Special Loss Charges
(iii) Margins
Correct Answer Stock Index

57
Answer A stock index contains a basket of high market cap stocks. So its very
Explanation difficult to manipulate it when compared to individual stocks.
Correct Answer Margins

58
Answer The buyer of an option pays the premium upfront and that's his
Explanation maximum loss - so there is no margin collected from him.
On the other hand, the seller of an option can have huge / unlimited
losses which can cause risk to the markets stability - so margins are
collected from him.
NISM SERIES VIII
QUESTION SET 1
Question 59 The Derivative markets mostly comprises of

(i) Long term investors
(ii) Hedgers
(iii) Speculators
(iv) Both 2 and 3
Question 60 OTC derivative market is less regulated market because these

transactions occur in private among qualified counterparties, who
are supposed to be capable enough to take care of themselves.
True or False
(i) FALSE
(ii) TRUE
Correct Answer Both 2 and 3

59
Answer Long term investors buy stocks in Cash market for delivery. Hedgers
Explanation and Speculators are active in the derivative markets.
Correct Answer TRUE

60
Answer In an OTC market, no exchange is involved.
Explanation
NISM SERIES VIII
QUESTION SET 1
Question 61 An trader buys a June XYZ stock futures contract at Rs 242. After a
few days the price of XYZ futures was Rs 269. What will be your
profit / loss if you square up your position ? ( The market lot of
XYZ share is 1000 )
(i) -20000
(ii) -27000
(iii) 20000
(iv) 27000
Question 62 An Over the Counter Option is

(i) A private contract
(ii) Standardized
(iii) Governed by the rules of stock exchange
Correct Answer 27000

61
Answer Purchase Price - Rs 242
Explanation Sale Price - Rs 269
So profit of Rs 27 x 1000 lot = Rs 27000.
Correct Answer A private contract

62
Answer Options traded on the over-the-counter market, where participants can
Explanation choose the characteristics of the options traded. This trading is
between two private parties and no exchange is involved. The flexibility
of these options is attractive to many. With OTC options, both hedgers
and speculators can benefit from avoiding the restrictions that normal
standardized exchanges place on options. The flexibility allows
participants to achieve their desired position more precisely and cost
effectively.OTC market is not a physical market place but a collection
of broker-dealers scattered across the country. Trading is done
through negotiated bidding process over a network of telephone or
electronic media that link thousands of intermediaries. OTC derivative
markets have witnessed a substantial growth over the past few years,
very much contributed by the recent developments in information
technology. The OTC derivative markets have banks, financial
institutions and sophisticated market participants like hedge funds,
corporations and high net-worth individuals.
NISM SERIES VIII
QUESTION SET 1
Question 63 If the tick size of a scrip is 5 paise and the spot price of that scrip
is Rs. 70, what will be the next upward tick ?
(i) 69.95
(ii) 70.005
(iii) 70.05
(iv) 70.5
Question 64 Clearing Corporation acts as a legal counterparty to all trades on

F&O segment and also guarantees their financial settlement. True
/ False.
(i) TRUE
(ii) FALSE
Correct Answer 70.05

63
Answer Tick size is the minimum move allowed in the price quotations. So a 5
Explanation paise tick size will lead to a upward tick of .05.
Correct Answer TRUE

64
Answer Clearing Corporation or the Clearing House is responsible for clearing
Explanation 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.
NISM SERIES VIII
QUESTION SET 1
Question 65 The net worth of a trading member does not include

(i) Intangible Assets
(ii) Prepaid expenses
(iii) Bad Deliveries
Question 66 A trader Mr. Raj wants to sell 10 contracts of June series at

Rs.5200 and a trader Mr. Rahul wants to buy 5 contracts of July
series at Rs. 5250. Lot size is 50 for both these contracts. The
Initial Margin is fixed at 10%. They both have their accounts with
the same broker. How much Initial Margin is required to be
collected from both these investors by the broker ?
(i) Rs 2,60,000
(ii) Rs 1,31,250
(iii) Rs 3,91,250
(iv) Rs 1,28,750

65
Answer As per the L.C.Gupta committee report the net worth of the member
Explanation shall be computed as follows:
Capital + Free reserves - Less non-allowable assets which are :
o Fixed assets
o Pledged securities
o Member’s card
o Non-allowable securities (unlisted securities)
o Bad deliveries
o Doubtful debts and advances
o Prepaid expenses
o Intangible assets
o 30% marketable securities
Correct Answer Rs 3,91,250

66
Answer Payment of Initial Margin by a broker cannot be netted against two or
Explanation more clients. So he will have to pay the margin for the open position of
each of his clients.
So margin payable for Mr. Raj is : 10 x 5200 x 50 at 10% = Rs 2,60,000
Margin payable for Mr. Rahul is : 5 x 5250 x 50 at 10% = Rs 1,31,250
Total = Rs 3,91,250.
NISM SERIES VIII
QUESTION SET 1
Question 67 Mr. A had bought 300 shares of XYZ and wants to protect himself
if the price falls. Which of the below options will be preferred by
him.
(i) Place a limit sell order
(ii) Place a limit buy order
(iii) Place a limit stop loss order
(iv) Place an IOC ie. Immediate or Cancel order
Question 68 A risky trader / speculator believes that the future price of ABC
company will fall and being a smart trader he will .
(i) buy ABC futures now and sell them later when it falls
(ii) wait till the price of ABC futures and cash market price become same
(iii) sell ABC futures now and buy them later when the price falls
(iv) will do nothing as he had suffered a loss in his previous trade
Correct Answer Place a limit stop loss order

67
Answer The facility of STOP LOSS helps the user to determine what is the
Explanation maximum loss he can make on a trade. Accordingly a STOP LOSS order
is entered in the system. This order is only released if the trigger price
is reached.
For eg- If one has bought a share at Rs 300 and his stop loss price is Rs
280 and trigger price is Rs 281, then the order will be released in the
system when the price falls to 281 and the shares will be sold till Rs
280.
Correct Answer sell ABC futures now and buy them later when the price falls
68
NISM SERIES VIII
QUESTION SET 1
Question 69 The spot price of LKK share is Rs 300, the put option of Strike
Price Rs 280 is .
(i) In the money
(ii) Out of the money
(iii) At the money
Question 70 The Brokers of an exchange can be a part of the Governing Board

of the derivatives segment.
(i) FALSE
(ii) TRUE
Correct Answer Out of the money

69
Answer Out of the Money Option - A call option with a strike price that is
Explanation higher than the market price of the underlying asset, or a put option
with a strike price that is lower than the market price of the underlying
asset. An out of the money option has no intrinsic value, but only
possesses time value.
As in the above example, LKK is trading at Rs 300. For such a stock, call
options with strike prices above Rs 300 would be out of the money
calls, while put options with strike prices below Rs 300 would be out of
the money puts. Out of the money options are significantly cheaper
than in the money or at the money options.

70
Answer As per the L.C.Gupta Committee recommendations - No broker
Explanation members should be allowed to sit on the Governing Board of the
Clearing Corporation.
NISM SERIES VIII
QUESTION SET 1
Question 71 If price of a futures contract increases, the margin account of the

seller of this futures contract is debited for the loss.
(i) TRUE
(ii) FALSE
Question 72 Derivatives market helps in transfer of various risks from those

who are exposed to risk but have low risk appetite to participants
with high risk appetite. True or False ?
(i) FALSE
(ii) TRUE
Correct Answer TRUE

71
Answer When the price increases the seller of the future contract will have
Explanation losses and these losses will be debited on a daily basis to the margin
account of the seller.
Correct Answer TRUE

72
Answer Derivatives were first invented as a Hedging tool so that people who
Explanation wanted to play safe can use them to transfer the risk by hedging.
NISM SERIES VIII
QUESTION SET 1
Question 73 A clearing member is required to bring in Interest free security

deposit (IFSD) of Rs. Lakhs and Collateral security deposit
(CSD) of Rs. Lakhs per trading member he undertakes to
clear and settle.
(i) 2,8
(ii) 5, 10
(iii) 7, 12
(iv) 1, 5
Question 74 The minimum Net worth requirement for a trading member of

Capital Market Segment and F&O segment is
(i) Rs 50 lakhs
(ii) Rs 100 lakhs
(iii) Rs 250 lakhs
(iv) Rs 500 lakhs
Correct Answer 2,8

73
Correct Answer Rs 100 lakhs

74
NISM SERIES VIII
QUESTION SET 1
Question 75 When trading in futures contract, the terms of the contract are
decided mutually by the trading parties.
(i) FALSE
(ii) TRUE
Question 76 Rho is .
(i) is the change in option price given a one percentage point change in
the risk-free interest rate
(ii) the change in option price given a one-day decrease in time to
expiration
(iii) speed with which an option moves with respect to price of the
underlying asset
(iv) a measure of the sensitivity of an option price to changes in market
volatility

75
Answer The terms are mutually decided by the parties in FORWARD contract.
Explanation In future contracts the terms are standardised by the exchange.
Correct Answer is the change in option price given a one percentage point change
76 in the risk-free interest rate
Answer Please memories : Rho = change in INTEREST rate.

Explanation
NISM SERIES VIII
QUESTION SET 1
Question 77 The trading members are required to maintain a net worth of

minimum Rs 4 crores.
(i) TRUE
(ii) FALSE
Question 78 A call option is said to be , when spot price is higher

than strike price.
(i) At the money
(iii) In the money
(iv) European

77
Answer The minimum net worth for Trading / Clearing members of the
Explanation derivatives clearing corporation/house shall be Rs.300 Lakhs (Rs 3
crores). The net worth of the member shall be computed as follows:
- Capital + Free reserves
- Less non-allowable assets which are :
o Fixed assets
o Member’s card
o Bad deliveries
o Prepaid expenses
o Intangible assets
Correct Answer In the money

78
Answer A call option with a strike price that is lower than the market price of the
Explanation underlying asset, or a put option with a strike price that is higher than the
market price of the underlying asset.
For example, consider a stock that is trading at Rs 100. For such a stock, call
options with strike prices below Rs 100 would be In the money calls ( ie Rs 80,
Rs 90 calls) while put options with strike prices above Rs 100 (Rs 110 , Rs 120
calls etc.)would be In the money puts.
For easy understanding, those calls or puts which are profitable are In the
Money.
NISM SERIES VIII
QUESTION SET 1
Question 79 A long position in a January future contract can be reversed by a

short position in that stock futures of February month True /
False ?
(i) FALSE
(ii) TRUE
Question 80 When a person sells a put option, he has an

(i) Bullish view
(ii) Bearish view
(iii) Mixed view
(iv) Long term view

79
Answer A position in futures can be reversed by squaring up in the same
Explanation month and not in a different month. So in the above case the position
can be reversed by selling the stock future in January month.
Correct Answer Bullish view

80
NISM SERIES VIII
QUESTION SET 1
Question 81 You have sold a put option of a strike price of Rs 370 for Rs 38.
What is the maximum gain you can have on expiry of this position
?
(i) Unlimited
(ii) Rs 370
(iii) Rs 38
(iv) Rs 332
Question 82 Calendar spreads carry only risk.

(i) speculative
(ii) market risk
(iii) basis risk
(iv) interest risk
81
Answer The maximum gain for a seller of PUT option is the premium he
Explanation receives. In this case he has sold the put option at Rs 38 and received
this premium, so that is his maximum gain.
Correct Answer basis risk

82
Answer Basis means the difference between Spot Price and Future Price or
Explanation difference between two future price of the same underlying.
Basis risk is the chance that the basis will have strengthened or
weakened from the time the hedge is implemented to the time when
the hedge is removed - ie. the risk that the two future prices will not
fluctuate identically.
NISM SERIES VIII
QUESTION SET 1
Question 83 You have sold a CALL option on a stock at Rs. 16 per call with
strike price of Rs. 170. If on exercise date, stock price is Rs. 196,
ignoring transaction cost, you will choose .
(i) to exercise the option
(ii) not to exercise the option
(iii) may or may not exercise the option depending on the company's
background
(iv) none of the above
Question 84 Non Systematic risks can be reduced by diversifying ones

portfolio True or False ?
(i) TRUE
(ii) FALSE
Correct Answer not to exercise the option

83
Answer You have sold a CALL which means you expect the stock to fall. On the
Explanation exercise day the stock has risen which means there is a loss and so you
will not exercise the option.
Correct Answer TRUE

84
Answer Specific risk or unsystematic risk is the component of price risk that is
Explanation unique to particular events of the company and/or industry.
This risk is inseparable from investing in the securities. This risk could
be reduced to a certain extent by diversifying the portfolio.
NISM SERIES VIII
QUESTION SET 1
Question 85 In the Option segment, if you buy a CALL at a premium of Rs 35 at

the Strike Price of Rs 400, lot is of 200 shares, then the maximum
possible loss is
(i) Unlimited
(ii) Rs 400
(iii) Rs 7000
(iv) Rs 73000
Question 86 Longer the time to expiry/maturity of a call option, higher will be

the time value.
(i) FALSE
(ii) TRUE

85
Answer The minimum loss for a buyer of an option is the premium they pay.
Explanation In the above case the premium paid is Rs 35 x 200 shares = Rs 7000.
Correct Answer TRUE

86
NISM SERIES VIII
QUESTION SET 1
Question 87 Mr. Shah purchased two futures contract of Ambuja Cements Ltd
at Rs. 180 (lot size 2000 shares). What will be his profit or loss if
he sells them at Rs 187.
(i) Rs 14000
(ii) Rs 28000
(iii) Rs 20000
(iv) Rs 27500
Question 88 The Ask price is always greater than the Bid price.
(i) FALSE
(ii) TRUE

87
Answer Mr. Shah bought at Rs 180 and sold at Rs 187, so he made a profit of
Explanation Rs 7.
Lot size is Rs 2000 and he has purchased 2 lots, so 4000 shares x Rs 7
profit = Rs 28,000
Correct Answer TRUE

88
Answer Bid - Ask : The bid price is the buyers price and Ask is the sellers price.
Explanation So the sellers price is always higher than the buyers price.
NISM SERIES VIII
QUESTION SET 1
Question 89 An Out of the Money option will have :

(i) More than 1 intrinsic value
(ii) Zero intrinsic value
(iii) Negative intrinsic value
Question 90 It is recommended but not compulsory that all Stock Exchanges of

India have a uniform settlement cycle. True or False ?
(i) FALSE
(ii) TRUE
Correct Answer Zero intrinsic value

89
Answer Intrinsic value in options is the in-the-money portion of the option's
Explanation premium. For example, If a call options strike price is Rs15 and the
underlying stock's market price is at Rs 25, then the intrinsic value of
the call option is Rs 10.
Option premium consists of two components - intrinsic value and time
value. For an option, intrinsic value refers to the amount by which
option is in the money i.e. the amount an option buyer will realize,
before adjusting for premium paid, if he exercises the option instantly.
Therefore, only in-the-money options have intrinsic value whereas at-
the-money and out-of-the-money options have zero intrinsic value.
The intrinsic value of an option can never be negative.
Correct Answer TRUE

90
Answer Uniform settlement cycle across all exchanges is recommended but the
Explanation exchanges can fix their settlement cycle as per their wish and what
suits them best.
NISM SERIES VIII
QUESTION SET 1
Question 91 A wheat exporter has entered into a contract to supply wheat

after two months. He will be buying that wheat soon. But he is
afraid that a sudden rise in wheat prices may erode his profits.
What should he do ?
(i) He should sell wheat futures
(ii) He should buy wheat futures
(iii) He should visit the farmers to see the possibility of wheat prices
increasing or decreasing
(iv) He can import wheat and export them at a later date
Question 92 The minimum price movement in a scrip is called BASIS.

(i) TRUE
(ii) FALSE
Correct Answer He should buy wheat futures

91
Answer By buying wheat futures he has locked in his buying price.
Explanation When he wishes to take actually export he can sell in the futures maket
and buy in the spot market as the prices will be almost same.

92
Answer The minimum price movement in a scrip is called TICK. It is minimum
Explanation move allowed in the price quotations. Exchanges decide the tick sizes
on traded contracts as part of contract specification.
The difference between the spot price and the futures price is called
basis.
NISM SERIES VIII
QUESTION SET 1
Question 93 Mr. A buys a August futures contract of ICICI Bank at Rs 900. On

the last Thursday of the month ie. expiry, the last traded price in
August futures is Rs 912 and the closing price in cash / spot
market is Rs 910. What is the profit / loss of Mr. A if his position is
sq-up by the exchange. Market lot of ICICI Bank is 250.
(i) Rs 3000
(ii) Rs 2500
(iii) Rs -3000
(iv) Rs -2500
Question 94 is the change in option price given a one percentage

point change in the risk-free interest rate.
(i) Delta
(ii) Rho
(iii) Vega
(iv) Gamma

93
Answer As Mr. A has not squared up his position, the exchange will do it and
Explanation the same is done at the CASH MARKET CLOSING PRICE.
So Buying Price - Rs 900
Sq Up price - Rs 910
Profit of Rs 10 x 250 lot = Rs 2500
Correct Answer Rho

94
Answer The rate at which the price of a derivative changes relative to a change
Explanation in the rate of interest. Rho measures the sensitivity of an option or
options portfolio to a change in interest rate.
For example, if an option has a rho of 10.36 then for every percentage-
point increase in interest rates, the value of the option increases
10.36%.
Rho = Change in an option premium/ Change in cost of funding the
underlying
NISM SERIES VIII
QUESTION SET 1
Question 95 In India the future contracts are available for

(i) All scrips listed on NSE
(ii) A few selected stocks
(iii) All scrips above the price of Rs 100
(iv) All stocks with a market cap of Rs 300 crore or more.
Question 96 A cotton exporter has entered into a contract to supply cotton

after three months. He will be buying that cotton soon. But he is
afraid that a sudden rise in cotton prices may erode his profits.
What should he do ?
(i) He can import cotton and export them at a later date
(ii) He should cancel the contract as cotton prices are very volatile
(iii) He should buy cotton futures
(iv) He should sell cotton futures
Correct Answer A few selected stocks

95
Answer Selection of scripts which can be traded in F&O is as per certain
Explanation guidelines and so only a selected few scripts which qualify can be
traded on the futures market.
Correct Answer He should buy cotton futures

96
Answer By buying cotton futures he has locked in his buying price.
Explanation When he wishes to take actually export he can sell in the futures
market and buy in the spot market as the prices will be almost same.
NISM SERIES VIII
QUESTION SET 1
Question 97 What is the main reason for which hedgers enter the futures
market ?
(i) to profit from price fluctuations
(ii) to make long term investments
(iii) to protect against any price uncertainties
(iv) to make big profits
Question 98 An Investor Mr. Shah wants to buy 8 contracts of January series at

Rs 740 and an investor Mr. Patel wants to sell 5 contracts of
February series at Rs 754. Initial Margin is fixed at 6%. How much
initial margin has to be collected from them ? Market lot is 250.
(i) Rs 56,550
(ii) Rs 88,800
(iii) Rs 1,45,350
(iv) Rs 1,87,600
Correct Answer to protect against any price uncertainties

97
Answer Hedging means making an investment to reduce the risk of adverse
Explanation price movements in an asset. Normally, a hedge consists of taking an
offsetting position in a related security, such as a futures contract.
An example of a hedge would be if you owned a stock, then sold a
futures contract stating that you will sell your stock at a set price,
therefore avoiding market fluctuations.
Investors use this strategy when they are unsure of what the market
will do.
Correct Answer Rs 1,45,350

98
Answer Margin to be collected from Mr. Shah : Rs 740 X 8 contracts X 250
Explanation (Market lot) at 6% = Rs 1480000 x 6% = Rs 88,800
Margin to be collected from Mr. Patel : Rs 754 X 5 contracts X 250
(Market lot) at 6% = Rs 942500 x 6% = Rs 56,550
So the total margin : 88,800 + 56,550 = Rs 145350
NISM SERIES VIII
QUESTION SET 1
Question 99 A commodity future exchange .

(i) trades in cash and future commodities
(ii) trades only in future of commodities
(iii) trades in commodities of which it has stocks in its various go downs
Question 100 Value-at-risk calculations are done on the basis of .

(i) best possible market conditions
(ii) ideal market conditions
(iii) volatility
(iv) 90 % risk parameter
Correct Answer trades only in future of commodities

99
Correct Answer volatility

100
- ALL THE VERY BEST –

NISM SERIES VIII
QUESTION SET 2

QUESTION SET 2
Question 1 The Stock Exchanges and Stock Brokers decide the option
premiums - True or False ?
(a) TRUE
(b) FALSE
Question 2 The Indian Stock Future Markets deals in .

(a) Swaps
(b) Equity Cash
(c) Equity Derivative
(d) All of the above
Answer Stock Exchanges decide the rules and provide the platform for trading
Explanation and Stock Brokers act as authorized mediatories.
The option prices are decided by the buyers and sellers based on the
spot price, time value, volatility and many other factors.
Correct Answer 2 Equity Derivative
Answer Swaps are series of forward contracts. Equity Cash is traded in the
Explanation Spot Markets.
Equity Derivatives like Futures and Options are traded in the Stock
Futures markets.
NISM SERIES VIII
QUESTION SET 2
Question 3 Usually as the level of risk rises, the expected rate of return on that
investment should also rise - True or False ?
(a) TRUE
(b) FALSE
Question 4 The system of SEBI which enables investors to lodge and follow up
their complaints and track the status of redressal of such complaints
from anywhere is called SCORES True or False ?
(a) TRUE
(b) FALSE
Answer Higher the risk ( Eg. Equity Shares ) higher is the return
Explanation Lower the risk ( Eg. Bank Fixed Deposits ) lower is the return.

NISM SERIES VIII
QUESTION SET 2
Question 5 A short seller has the time of one week to deliver the stocks –
True or False ?
(a) TRUE
(b) FALSE
Question 6 The total liquid assets comprise of at least 60% of the cash component
and the rest is non cash component - True or False ?
(a) TRUE
(b) FALSE
Answer Selling Short means Seller does not own the stock he is supposed to
Explanation deliver. Even if a trader has stock he has to deliver the shares in T+2 days.
Answer The total liquid assets comprise of at least 50% of the cash component
Explanation and the rest is non cash component.
NISM SERIES VIII
QUESTION SET 2
Question 7 In the accounting system of open options as on Balance Sheet day,

the "Provision for Loss on Equity Index/ stock Option Account" is
shown as deduction from "Equity Index/ stock Option Premium"
which is shown under .
(a) Current Assets
(b) Current Liabilities
(c) Short term Debts
(d) None of the above
Question 8 Operational risks include losses due to .

(a) Inadequate disaster planning
(b) Too much of management control
(c) Government policies
(d) Income tax regulations
Correct Answer 7 Current Assets
Correct Answer 8 Inadequate disaster planning

NISM SERIES VIII
QUESTION SET 2
Question 9 A tax which is clearly mentioned in the Contract Note is

(a) Long Term Capital Gain Tax
(b) Short Term Capital Gain Tax
(c) Both 1 and 2
(d) Securities Transaction Tax (STT)
Question 10 refers to when securities professionals making

unnecessary and excessive trades in customer accounts for the
sole purpose of generating commissions.
(a) Hedging
(b) Arbitrage
(c) Churning
(d) Broking
Correct Answer 9 Securities Transaction Tax (STT)
Correct Answer Churning

10
NISM SERIES VIII
QUESTION SET 2
Question 11 What role do speculators play in the Futures Market ?

(a) They sell futures and buy it back when price rises to make a profit
(b) They buy futures and sell it back when the price rises to make a profit
(c) They sell futures and also sell in the cash market to create a hedge
Question 12 As per the L.C.Gupta Committee recommendations a separate

Investor Protection Fund must be created for derivatives segment –
True or False ?
(a) TRUE
(b) FALSE
Correct Answer They buy futures and sell it back when the price rises to make a profit
11
Correct Answer TRUE

12
NISM SERIES VIII
QUESTION SET 2
Question 13 An index option is a Money Market Instrument - True or False ?

(a) TRUE
(b) FALSE
Question 14 Option which gives buyer a right to sell the underlying asset,
is called option
(a) Call
(b) Put
(c) American
(d) European

13
Answer An index option is a Derivative Product.
Explanation
Correct Answer Put

14
Answer Option, which gives buyer a right to buy the underlying asset, is called
Explanation Call option and the option which gives buyer a right to sell the underlying
asset, is called Put option.
NISM SERIES VIII
QUESTION SET 2
Question 15 If there is not much price movement, the OTM option will be
beneficial to .
(a) Buyer of Call Option
(b) Seller of Call Option
(c) Buyer of Put Option
Question 16 A Trading member can either clear his trades or use the services of
Professional Clearing members - True or False ?
(a) TRUE
(b) FALSE
Correct Answer Seller of Call Option

15
Answer There is no Intrinsic Value in OTM (Out of the Money) option but only
Explanation Time Value. So a buyer of an option will pay the premium and the seller
will receive it.
If there is not much price movement, the seller will earn the premium
received.

16
Answer A Trading member cannot clear his trades. Only a Trading cum Clearing
Explanation members can clear their own trades.
NISM SERIES VIII
QUESTION SET 2
Question 17 A Broker or Dealer who is already registered with an existing stock

exchange will have to get additional registration for the Derivative
Exchange - True or False ?
(a) TRUE
(b) FALSE
Question 18 The cash component of Liquid Securities can include Units of money
market mutual fund and Gilt funds where applicable haircut is 10%.
True or False ?
(a) TRUE
(b) FALSE
Correct Answer TRUE

17
Answer In addition to their registration as brokers of existing stock exchanges,
Explanation Derivative brokers/dealers and clearing members are required to seek
registration from SEBI.
Correct Answer TRUE

18
NISM SERIES VIII
QUESTION SET 2
Question 19 As per J.R.Verma Committee recommendations, Volatility should

be calculated based on of logarithmic daily returns.
(a) Variance
(b) Delta
(c) Standard Deviation
(d) CAGR
Question 20 Impact cost is low when .

(a) volume/ liquidity is low
(b) volume/ liquidity is high
(c) the scrip is trading at a all time high
(d) the scrip is trading at a all time low
Correct Answer Standard Deviation

19
Correct Answer volume/ liquidity is high

20
Answer Impact cost is said to be low when large orders can be executed without
Explanation moving the prices in a big way.
So when volumes will be high the impact cost will be low.
NISM SERIES VIII
QUESTION SET 2
Question 21 In the Options segment, if you buy a PUT, you expect the market
/ scrip to move
(a) Down
(b) Up
(c) One cannot buy a Put in options market
(d) Remain range bound
Question 22 An investor who is less risk averse would like to have greater
exposure to equity and other risky investments compared to fixed
income instruments.
(a) FALSE
(b) TRUE
Correct Answer Down

21
Answer A buyer of a PUT option has a negative / bearish view and so he
Explanation expects the market / script to move down to make a profit.
Correct Answer TRUE

22
Answer Although Equity Markets can give good returns but they are quiet risky
Explanation to invest. So only an less risk averse investor would prefer to invest in
equity.
A more risk-averse investor would prefer investments that are more
secure and thus would have higher portfolio allocations to debt and
fixed income instruments.
NISM SERIES VIII
QUESTION SET 2
Question 23 Arbitrage activities would ensure that the prices of futures

contract is aligned with the prices of the underlying assets. True
or False ?
(a) FALSE
(b) TRUE
Question 24 Forward contracts are OTC contracts - True or False ?

(a) TRUE
(b) FALSE
Correct Answer TRUE

23
Answer Arbitrage occupies a prominent position in the futures world as a
Explanation mechanism that keeps the prices of futures contracts aligned properly
with prices of the underlying assets.
When ever the prices are not aligned, the arbitrageurs will step in to
use the price difference to make profits.
Correct Answer TRUE

24
Answer The forward contracts are negotiated between two parties, the terms
Explanation and conditions of contracts are customized as per their requirements.
These are OTC contracts.
NISM SERIES VIII
QUESTION SET 2
Question 25 You are bullish on a stock but unsure of the overall market. The
action you should take is :
(a) Buy Stock futures and sell Index futures
(b) Sell Index futures
(c) Buy Stock Futures
Question 26 A trader sells a lower strike price CALL option and buys a higher
strike price CALL option, both of the same scrip and same expiry
date. This strategy is called .
(a) Bearish Spread
(b) Bullish Spread
(c) Long term Investment
(d) Butterfly
Correct Answer Buy Stock futures and sell Index futures

25

26
Answer A bear call spread is a limited profit, limited risk option strategy that
Explanation can be used when the options trader is moderately bearish on the
underlying security.
It is entered by buying call options of a certain strike price and selling
the same number of call options of lower strike price (in the money)
on the same underlying security with the same expiration month.
NISM SERIES VIII
QUESTION SET 2
Question 27 The Over the counter options are .

(a) calculated based on the delta.
(b) standardised options
(c) customised options
(d) always in the money options
Question 28 Financial Derivatives are used for –

(a) Speculation
(b) Hedging
(c) Arbitrage
Correct Answer customised options

27
Answer Over the Counter options are made as per the needs of the trading
Explanation parties - so they are customised.
Future options are standardised as per the rules of stock exchange.

28
NISM SERIES VIII
QUESTION SET 2
Question 29 If you buy a PUT option at premium of Rs 20 at the Strike Price of

Rs 250, lot is of 400 shares, then the maximum possible loss is
(a) Rs 5000
(b) Rs 8000
(c) Rs 20,00,000
(d) Unlimited
Question 30 The future contracts are custom designed and hence each contract
is different as per the terms of the contracting parties.
(a) FALSE
(b) TRUE

29
Answer When you buy an option, either Call or Put - the maximum loss is the
Explanation premium you have paid.
In this case the premium paid is Rs 20 x 400 shares = Rs 8000.

30
Answer Future contracts are standardised and forward contracts are custom
Explanation designed.
NISM SERIES VIII
QUESTION SET 2
Question 31 Which risks can be managed by selling Index Futures ?

(a) Mark to Market risks
(b) Time value risks
(c) Systematic Risks
(d) Unsystematic Risks
Question 32 A buyer of Put Option

(a) Has the obligation to take delivery of asset
(b) Has the right to buy the underlying asset
(c) Has the right to sell the underlying asset
(d) Has the obligation to give delivery of asset
Correct Answer Systematic Risks

31
Answer Unsystematic Risk Specific risk or unsystematic risk is the component
Explanation of price risk that is unique to particular events of the company and/or
industry. This risk is inseparable from investing in the securities. This
risk could be reduced to a certain extent by diversifying the portfolio.
Systematic Risk An investor can diversify his portfolio and eliminate
major part of price risk i.e. the diversifiable/unsystematic risk but what
is left is the non-diversifiable portion or the market risk-called
systematic risk. Variability in a security’s total returns that are directly
associated with overall movements in the general market or economy
is called systematic risk. Thus, every portfolio is exposed to market risk.
This risk is separable from investment and tradable in the market with
the help of index-based derivatives. When this particular risk is hedged
perfectly with the help of index-based derivatives, only specific risk of
the portfolio remains.
Correct Answer Has the right to sell the underlying asset

32
Answer Put Option is an option contract giving the owner the right, but not
Explanation the obligation, to sell a specified amount of an underlying security at a
specified price within a specified time. This is the opposite of a call
option, which gives the holder the right to buy shares.
So an Option, which gives buyer a right to buy the underlying asset, is
called Call option and the option which gives buyer a right to sell the
underlying asset, is called Put option. There is no obligation when you
buy an option.
NISM SERIES VIII
QUESTION SET 2
Question 33 A long position in a CALL option can be closed by taking a short

position in PUT option.
(a) FALSE
(b) TRUE
Question 34 If a stock has very low volatility then it would have a lower option
premium.
(a) TRUE
(b) FALSE

33
Answer A long position in any option can be closed by selling that option and
Explanation not in any other way.
So a long position in a CALL option can be closed by selling that CALL
option.
Correct Answer TRUE
34
Answer Lower the volatility lower the risk and so lower the premium.
Explanation The stocks which are highly volatile will have comparatively higher
option premiums as there involves a lot of risk trading in such stocks.
NISM SERIES VIII
QUESTION SET 2
Question 35 In index futures, if the near leg of the calendar spread transaction
expires then the farther leg becomes a regular open position.
(a) TRUE
(b) FALSE
Question 36 In the derivatives market, all the margins are collected by

.
(a) Margin House
(b) SEBI
(c) Clearing House
(d) Clearing Banks
Correct Answer TRUE

35
Answer Calendar spread means an options or futures spread established by
Explanation simultaneously entering a long and short position on the same
underlying asset but with different delivery months.
In the above question, lets assume a trader has gone long in index
options in current month and short in index options in third month.
Incase he does not close his position by the end of current month, his
current month option will expire and the third month option contract
will become an open position as there is no opposite option contract
in his account.
Correct Answer Clearing House

36
NISM SERIES VIII
QUESTION SET 2
Question 37 A is created by shorting a call and a put option of same

strike and same expiry.
(a) Long Straddle
(b) Short Straddle
(c) Bullish spread
Question 38 When a call option is In The Money the .

(a) Strike Price is lower than Spot Price
(b) Strike Price is higher than Spot Price
(c) Strike Price is same as Spot Price
(d) None of the Above
Correct Answer Short Straddle

37
Answer A Short Stradlle strategy carried out by holding a short position in
Explanation both a call and a put that have the same strike price and expiration
date. He sells a call and a put so that he can profit from the premiums.
The maximum profit is the amount of premium collected by writing
the options.
The short straddle is a risky strategy an investor uses when he or she

believes that a stock's price will not move up or down significantly.
Because of its riskiness, the short straddle should be employed only by
advanced traders due to the unlimited amount of risk associated with
a very large move up or down.
Correct Answer Strike Price is lower than Spot Price

38
Answer An In the money (ITM) option would give holder a positive cash flow, if
Explanation it were exercised immediately.
A call option is said to be ITM, when spot price is higher than strike
price. And, a put option is said to be ITM when spot price is lower than
strike price. In our examples, call option is in the money
NISM SERIES VIII
QUESTION SET 2
Question 39 Delta is .
(a) the change in option price given a one-day decrease in time to
expiration
(b) is the change in option price given a one percentage point change in
(c) speed with which an option moves with respect to price of the
underlying asset
(d) a measure of the sensitivity of an option price to changes in market
volatility
Question 40 is minimum move allowed in the price quotations.

(a) Theta
(b) Ask Price
(c) Tick Size
(d) Bid Price
Correct Answer speed with which an option moves with respect to price of the
39 underlying asset
Answer The most important of the ‘Greeks’ is the option’s is “Delta”. This
Explanation measures the sensitivity of the option value to a given small change in
the price of the underlying asset. It may also be seen as the speed with
which an option moves with respect to price of the underlying asset.
Delta = Change in option premium/ Unit change in price of the
underlying asset. Delta for call option buyer is positive. This means
that the value of the contract increases as the share price rises. For
example, with respect to call options, a delta of 0.6 means that for
every Rs.1 the underlying stock increases, the call option will increase
by Rs 0.60
Put option deltas, on the other hand, will be negative, because as the
underlying security increases, the value of the option will decrease. So
a put option with a delta of -0.6 will decrease by Rs.0.60 for every Rs 1
the underlying increases in price.
The knowledge of delta is of vital importance for option traders
because this parameter is heavily used in margining and risk
management strategies.
Correct Answer Tick Size
40
Answer Tick size is the minimum price movement of a trading instrument.
Explanation Exchanges decide the tick sizes on traded contracts as part of contract
specification. The exchange informs the lot size and the tick size for
each of the contracts traded on F&O segment from time to time. Tick
size for Nifty futures is 5 paisa.
NISM SERIES VIII
QUESTION SET 2
Question 41 In futures contract the lot size is determined by .

(a) The Stock Exchange
(b) Professional Clearing Member
(c) The Company
(d) SEBI
Question 42 As the expiry / maturity of a futures contract approaches, the spot

price and future price tend to become same. This is known as
.
(a) Covariance
(b) Cosseting
(c) Convergence
(d) Correlation
Correct Answer The Stock Exchange

41
Answer Its the duty of the stock exchange to inform of the lot size and the tick
Explanation size for each of the contracts traded on F&O segment from time to
time.
Correct Answer Convergence

42
NISM SERIES VIII
QUESTION SET 2
Question 43 If you buy a PUT option at premium of Rs 20 at the Strike Price of

Rs 250, lot is of 400 shares, then the maximum possible Profit is
(a) Rs 8000
(b) Rs 5000
(c) Rs 100000
(d) Unlimited
Question 44 A PUT option gives buyer a right but not the obligation to buy
the underlying asset.
(a) TRUE
(b) FALSE
Correct Answer Unlimited

43
Answer The buyer of an OPTION, be it CALL or PUT, enjoys the benefit of
Explanation having an unlimited profit (theoretically)
In the above example, you have bought a PUT option assuming that
the share will fall. When the share starts to fall the premium will keep
on rising and rising..from Rs 20 to Rs 30 and so on.

44
Answer A PUT option gives buyer a right but not the obligation to SELL the
Explanation underlying asset.
NISM SERIES VIII
QUESTION SET 2
Question 45 A calendar spread contract in index futures attracts higher margin

than sum of two independent legs of futures contract.
(a) FALSE
(b) TRUE
Question 46 An American Put option gives the buyer the right to sell the
underlying asset at a specified price on or before the expiry /
maturity date.
(a) FALSE
(b) TRUE

45
Answer A calendar spread contract in index futures attracts LOWER margin
Explanation than sum of two independent legs of futures contract. This because
the risk is very less on calendar spreads.
Correct Answer TRUE

46
Answer European Options can be exercised only on maturity but American
Explanation Options can be exercised on or before maturity.
NISM SERIES VIII
QUESTION SET 2
Question 47 If futures price are lower than spot price of an asset, market
participants may expect the spot price to come down in future.
This situation is called
(a) Contango
(b) Reverse System
(c) Backwardation
(d) Impact costs
Question 48 When the strike price decreases, the premium on call option
increases.
(a) TRUE
(b) FALSE
Correct Answer Backwardation

47
Answer As per the Expectancy Model of Future Pricing - If future prices are
Explanation higher than spot prices (over the normal cost of carry) we can expect
the spot prices to go up in future. This is called as Contango.
Similarly, if the future prices are lower than spot prices, we can expect
the spot prices to go down and this is called as Backwardation.
Correct Answer TRUE

48
Answer For eg - If the market price is Rs 200 and the 180 strike price call
Explanation option has a premium of Rs 25 (Rs 20 intrinsic value and Rs 5 time
value), then the 160 call option will have a premium of appx Rs 45
( Rs 40 intrinsic value and Rs 5 time value)
NISM SERIES VIII
QUESTION SET 2
Question 49 In BID-ASK price, the bid price is the price at which .

(a) the trader is willing to buy the asset
(b) the trader is willing to sell the asset
(c) the trader is willing to either buy or sell the asset
Question 50 The major reason for collecting high initial margin is to improve
the solvency of the clearing corporations.
(a) TRUE
(b) FALSE
Correct Answer the trader is willing to buy the asset

49
Answer Bid price is the price buyer is willing to pay and ask price is the price
For eg - If the price of State Bank of India as seen on the trading
screen is Rs 2000 - 2001, this means Rs 2000 is the bid price and Rs
2001 is the ask price.
Correct Answer TRUE

50
Answer Higher the margins, lower the risks of client or broker defaulting. This
Explanation improves the solvency of the Clearing Corporations.
NISM SERIES VIII
QUESTION SET 2
Question 51 A Clearing member is required to provide liquid assets and these

liquid assets should be at least 75% in cash, bank FDs etc and
balance 25% in non cash assets. True or False ?
(a) FALSE
(b) TRUE
Question 52 Beta is the change in option price given a one percentage point
change in the risk-free interest rate.
(a) TRUE
(b) FALSE

51
Answer The total liquid assets should comprise of at least 50% ( and not 75% )
Explanation of the cash component and the rest is non cash component.

52
Answer Rho is the change in option price given a one percentage point change
Explanation in the risk-free interest rate.
Beta a measure of systematic risk of a security that cannot be avoided
through diversification.
NISM SERIES VIII
QUESTION SET 2
Question 53 In futures market, basis is referred to as .

(a) Beta of the future stock
(b) Volatility of the market
(c) Price difference between Spot and Future price
(d) The Bid-Ask price
Question 54 An option which would give a zero cash flow to its holder if it
were exercised immediately is know as .
(a) At the money option
(b) Out of the money option
(c) In the money option
Correct Answer Price difference between Spot and Future price

53
Answer The difference between the spot price and the futures price is called
Explanation basis.
If the futures price is greater than spot price, basis for the asset is
negative. Similarly, if the spot price is greater than futures price, basis
for the asset is positive.
Correct Answer At the money option

54
Answer A situation where an option's strike price is identical to the price of the
Explanation underlying security. Both call and put options will be simultaneously
"at the money." For example, if XYZ stock is trading at 75, then the XYZ
75 call option is at the money and so is the XYZ 75 put option.
At the money option would lead to zero cash flow if it were exercised
immediately. Therefore, for both call and put ATM options, strike price
is equal to spot price.
NISM SERIES VIII
QUESTION SET 2
Question 55 When a clearing member / broker make unnecessary transactions

in his clients account with the sole aim of making commissions,
this is known as .
(a) Technical Trading
(b) Stop Loss Trading
(c) Churning
(d) Portfolio Planning
Question 56 You have sold one lot of JSW Steel futures for Rs 900 (lot size
250) expecting that this share will go down. But you also wants to
protect yourself against any loss of more than Rs 2000. What
should you do ?
(a) Place a limit order to buy at Rs 908
(b) Place a stop loss buy order at Rs 892
(c) Place a stop loss buy order at Rs 908
(d) Place a limit sell order at Rs 908
Correct Answer Churning

55
Correct Answer Place a stop loss buy order at Rs 908

56
NISM SERIES VIII
QUESTION SET 2
Question 57 A buyer of Call Option

(a) Has the obligation to take delivery of asset
(b) Has the obligation to give delivery of asset
(c) Has the right to buy the underlying asset
(d) Has the right to sell the underlying asset
Question 58 You are interested in creating a perfect hedge for your portfolio.
For this you need to sell index futures and the index futures sold
should be equal to .
(a) Value of your portfolio + Beta of your portfolio
(b) Value of your portfolio / Beta of your portfolio
(c) Value of your portfolio * Beta of your portfolio
(d) Value of your portfolio - Beta of your portfolio
Correct Answer Has the right to buy the underlying asset

57
Answer CALL OPTION : An agreement that gives an investor the right (but not
Explanation the obligation) to buy a stock, bond, commodity, or other instrument
at a specified price within a specific time period.
It may help you to remember that a call option gives you the right to
"call in" (buy) an asset. You profit on a call when the underlying asset
increases in price.
Correct Answer Value of your portfolio * Beta of your portfolio

58
Answer To get a hedge, one has to multiply the beta of his portfolio with the
Explanation value of the portfolio and them sell that value of index futures.
NISM SERIES VIII
QUESTION SET 2
Question 59 The holder of an option has .

(a) the obligation but no right
(b) the right but no obligation
(c) some rights but more obligations
(d) no rights and no obligations
Question 60 The intrinsic value is the difference between Market Price and
Strike Price of the option and it can never be negative.
(a) TRUE
(b) FALSE
Correct Answer the right but no obligation

59
Correct Answer TRUE

60
NISM SERIES VIII
QUESTION SET 2
Question 61 The risk return profile of an option contract is .

(a) symmetric
(b) asymmetric
(c) like treasury bond
(d) like mutual funds
Question 62 Arbitrage is a tool used to protects ones portfolio against any

downturn by going short in index. True or False ?
(a) TRUE
(b) FALSE
Correct Answer Asymmetric

61
Answer Asymmetric basically means not identical on both sides.
Explanation When one trades in Options, the gains when the share moves in one
direction is significantly different from the losses when the share
moves in the opposite direction.
For eg - If one buys a call option and the share prices go down the loss
will be limited ie. restricted to the premium paid. But if the share prices
move up, the profits can be huge/unlimited. This is known a
asymmetric return.
On the contrary in futures or cash market, the returns are symmetric ie.
equal value of profits or loss is possible.

62
Answer To protect ones portfolio against any downturn by going short in
Explanation index is called Hedging.
Arbitrage is a tool to use price differences in different markets to make
a profit.
NISM SERIES VIII
QUESTION SET 2
Question 63 When a person buys a call option, he has an

(a) Mixed View
(b) Slightly Long term view
(c) Bullish view
(d) Bearish view
Question 64 In the Option segment, if you buy a CALL at a premium of Rs 35 at

possible Profit is
(a) Rs 400
(b) Rs 7000
(c) Rs 43000
(d) Unlimited
Correct Answer Bullish view

63

64
Answer When you buy a CALL option, your losses are limited to the extent of
Explanation premium paid, but your profits, theoretically can be unlimited as the
price of the underlying can rise to any levels.
When the price of an underlying rises, the price of an CALL option will
also rise and so you can have unlimited profits.
NISM SERIES VIII
QUESTION SET 2
Question 65 In the Straddle Strategy both options have same strike price but
in Strangle strategy, the strike price are different and are mostly
out of the money options- True or False ?
(a) FALSE
(b) TRUE
Question 66 When compared to cash market, there are more chances that an
investor does not properly understand the risks involved in the
derivatives market. True or False ?
(a) TRUE
(b) FALSE
Correct Answer TRUE

65
Answer In the case of Straddle, the view is that the market will move
Explanation substantially in either direction, but while in straddle, both options
have same strike price, in case of a strangle, the strikes are different.
Also, both the options (call and put) in this case are out-of-the-money
and hence the premium paid is low.
Correct Answer TRUE

66
Answer Derivatives market and mainly the options market are difficult to
Explanation understand when compared to cash markets.
NISM SERIES VIII
QUESTION SET 2
Question 67 Hedging is a tool used to protects ones portfolio against any
downturn by going short in index. True or False ?
(a) TRUE
(b) FALSE
Question 68 The spot price of ABC share is Rs 500, the call option of Strike
Price Rs 500 is
(a) In the money
(b) Out of the money
(c) At the money
Correct Answer TRUE

67
Answer Hedging basically means making an investment to reduce the risk of
Explanation adverse price movements in an asset. Normally, a hedge consists of
taking an offsetting position in a related security, such as a futures
contract.
In the above question, if an investor own 30-40 stocks and feels the
market (and so his stocks) will go down due to a upcoming event, he
will short the index to minimise his losses.
Investors use this strategy when they are unsure of what the market
will do.
Correct Answer At the money

68
Answer At the Money - A situation where an option's strike price is identical to
Explanation the price of the underlying security. Both call and put options will be
simultaneously "at the money."
For example, if XYZ stock is trading at 100, then the XYZ 100 call
option is at the money and so is the XYZ 100 put option. An at-the-
money option has no intrinsic value, but may still have time value.
Options trading activity tends to be high when options are at the
money.
NISM SERIES VIII
QUESTION SET 2
Question 69 A client G1 has bought 1 contract of ABC futures May series at Rs

3240. The closing price of this share when the market closed on
last Thursday of May was Rs 3188. What is his Profit (+) or Loss (-)
? (Market lot 100)
(a) -3240
(b) -5188
(c) 5600
(d) -5200
Question 70 When a trader buys a put option, he has an

(a) Mixed view
(b) Bearish view
(c) Bullish view
(d) Confused view
Correct Answer -5200

69
Answer Purchase Price - Rs 3240
Explanation Sale Price - Rs 3188
So there is a loss : 3240 - 3188 = -52 x 100 = -5200
Correct Answer Bearish view

70
NISM SERIES VIII
QUESTION SET 2
Question 71 In a Derivatives Market, the person who takes the risk are
(a) Arbitrageurs
(b) Speculators
(c) Hedgers
(d) None of the Above
Question 72 The difference between the bid price and the ask price is know as
.
(a) basis
(b) bid-ask spread
(c) tick
(d) premium
Correct Answer Speculators

71
Answer Hedgers use derivatives to manage risks, Arbitrageurs use Cash market
Explanation and Derivative market to make money by using the price differences.
Speculators take open positions and take the risks.
Correct Answer bid-ask spread

72
Answer The difference between the best buy and the best sell orders is called
Explanation bid-ask spread.
For eg - If the price of a stock is Rs 100 and 100.50, then 0.50 paise is
the bid-ask spread.
NISM SERIES VIII
QUESTION SET 2
Question 73 A Trading Member can also be a Clearing Member True or False ?

(a) TRUE
(b) FALSE
Question 74 The option premium paid by the option buyer remains with the
exchange till the time it is closed out or expired.
(a) TRUE
(b) FALSE
Correct Answer TRUE

73
Answer A Trading Member can also be a Clearing Member by meeting
Explanation additional requirements. There can also be only clearing members.

74
Answer The Option premium is collected by the exchange but is given to the
Explanation seller of option.
NISM SERIES VIII
QUESTION SET 2
Question 75 Higher the interest rate, higher will be the option premium - True
or False ?
(a) TRUE
(b) FALSE
Question 76 A major recommendation of L.C.Gupta Committee was that a

separate Investor Protection Fund must be created for derivatives
segment.
(a) TRUE
(b) FALSE
Correct Answer TRUE

75
Answer Higher interest rates will lead to higher future price / higher option
Explanation premium as the cost of carry ie. cost of financing increases.
Correct Answer TRUE

76
NISM SERIES VIII
QUESTION SET 2
Question 77 A short seller .

(a) Must own the share
(b) Must own at least 75% of the shares
(c) Need not own the shares
Question 78 Position limits have been designed to .

(a) prevent the markets from being wrongly influenced by Government
policies
(b) support the market and determine its movements
(c) stop the markets being wrongly influenced by the trading activities of
investor(s)
(d) all of the above
Correct Answer Need not own the shares

77
Answer Short Selling means the selling of a security that the seller does not
Explanation own.
Short sellers assume that they will be able to buy the stock at a lower
amount than the price at which they sold short.
Correct Answer stop the markets being wrongly influenced by the trading
78 activities of investor(s)
NISM SERIES VIII
QUESTION SET 2
Question 79 The mark to mark debits for stock futures are done on a
(a) Daily basis
(b) Weekly basis
(c) Monthly basis
(d) Hourly basis when markets are very volatile
Question 80 Derivatives market helps shift of speculative trades from

unorganized market to organized market. True or False ?
(a) TRUE
(b) FALSE
Correct Answer Daily basis

79
Answer In the futures market, profits and losses are settled on day-to-day
Explanation 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.
Therefore all futures positions - for both Index and Stocks are marked to
market on a daily basis.
Correct Answer TRUE

80
Answer In the unorganised markets, there is a huge risk of counter party
Explanation default etc. In the organized markets for derivatives the Clearing
Corporation guarantees the clearing and settlement of all trades even
if there is a default of any participant.
NISM SERIES VIII
QUESTION SET 2
Question 81 If you have a short position in futures contract, you can square up
it by .
(a) Buying a call option of that security
(b) Selling the same futures contract
(c) Selling the far month future contract so that you have more time and
can earn more
(d) Buying a put option of that security
Question 82 The Ask price is always greater than Bid price. True or False ?
(a) TRUE
(b) FALSE
Correct Answer Selling the same futures contract

81
Answer A future contract can be squared up by selling the same contract and
Explanation in no other way.
Correct Answer TRUE

82
Answer Bid price is the price buyer is willing to pay and ask price is the price
For example the prices as seen on the screen will be – Reliance Inds
900 – 901, where 900 is the bid price and 901 is the ask price.
So the Ask price is always greater than Bid price.
NISM SERIES VIII
QUESTION SET 2
Question 83 An investor who is risk averse will invest more in Fixed Income
and Debt instruments than to equity market related investments.
(a) TRUE
(b) FALSE
Question 84 A stock broker has two clients P and Q. P has purchased 200
contracts and Q has sold 300 contracts in May Tata Steel futures
series. What is the outstanding liability (open Position) of the
member towards Clearing Corporation in number of contracts?
(a) 100
(b) 200
(c) 300
(d) 500
Correct Answer TRUE

83
Answer A risk-averse investor ie. an investor who wants to play safe and not
Explanation take risks, will prefer investments that are more secure and thus would
have higher portfolio allocations to debt and fixed income
instruments.
On the other hand an investor who is less risk averse would like to
have greater exposure to equity and other risky investments.
Correct Answer 500

84
Answer While calculating the outstanding liability of a member, the total of all
Explanation clients open position is taken into account. The positions cannot be
netted against two clients.
So in the above case the total open position is 200 + 300 = 500
contracts.
NISM SERIES VIII
QUESTION SET 2
Question 85 Impact Cost is the measure of liquidity True or False ?

(a) FALSE
(b) TRUE
Question 86 The difference between the spot price and the futures price is
called tick.
(a) FALSE
(b) TRUE
Correct Answer TRUE

85
Answer Impact cost basically means what additionally a trader must pay
Explanation because of the order size ie. due to price increase if there it is a big
buy order and price decrease if there is a big sell order.
If the scrip is very liquid ie. there are huge buyers and sellers, the
impact cost will be very low. Therefore, if the liquidity is high - the
impact cost is low and if the liquidity is poor, the impact cost are high.

86
Answer The difference between the spot price and the futures price is called
Explanation BASIS.
NISM SERIES VIII
QUESTION SET 2
Question 87 In the Options segment, if you sell a PUT, you expect the market /
scrip to move
(a) Either up or down as you profit in both directions.
(b) One cannot sell a PUT in the options market
(c) Up
(d) Down
Question 88 A put option gives the buyer the right to .

(a) Buy the underlying at market price
(b) Buy the underlying at set price
(c) Sell the underlying at market price
(d) Sell the underlying at set price
Correct Answer Up
87
Answer A seller of a PUT option has a positive / bullish view and he expects
Explanation the market / script to go up to make a profit.
Correct Answer Sell the underlying at set price

88
Answer A put option is a financial instrument that gives the buyer the right,
Explanation but not an obligation, to sell a set quantity of a security at a set strike
price at some time on or before expiration.
In easy terms - what ever may be the market price, the buyer of put
opton will be able to sell security at the set price or strike price as he
has paid a premium for it.
NISM SERIES VIII
QUESTION SET 2
Question 89 A person sells a put option of Strike Price 265, market lot 1000, at
a premium of Rs 40, the maximum profit he can make is .
(a) Rs 25,000
(b) Rs 2,65,000
(c) Rs 40,000
(d) Unlimited
Question 90 pays the initial margin when entering into a

futures
contract.
(a) The Buyer
(b) The Seller
(c) Both Buyers and Sellers
Correct Answer Rs 40,000

89
Answer The maximum profit for a seller of an option is the premium he
Explanation receives. In this case he has received Rs 40. The Lot size is 1000.
So the maximum profit he can make is 40 x 1000 = Rs 40,000.
Correct Answer Both Buyers and Sellers

90
Answer In futures both buyer and seller pays the margin as both are heavily
Explanation exposed to market risks.
In options, only the seller has to pay the margin as buyers have a
limited risk.
NISM SERIES VIII
QUESTION SET 2
Question 91 The Clearing Corporation has the power to charge special margin
if it may think fit.
(a) TRUE
(b) FALSE
Question 92 The right to buy an asset for a certain price on or before a

specified date is the characteristics of a .
(a) American Put Option
(b) American Call Option
(c) European Put Option
(d) European Call Option
Correct Answer TRUE

91
Correct Answer American Call Option

92
NISM SERIES VIII
QUESTION SET 2
Question 93 Contract month is the month in which futures contract

(a) Expires
(b) Are at the lowest price
(c) Are at its highest price
Question 94 Derivative markets mostly comprises of

(a) Long term investors
(b) Speculators
(c) Hedgers
(d) Both 2 & 3
Correct Answer Expires

93
Answer Contract month is the month in which futures contract expires.
Explanation At the expiry of the nearest month contract, a new contract with 3
months maturity will start. Thus, at any point of time, there will be 3
contracts available for trading.
Correct Answer Both 2 & 3

94
Answer Long term investors buy stocks in the Spot / Cash market and take
Explanation their delivery and keep it for long term.
The active participants in Derivative markets are Hedgers, Speculators,
Arbitrageurs etc.
NISM SERIES VIII
QUESTION SET 2
Question 95 Liquid Assets offered by a Clearing Member to the Clearing

Corporation can include Mutual Fund Units and Bank Guarantees.
True or False ?
(a) FALSE
(b) TRUE
Question 96 In the Option segment, if you sell a CALL at a premium of Rs 45 at

possible loss is
(a) Rs 9000
(b) Rs 20,000
(c) Rs 80,000
(d) Unlimited
Correct Answer TRUE

95
Answer Clearing member is required to provide liquid assets to cover various
Explanation margins and liquid net worth requirements. The total liquid assets
comprise of at least 50% of the cash component and the rest is non
cash component.
1. Cash Component:
• Cash
• Bank fixed deposits (FDRs) issued by approved banks and deposited
with approved custodians or Clearing Corporation.
• Bank Guarantees (BGs) in favour of clearing corporation from
approved banks in the specified format.
• Units of money market mutual fund and Gilt funds where applicable
haircut is 10%.
• Government Securities and T-Bills
2. Non Cash Component:
• Liquid (Group I) Equity Shares as per Capital Market Segment which
are in demat form, as specified by clearing corporation from time to
time deposited with approved custodians.
• Mutual fund units other than those listed under cash component
decided by clearing corporation from time to time deposited with
approved custodians.

96
Answer For a seller of an option - the maximum profit is the premium he
Explanation receives and the maximum loss is unlimited.
NISM SERIES VIII
QUESTION SET 2
Question 97 When a person sells a call option, he has an

(a) Bullish view
(b) Bearish view
(c) Long term view
Question 98 The Stock Broker / Clearing Member has full authority to close
out a transaction of his client if .
(a) the client has not paid the daily settlement amount
(b) the client not paid the initial margin
(c) Both 1 and 2
(d) A broker cannot close out a transaction
Correct Answer Bearish view

97

98
NISM SERIES VIII
QUESTION SET 2
Question 99 Theta is the rate of change in option premium for a change in

the price of the underlying asset.
(a) TRUE
(b) FALSE
Question 100 Which of the following factor(s) do not affect the value of an
option ?
(a) The Open Interest
(b) The Spot Price
(c) The volatility in underlying instruments
(d) The strike price

99
Answer Delta is the rate of change in option premium for a change in the
Explanation price of the underlying asset.
Theta is the change in option price given a one-day decrease in time
to expiration. It is a measure of time decay.
Correct Answer The Open Interest

100
NISM SERIES VIII
QUESTION SET 3

QUESTION SET 3
Question 1 A market index is very important for its use .
(i) in portfolio management
(ii) as a benchmark of portfolio performance
(iii) as a barometer for market behavior
Question 2 If a stock fails to meet these retention criteria for three months
consecutively, existing unexpired contracts may be permitted to
trade till expiry and new strikes may also be introduced in the
existing contract months - True or False ?
(i) TRUE
(ii) FALSE
Correct Answer 1 All of the above
Answer The criteria for retention of stock in equity derivatives segment are :
Explanation a) The stock’s median quarter-sigma order size over last six months shall
not be less than Rs. 5 lakhs (Rupees Five Lakhs).
b) MWPL of the stock shall not be less than Rs. 200 crores (Rupees Two
Hundred crores).
c) The stock’s average monthly turnover in derivatives segment over last
three months shall not be less than Rs. 100 crores
If a stock fails to meet these retention criteria for three months
consecutively, then no fresh month contract shall be issued on that stock.
However, the existing unexpired contracts may be permitted to trade till
expiry and new strikes may also be introduced in the existing contract
months. Further, once the stock is excluded from the F&O list, it shall not
be considered for re-inclusion for a period of one year.
NISM SERIES VIII
QUESTION SET 3
Question 3 The clearing member/trading member is required to disclose to the

clearing corporation details of any person(s) acting in concert who
together own % or more of the open interest of all futures and
options contracts on a particular underlying index on the stock
exchange.
(i) 12
(ii) 15
(iii) 17
(iv) 20
Question 4 What penalty is levied for first instance margin / limit violation ?
(i) 0.07% per day
(ii) 0.07% per day + Rs.5,000/- per instance
(iii) 0.07% per day + Rs.20,000/-
Correct Answer 3 15
Correct Answer 4 0.07% per day
Answer Penalty are levied as under :

Explanation 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
11th instance onwards - 0.07% per day + Rs.70,000/- ( for 2nd to 10th
instance) + Rs.10,000/- per instance from 11th instance onwards.
NISM SERIES VIII
QUESTION SET 3
Question 5 Which of the following factor(s) do not affect the value of an option ?
(i) The Open Interest
(ii) The Spot Price
(iii) The volatility in underlying instruments
(iv) The strike price
Question 6 You sold a Put option on a share. The strike price of the put was
Rs.245 and you received a premium of Rs.49 from the option buyer.
Theoretically, what can be the maximum loss on this position?
(i) 206
(ii) 196
(iii) 49
(iv) NIL
Correct Answer 5 The Open Interest
Correct Answer 6 196
Answer When you sell a Put option you believe the share will go up. If the
Explanation share goes down you will make a loss.
Theoretically the share of 245 can fall to zero. So you can make a
loss of 245.
You have received a premium of 49.
So the maximum loss can be 245 - 49 = 196
NISM SERIES VIII
QUESTION SET 3
Question 7 An Equity based Mutual Fund can sell Index Futures to hedge
its position - True or False ?
(i) TRUE
(ii) FALSE
Question 8 Futures differs from forwards in the sense that .

(i) settlement of contract takes place in the future
(ii) both parties are bound to give/take delivery
(iii) positions are marked-to-market everyday
(iv) contracts are custom designed
Correct Answer 8 contracts are custom designed

NISM SERIES VIII
QUESTION SET 3
Question 9 Which of these PUT's are In the Money ?

(i) Spot 300 ; Strike Price 300
(ii) Spot 300 ; Strike Price 280
(iii) Spot 300 ; Strike Price 320
Question 10 In Indian context, derivative includes: A) A security derived from

a debt instrument, share, loan whether secured or unsecured, risk
instrument or contract for differences or any other form of security;
B) A contract which derives its value from the prices, or index of
prices, of underlying securities.
(i) A
(ii) B
(iii) Both A and B
(iv) Niether A or B
Correct Answer 9 Spot 300 ; Strike Price 320
Answer A Put option is In the Money when the Spot price is below the Strike price.
Explanation A Call option is In the Money when the Spot price is above the Strike price.
Correct Answer Both A and B

10
NISM SERIES VIII
QUESTION SET 3
Question 11 The beta of SBI is 0.9. If a trader has a buy position of Rs 3,00,000
of SBI, which of the following will give him a complete hedge ?
(i) Sell Nifty of 270000
(ii) Sell Nifty of 330000
(iii) Sell Nifty of 300000
(iv) Beta of below 1 cannot be hedged
Question 12 A stock broker applies for registration to SEBI .

(i) directly on his own
(ii) through stock exchange(s) of which he or she is admitted as a member
(iii) through Ministry of Finance
(iv) through association of members
Correct Answer Sell Nifty of 270000

11
Answer SBI has a beta of 0.9 means that if Nifty falls by 100, the SBI will fall
Explanation by 90 ie. 10% less.
So wee need to hedge 10% less of NIfty, ie 10% of Rs 300000 = 30,000
So we need to sell 270000 of Nifty
Correct Answer through stock exchange(s) of which he or she is admitted as a

12 member
NISM SERIES VIII
QUESTION SET 3
Question 13 An investor has bought 100 SBI shares at Rs 2000. How will he
hedge it ? The Current market price of SBI is Rs 2000.
(i) Buy SBI futures at Rs 1000
(ii) Buy SBI Call options of strike price 2000
(iii) Buy SBI Put options at strike price 2000
(iv) Sell SBI Put options at strike price 2000
Question 14 An trader purchases three contracts of Reliance Industries in the

futures market at Rs 900. On the expiry day, Reliance closes at
Rs 918. Lot size is 250 shares. What will the trader receive ?
(i) He will receive 750 shares of Reliance Industries
(ii) He will receive nothing as he has not squared up his position
(iii) He will receive the difference between the purchase price and
closing/expiry price
Correct Answer Buy SBI Put options at strike price 2000

13
Answer Buying a Put options will help him hedge against a downfall in share
Explanation price by paying the premium.
Correct Answer He will receive the difference between the purchase price and
14 closing/expiry price
Answer On the expiry day, if the client does not square up his position, then its
Explanation automatically squared up by the exchange by the closing price of that
underlying.
The closing price is the last half hour weighted average price of the
underlying on the expiry day.
NISM SERIES VIII
QUESTION SET 3
Question 15 If you sell an Option, you will –

(i) have to pay the premium
(ii) receive the premium
(iii) no payments are received or made
Question 16 As per the rules of European Call Option, it gives the right but not the
obligation to buy from the seller an underlying at the prevailing market pr
or before the expiry – True or False ?
(i) FALSE
(ii) TRUE
Correct Answer receive the premium

15
Answer The seller of any option - be it CALL or PUT will receive the premium.
Explanation The premium is the maximum profit a seller of option contract can make.

16
Answer European Option is an an option that can only be exercised at the end
Explanation of its life, at its maturity / expiry and not before that. An American option
can be exercised any time.
A buyer of an European option that does not want to wait for maturity
to exercise it can sell the option to close the position.
NISM SERIES VIII
QUESTION SET 3
Question 17 If an investor buys a future contract but does not sell it till expiry
than what happens to that contract ?
(i) The investor will receive the delivery of the underlying
(ii) The exchange will square up the position by the closing price
(iii) A new buy position will be automatically be created in the next month
(iv) The client has to pay a stiff penalty
Question 18 What is the intrinsic value of a call option of SBI if the spot price
is 2000 and the strike price is 1950.
(i) 50
(ii) -50
(iii) 2000
(iv) 0
Correct Answer The exchange will square up the position by the closing price
17
Answer As per the rules in the Indian Stock markets, if the open position of a
Explanation trader is not squared up till maturity ie. last Thrusday of the month, then
the position is automatically squared up by the exchange by the closing
price.
For example - Mr A bought one Ambuja Cement contract of 1000 shares
at Rs 180 on 8th January. He does not sell it even by the last day ie. last
Thrusday of January. If the closing price of Ambuja Cement is Rs 184, his
contract will be squared up at Rs 184 and Rs 4 x 1000 = Rs 4000
( less brokerage etc. ) will be his profit. In case Ambuja Cement closes
below Rs 180, then he will incur a loss
Correct Answer 50
18
Answer Intrinsic Value of an In the money call option is the Spot Price - Strike Price.
Explanation
NISM SERIES VIII
QUESTION SET 3
Question 19 Margins in futures trading are applicable to –

(i) Only Institutional players.
(ii) Both the buyer and the seller
(iii) Only the buyer
(iv) Only the Seller
Question 20 Mr Manoj buys a put option on PQR stock for Rs 20 of strike price
Rs 130. If on the exercise day, the spot price of PQR is Rs 175,
Mr Manoj will choose .
(i) Not to exercise the option
(ii) To exercise the option
Correct Answer Both the buyer and the seller

19
Answer In a futures market margins are payable by both the parties.
Explanation
Correct Answer Not to exercise the option

20
Answer Mr. Manoj bought a PUT option so he had a view that the stock will fall.
Explanation On the exercise day the stock has risen and so Mr Manoj is in a loss.
So he will not exercise the option.
NISM SERIES VIII
QUESTION SET 3
Question 21 The Clearing Corporation can transfer a defaulting members

client's position to .
(i) Liability a/c.
(ii) Another solvent member
(iii) Investor Protection Fund a/c.
(iv) The Stock Exchange
Question 22 The Spot Price of ABC Stock is Rs. 347. Rs. 325 strike call is quoted
at Rs. 39. What is the Intrinsic Value?
(i) 0
(ii) 22
(iii) 39
(iv) 61
Correct Answer Another solvent member

21
Answer As per SEBI rules, the Clearing Corporation can transfer client positions
Explanation from one broker member to another broker member in the event of a
default by the first broker member.
Correct Answer 22
22
Answer When the Strike Price is below the Spot Price, the Call Option is
Explanation 'In the Money' ie. profitable.
Intrinsic Value for a such a Call Option = Spot Price - Strike Price
= 347 - 325
= 22
NISM SERIES VIII
QUESTION SET 3
Question 23 Mr. Deshmukh took a short position of one contract in May Nifty
futures (Contract multiplier 50) at a price of Rs. 5600. When he closed
this position after a few days, he realized that he has made a profit
of Rs.5000. Which of the following closing actions would have
enabled him to generate this profit ?
(i) Selling 1 May Nifty futures contract at 5700

(ii) Buying 1 May Nifty futures contract at 5700
(iii) Buying 1 May Nifty futures contract at 5500
(iv) Selling 1 May Nifty futures contract at 5500
Question 24 By using Financial derivatives one can engage in .
(i) Hedging
(ii) Arbitraging
(iii) Speculation
Correct Answer Buying 1 May Nifty futures contract at 5500

23
Answer Mr Deshmukh is short ie. he has sold Nifty futures. He will make a profit
Explanation when Nifty falls.
His profit is Rs 5000 and lot size is 50, so per share he has to get Rs 100
to make a profit of Rs 5000 ( 50 x 100)
So when Nifty falls to 5500 and Mr Deshmukh buys it to square up his
position, he will make a profit of Rs 5000.

24
Answer Modern traders and investors also use financial derivatives for Arbitrage
Explanation and Speculation, apart from hedgeing.
NISM SERIES VIII
QUESTION SET 3
Question 25 If an trader does an calendar spread in index futures and the near
leg of the calendar spread expires, the Further leg becomes a regular
open position. True or False ?
(i) TRUE
(ii) FALSE
Question 26 Mr. Nayar has purchased 8 contracts of March series and sold 6
contracts of April series of the NSE Nifty futures. How many lots
will get categorized as Regular (non-spread) open positions?
(i) 14
(ii) 8
(iii) 2
(iv) 6
Correct Answer TRUE

25
Answer Calendar spread means an options or futures spread established by
Explanation simultaneously entering a long and short position on the same
underlying asset but with different delivery months.
In the above question, lets assume a trader has gone long in index
options in current month and short in index options in third month.
Incase he does not close his position by the end of current month, his
current month option will expire and the third month option contract
will become an open position as there is no opposite option contract
in his account.
Correct Answer 2
26
Answer Various future contract position in the same underlying ( even at various
Explanation expiry dates ) are netted off before arriving at open postion. Here in this
case its 8 - 6 = 2.
This is because a long and a short position in the same underlying will
have no risk (if one will make profit, the other will be in a simillar loss)
and only the open position will have the risks and margins will be
collected from these open positions.
NISM SERIES VIII
QUESTION SET 3
Question 27 The strategy in which an trader buys a call option of lower strike
price and sells another call option with a higher strike price of the
same share and same expiry date is called .
(i) Butterfly spread
(ii) Bearish spread
(iii) Calendar spread
(iv) Bullish spread
Question 28 The spot price of Grasim Industries Ltd share is Rs 2900, the call
option of Strike Price Rs 2800 is .
(i) At the money
(iii) In the money
Correct Answer Bullish spread

27
Correct Answer In the money

28
Answer In call options, when the Spot price is higher than Strike price - that
Explanation call option is In the Money.
NISM SERIES VIII
QUESTION SET 3
Question 29 Of the below mentioned options, which would attract margins ?

(i) Buyer of PUT Option
(ii) Seller of CALL Option
(iii) Seller of PUT Option
(iv) Both 2 and 3
Question 30 If the price of a stock is volatile, then the option premium would
be relatively .
(i) Lower
(ii) Higher
(iii) No effect of volatility
(iv) zero

29
Answer Buyers of Options pay the premium and that is the maximum loss they
Explanation can suffer - so they need not pay any margin.
A seller of options receives the premium but he can suffer infinte losses –
so margins are collected both from sellers of Call and Put options
Correct Answer Higher

30
Answer Higher volatility means higher risk and higher risk means one has to
Explanation pay a higher premium.
NISM SERIES VIII
QUESTION SET 3
Question 31 The Option price is the .

(i) price paid by the seller of option to the buyer of option
(ii) price paid by the buyer of option to the seller of option
(iii) the intrinsic value of the option
Question 32 An investor is bearish about Yes Bank and sells ten one-month
Yes Bank futures contracts at Rs.3,03,000. On the last Thursday
of the month, Yes Bank closes at Rs.300. He makes a .
(assume one lot = 100)
(i) Profit of Rs.3000
(ii) Loss of Rs.3000
(iii) Profit of Rs.300
(iv) Loss of Rs.300
Correct Answer price paid by the buyer of option to the seller of option
31
Correct Answer Profit of Rs.3000

32
Answer Sale of 10 lots of 100 shares at Rs 303000
Explanation ie. each share at Rs 303
Closing price Rs 300
So Rs 3 per per share profit
Rs 3 x 10 lots x 100 lot size
= Rs 3000
NISM SERIES VIII
QUESTION SET 3
Question 33 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?
(i) Buy 5 Reliance futures contracts
(ii) Buy 10 Reliance futures contracts
(iii) Sell 5 Reliance futures contracts
(iv) Sell 10 Reliance futures contracts
Question 34 A trader has bought 100 shares of XYZ at Rs.780 per share. He
expects the price to go up up but wants to protect himself if the
price falls. He does not want to lose more than Rs.1000 on this
long position in XYZ. What should the trader do?
(i) Place a stop loss sell order for 100 shares of XYZ at Rs.770 per share
(ii) Place a limit buy order for 100 shares of XYZ at Rs.770 per share
(iii) Place a stop loss buy order for 100 shares of XYZ at Rs.790 per share
(iv) Place a limit sell order for 100 shares of XYZ at Rs.770 per share
Correct Answer Sell 10 Reliance futures contracts

33
Correct Answer Place a stop loss sell order for 100 shares of XYZ at Rs.770 per share
34
Answer By placing a stop loss sale order, if the price falls to 770, his shares
Explanation will be automatically sold and the maximum loss he will suffer will
be Rs 10 x 100 shares ie. Rs 1000.
NISM SERIES VIII
QUESTION SET 3
Question 35 The initial margin amount is large enough to cover a one-day loss
that can be encountered on % of the days.
(i) 100
(ii) 99
(iii) 95
(iv) 90
Question 36 On expiry, the settlement price of an index futures contract is

(i) opening price of futures contract
(ii) closing index value
(iii) closing price of futures contract
(iv) opening index value
Correct Answer 99
35
Correct Answer closing index value

36
Answer The Spot closing price of the index is the settlement price.
Explanation
NISM SERIES VIII
QUESTION SET 3
Question 37 Client KKK has purchased 10 contracts of December series and sold
7 contracts of January series of the NSE Nifty futures. How many
lots will get categorized as regular (non-spread) open positions?
(i) 3
(ii) 5
(iii) 11
(iv) 15
Question 38 The trading member/FII/mutual fund position limits in equity

index futures contracts is higher of Rs. Crores or 15% of the
total open interest in the market in equity index futures contracts.
(i) 200
(ii) 500
(iii) 700
(iv) 1000
Correct Answer 3
37
Correct Answer 500

38
NISM SERIES VIII
QUESTION SET 3
Question 39 means the total number of equity futures contracts

that have not been offset and closed by an opposite position.
(i) Open Position
(ii) Closed Position
(iii) Arbitrage Position
(iv) Squared off Position
Question 40 Index options on the S&P CNX Nifty can be exercised

(i) any time upto maturity
(ii) on a date pre-specified by the trading member
(iii) upon maturity
(iv) any time on or before maturity
Correct Answer Open Position

39
Correct Answer upon maturity

40
NISM SERIES VIII
QUESTION SET 3
Question 41 In which option is the strike price not better than the market price
(i.e., price difference is not advantageous to the option holder)
and therefore it will lead to losses if the option is exercised ?
(i) In The Money
(ii) Out of the Money
(iii) Deep In the Money
Question 42 The value of a put option with an increase in spot price.

(i) increases
(ii) decreases
(iii) remains constant
(iv) either increases or decreases
Correct Answer Out of the Money

41
Correct Answer Decreases

42
Answer When the spot prices rise, the premium of Put option falls.
Explanation
NISM SERIES VIII
QUESTION SET 3
Question 43 Which of the following are derivatives?

(i) Options
(ii) Forwards
(iii) Futures
Question 44 The maximum profit for a seller of options contract is –

(i) determined by the derivative exchange
(ii) depends on the strike price
(iii) Premium received
(iv) Unlimited

43
Correct Answer Premium received

44
Answer The maximum profit for the seller of an option is the premium he
Explanation receives. But the maximum losses can be unlimited.
NISM SERIES VIII
QUESTION SET 3
Question 45 If you are an exporter what would you do to safeguard against

dollar rate fluctuations ?
(i) Buy Dollars
(ii) Sell Dollars
(iii) Sell Euro as its a stronger currency
Question 46 For calculation of minimum net worth of members of derivative

exchange, the non allowable assets include –
(i) members card
(ii) pledged securities
(iii) doubtful debts and advances
(iv) all of the above
Correct Answer Sell Dollars

45
Answer You will sell dollars which you are supposed to receive in the futures
Explanation market so that you are protected against any fluctuations.
Correct Answer all of the above

46
Answer The minimum networth for clearing members of the derivatives clearing
Explanation corporation/house shall be Rs.300 Lakhs. The networth of the member
shall be computed as follows:
- Less non-allowable assets viz.,
o Fixed assets
o Member’s card
o Non-allowable securities
o Bad deliveries
o Prepaid expenses
o Intangible assets
NISM SERIES VIII
QUESTION SET 3
Question 47 You have sold a PUT option of strike price 100 for a premium of
Rs 12. Theoretically what can be your maximum loss ?
(i) Unlimited
(ii) Rs 112
(iii) Rs 88
(iv) Rs 12
Question 48 Which price is closest to the 3rd month future price of share if
the spot price is Rs 326 and the interest rate is 12% pa.
(i) 326
(ii) 335.8
(iii) 354.8
(iv) 362.1
47
Answer When you sell a put option you expect the price to rise.
Explanation If it falls you make a loss and theoretically the price can fall to zero.
In the above example the price can fall from 100 to zero, so the loss
can be Rs 100.
But you have received Rs 12 as premium, so the loss will be
Rs 100 - Rs 12 = Rs 88
Correct Answer 335.8

48
Answer 3 month future price means 3 months of interest cost has to be added.
Explanation 12% per year = 1% per month
So for 3 months it will be 3%
3% of Rs 326 = 9.78
Thus the 3 month future price will be 326 + 9.78 = 335.78 or 335.80
NISM SERIES VIII
QUESTION SET 3
Question 49 Who can clear trades in index options?

(i) All AMFI and IRDA members
(ii) Members of a stock exchange
(iii) Members and sub brokers of the stock exchange
(iv) Clearing members registered in the derivatives segment.
Question 50 If one makes does a calendar spread contract in index futures,

then it attracts
(i) Lower margin than sum of two independent legs of futures contract
(ii) No margin need to be paid for calendar spread positions
(iii) Higher margin than sum of two independent legs of futures contract
(iv) Same margin as sum of two independent legs of futures contract
Correct Answer Clearing members registered in the derivatives segment.

49
Correct Answer Lower margin than sum of two independent legs of futures
50 contract
Answer Calendar spread position is a combination of two positions in futures

Explanation on the same underlying - long on one maturity contract and short on a
different maturity contract.
When the market fluctuates, if there is a loss in the long position then
there will be an almost equal profit in short position.
So Calendar spreads carry no market risk - hence lower margins are
adequate.
Calendar spread carries on only basis risk. Basis risk means both the
contracts will not fluctuate identically.
NISM SERIES VIII
QUESTION SET 3
Question 51 You sold one Zee Ent Ltd. futures contract at Rs.260 and the lot
size is 1,000. What is your profit or loss, if you purchase the
contract back at Rs.251 ?
(i) 9000
(ii) -9000
(iii) 7500
(iv) -7500
Question 52 Options which are traded on a recognised exchange ie. Exchange

traded options are
(i) usually in-the-money options
(ii) usually out-of-the money options
(iii) Standardized options
(iv) Customized options
Correct Answer 9000

51
Answer When you sell a stock future contract you make a profit if the share falls.
Explanation In this case Zee has fallen by Rs9 x 1000 = Profit of Rs 9000
Correct Answer Standardized options

52
Answer Exchange Traded Options are standarised as per the rules and regulation
Explanation of the exchanges. Only the price is variable. The lot size quantity, time
(maturity) etc. are all fixed by the exchanges.
NISM SERIES VIII
QUESTION SET 3
Question 53 An in-the-money option is a option with

(i) a negative intrinsic value
(ii) a positive intrinsic value
(iii) either negative or positive intrinsic value
(iv) zero time value
Question 54 Impact cost is low when the liquidity in the system is poor –
True or False ?
(i) TRUE
(ii) FALSE
Correct Answer a positive intrinsic value

53
Answer Intrinsic value refers to the amount by which option is in the money i.e.
Explanation the amount an option buyer will realize, before adjusting for premium
paid, if he exercises the option instantly.
For eg - Spot price of a stock is Rs 100. The Call option of strike price
Rs 95 is in the money and Rs 5 is the Intrinsic value
Therefore, only in-the-money options have intrinsic value whereas
at-the-money and out-of-the-money options have zero intrinsic value.

54
Answer Impact cost basically means what additionally a trader must pay because
Explanation of the order size ie. due to price increase if there it is a big buy order
and price decrease if there is a big sell order.
If the scrip is very liquid ie. there are huge buyers and sellers, the impact
cost will be very low.
So in the above question, the impact cost will be high if the liquidity
is poor in the system.
NISM SERIES VIII
QUESTION SET 3
Question 55 If you have sold a ITC futures contract (contract multiplier 500)
at 300 and bought it back at 328, what is your gain/loss?
(i) A gain of RS. 6,800
(ii) A loss of Rs. 6,800
(iii) A loss of Rs. 14,000
(iv) A gain of Rs. 14,000
Question 56 Value-at-risk provides for .

(i) Theoretical value of illiquid stocks in a portfolio
(ii) Value of securities which are very risky
(iii) Expected maximum loss, which may be incurred by a portfolio over
a given period of Time and specified confidence level
(iv) Value of speculative stocks
Correct Answer A loss of Rs. 14,000

55
Answer You had sold ITC believing that it will fall down, but it has risen - so
Explanation there will be a loss.
300 - 328 = -28 Loss
-28 x 500 shares = - Rs 14000
Correct Answer Expected maximum loss, which may be incurred by a portfolio

56 over a given period of Time and specified confidence level
NISM SERIES VIII
QUESTION SET 3
Question 57 Who monitors the collection of Initial margin ?

(i) The Stock Exchange
(ii) The Clearing Corporation
(iii) NSDL or CDSL
(iv) SEBI
Question 58 If you are a buyer of put option, it will give you the right to sell
how much of the underlying to the writer of the option?
(i) The specified quantity or less than the specified quantity
(ii) The specified quantity or more than the specified quantity
(iii) Only the specified quantity (lot size of the option contract)
(iv) Any quantity
Correct Answer The Clearing Corporation

57
Correct Answer Only the specified quantity (lot size of the option contract)
58
Answer Only the quantity of the lot size as determined by the stock exchange.
Explanation
NISM SERIES VIII
QUESTION SET 3
Question 59 In the Option segment, if you sell a CALL at a premium of Rs 45 at

possible Profit is
(i) Rs 9000
(ii) Rs 18000
(iii) Rs 80000
(iv) Unlimited
Question 60 The settlement in futures contract happen only in .

(i) Cash
(ii) Physical Delivery
(iii) Cash or Delivery as per the choice of buyer

59
Answer In the Options market, the maximum profit a seller of an option can
Explanation make is the premium he receives.
In the above case the premium received is Rs 45 x 200 shares = Rs 9000.
Correct Answer Cash

60
Answer There is no delivery involved in Futures and Options. The profit or loss
Explanation is settled by cash ie. Debit - Credit payments.
NISM SERIES VIII
QUESTION SET 3
Question 61 Securities Transaction Tax is levied on .

(i) Purchase of Equity Shares
(ii) Sale of Derivatives
(iii) Purchase of Derivatives
(iv) Only 1 and 2
Question62 The maximum brokerage chargeable by a trading member in relation to trades

effected
in the contracts admitted to dealing on the F&O segment of NSEIL is fixed at
of
the contract value, exclusive of statutory levies.
(i) 1%
(ii) 2%
(iii) 2.50%
(iv) 3%
Correct Answer
61 Only 1 and 2
Correct Answer
62 2.50%
NISM SERIES VIII
QUESTION SET 3
Question 63 FII Long positions in Index Derivatives should not exceed the FII's holding
of .
(i) stock futures and options
(ii) Stock futures
(iii) cash, Govt securities, t bills etc
(iv) cash
Question 64 It is easy to manipulate the Stock Index when compared to individual

stocks - True or False ?
(i) TRUE
(ii) FALSE
Correct Answer cash, Govt securities, t bills etc

63

64
Answer Stock Index like Nifty and Sensex consists of a basket of stocks and so
Explanation its very difficult to manipulate the index.
NISM SERIES VIII
QUESTION SET 3
Question 65 The market wide position limit for single stock futures and stock option
contracts shall be linked to the free float market capitalization and shall
be equal to of the number of shares held by non-promoters in the
relevant underlying security.
(i) 10%
(ii) 20%
(iii) 30%
(iv) 40%
Question 66 In which options is the strike price better than the market price and
therefore its profitable to exercise the option ?
(ii) In the money option
(iii) Out of the money option
(iv) Profitable money option
Correct Answer 20%

65
Correct Answer In the money option

66
Answer An In the Money option would give holder a positive cash flow, if it were
Explanation exercised immediately.
A call option is said to be ITM, when spot price is higher than strike price.
And, a put option is said to be ITM when spot price is lower than strike price.
NISM SERIES VIII
QUESTION SET 3
Question 67 A member has two clients M1 and M2. M1 has purchased 1000 contracts
and M2 has sold 500 contracts in August XYZ futures series. What is the
outstanding liability (open position) of the member towards Clearing
Corporation in number of contracts?
(i) 500
(ii) 1500
(iii) 1000
(iv) 2500
Question 68 is the second derivative option with regard to price of the

underlying asset.
(i) Delta
(ii) Gamma
(iii) Theta
(iv) Vega
Correct Answer 1500

67
Answer Open positions of all clients are combined. They cannot be netted off.
Explanation

68
Answer Gamma measures change in delta with respect to change in price of the
This is called a second derivative option with regard to price of the underlying
asset.
NISM SERIES VIII
QUESTION SET 3
Question 69 Which of the following is not the duty of the trading member ?
(i) Execution of Client Broker Agreement
(ii) Filling of 'Know Your Client' form
(iii) Bringing risk factors to the knowledge of client
(iv) Assisting the client to arrange for margins
Question 70 The market wide limit of open position of futures and options contracts
on a particular underlying stock should not be .
(i) 10% of free float holding
(ii) 20% of free float holding
(iii) 25% of free float holding
(iv) 30% free float holding
Correct Answer Assisting the client to arrange for margins

69
Correct Answer 20% of free float holding

70
Answer The market wide position limit for single stock futures and stock option contracts is
Explanation linked to the free float market capitalization and is equal to 20% of the number of
shares held by non-promoters in the relevant underlying security (i.e., free-float
holding).
This limit would be applicable on aggregate open positions in all futures and all optio
contracts on a particular underlying stock.
NISM SERIES VIII
QUESTION SET 3
Question 71 Currency futures were first traded at .

(i) Chicago Stock Exchange
(ii) International Monetary Market
(iii) Berlin Currency Exchange
(iv) CSS
Question 72 Mr Dev bought a April Nifty future contract on 10th April which cost him
Rs 562000. The initial margin he had to pay was Rs 55400. On 23rd April
he sold the Nifty future at 5710. How much profit or loss did he make ?
( Nifty lot 100 )
(i) Loss of Rs 46400
(ii) Profit of 10300
(iii) Profit of Rs 9000
(iv) Profit of Rs 7800
Correct Answer International Monetary Market

71
Answer Chicago Mercantile Exchange created International Monetary Market, which allowed
Explanation trading in currency futures.
Correct Answer Profit of Rs 9000

72
Answer He bought one Nifty lot at Rs 562000.
Explanation So the Nifty price was 562000 / 100 = 5620
He sold at 5710
So the profit is 5710 - 5620 x 100
= Rs 9000
(The initial margin will be refunded)
NISM SERIES VIII
QUESTION SET 3
Question 73 Vertical Spread is also known as Calendar Spread - True or False ?

(i) TRUE
(ii) FALSE
Question 74 Arbitrage is a .
(i) Strategy used by Mutual Funds only
(ii) High Risk Strategy
(iii) Risk Free Strategy
(iv) strategy for bearish markets

73
Answer Horizontal spread involves same strike, same type but different expiry options.
Explanation This is also known as time spread or calendar spread.
Correct Answer Risk Free Strategy

74
Answer Arbitrage is done by buying in one market and simultaneously selling the
Explanation same in another market and making profits from the differences in prices.
So its a risk free strategy.
NISM SERIES VIII
QUESTION SET 3
Question 75 Limitations of forward market is / are .

(i) Illiquidity
(ii) Counterparty Risk
(iii) Lack of centralization of trading
Question 76 You have bought shares of Ranbaxy of Rs 1 lakh. The beta of Ranbaxy is
1.3. In order to hedge your risk you have shorted nifty of Rs 1.50 lakhs.
Which of the below is true ?
(i) You are Under Hedged
(ii) You are Over Hedged
(iii) You are perfectly hedged
(iv) Data is insufficient

75
Correct Answer You are Over Hedged

76
NISM SERIES VIII
QUESTION SET 3
Question 77 Which exchange first started trading in financial futures ?

(i) Chicago Board Option Exchange
(ii) Chicago Mercantile Exchange
(iii) Chicago Board of Trade
(iv) London International Finance Futures and Options Exchange
Question 78 Mr Rohit has bought 8 lots of contracts of June BSE Sensex futures and
sold 6 lots of contracts of July BSE sensex futures. What is his regular
- non spread open position ?
(i) 14 lots
(ii) 2 lots
(iii) 8 lots
(iv) 6 lots
Correct Answer Chicago Board Option Exchange

77
Correct Answer 2 lots

78
Answer Mr Rohit has bought and sold the same underlying ie. BSE Sensex futures. So his lisk is
Explanation limited to the net position which will be his open position.
Here he has bought 8 lots and sold 6 lots, so his open position is 2 lots.
NISM SERIES VIII
QUESTION SET 3
Question 79 What is the difference between Spot Price and Future Price known as ?
(i) Impact cost
(ii) Basis
(iii) Rho
(iv) Swap
Question 80 Mr. Ganesh thinks that the markets will go down, so he sell 10 lots of
index futures at 3500. His predictions come true and the index falls
and Mr. Ganesh buys back the futures contract at 3410. What is the profit
Mr. Ganesh has made if one lot of index is of 50.
(i) 35000
(ii) 45000
(iii) 55000
(iv) 65000
Correct Answer Basis

79

80
Answer Mr Ganesh had sold at Rs 3500 and bought back at Rs 3410. So he made a
Explanation profit of Rs 90.
Total Quantity sold = 10 lots x 50 (lot size) = 500
Total Profit = Rs 90 x 500 = Rs 45,000
NISM SERIES VIII
QUESTION SET 3
Question 81 An investor purchased one lot of Nifty futures at 6000. The closing price
of Nifty on that day was 5967. The margin on Nifty is 10%. What will
be the effective margin left in this contract ? Nifty lot is of 50.
(i) 30000
(ii) 28350
(iii) 29835
(iv) 25000
Question 82 Mr Shetty purchased a future contract of SBI at Rs 2000 on 10 September.

That day the spot price was 1985. On the expiry day, SBI closed at Rs 2033.
What will be the approximate spot price ?
(i) 2000
(ii) 1985
(iii) 2033
(iv) More details are required

81
Answer The Margin payable on buying the Nifty contract is Rs 6000 x 50 x 10% ie
Explanation Rs. 30,000
Since the Nifty closed lower, the Mark to Market loss will be debited
M to M loss : 6000 - 5967 = Rs 33 x 50 (lot size) = Rs. 1650
Rs 30,000 -Rs 1650 = RS 28350 is the effective margin left in this contract.
Correct Answer 2033

82
Answer On the expiry day, the spot price and future price tend to converge and
Explanation become the same. This is mainly because there is no time value left and there
is no cost of carry (interest).
In the above example the future price of SBI on expiry day is Rs 2033, so the
approximate spot will be also Rs 2033.
NISM SERIES VIII
QUESTION SET 3
Question 83 You buy a PUT option of strike price 400 when the spot price is Rs 380.
This option is In the Money - True or False ?
(i) TRUE
(ii) FALSE
Question 84 What is time value of an option ?

(i) Its the general bank interest rate
(ii) Its the volatility of the underlying asset
(iii) Its the difference between the intrinsic value and the premium
(iv) Its the time left for the option to expiry
Correct Answer TRUE

83
Correct Answer Its the difference between the intrinsic value and the premium
84
NISM SERIES VIII
QUESTION SET 3
Question 85 Cost of carry model means price of futures is equal to .

(i) Spot price + Cost of Carry
(ii) Spot Price
(iii) Cost of Carry
(iv) Spot price Cost of Carry
Question 86 A person has bought an option so cannot lose more than the option
premium paid.
(i) False for all types of options
(ii) True only for American options
(iii) True only for European options
(iv) True for all types of options
Correct Answer Spot price + Cost of Carry

85
Answer Cost of Carry is the relationship between futures prices and spot prices.
Explanation For stock derivatives, carrying cost is the interest paid to finance the purchase.
For example, assume the share of XYZ Ltd is trading at Rs. 200 in the cash
market. A person wishes to buy the share, but does not have money. In that
case he would have to borrow Rs. 200 at the rate of, say, 12% per annum.
So 1% ie. Rs 2 ( 1% of Rs 200) is the per month interest cost. and this
Rs 2 is the cost of carry.
The future price (ideally) at the beginning of month will be
Spot Price + Cost of Carry ie. Rs 200 + Rs 2 = Rs 202.
Correct Answer True for all types of options

86
Answer A buyer of an OPTION pays the premium and that is the maximum loss and
Explanation its true for all types of options.
(On the other hand a seller of an option receives the premium and that’s his
maximum profit. The loss can be unlimited)
NISM SERIES VIII
QUESTION SET 3
Question 87 An option buyer pays the option premium to the option seller.
(i) TRUE
(ii) FALSE
Question 88 Option Premium consists of two components

(i) Intrinsic value and time value
(ii) Sum of Call and Put premium
(iii) Premium value and time value
(iv) Intrinsic value and premium
Correct Answer TRUE

87
Correct Answer Intrinsic value and time value

88
Answer Option premium consists of two components - intrinsic value and time value.
Explanation For an option, intrinsic value refers to the amount by which option is in the
money i.e. the amount an option buyer will realize, before adjusting for
premium paid, if he exercises the option instantly. Therefore, only in-the-money
options have intrinsic value whereas at-the-money and out-of-the-money
options have zero intrinsic value. The intrinsic value of an option can never
be negative.
For eg - If the spot price is Rs 200, and the call option premium of a Rs 195
strike price is Rs 25, then Rs 5 is the intrinsic value ( 200 - 195 ) and
balance Rs 20 is time value.
NISM SERIES VIII
QUESTION SET 3
Question 89 A trader believes that the future price of PQR company will rise and
being a smart trader he will .
(i) sell PQR futures now and buy them later when the price rises
(ii) buy PQR futures now and sell them later when it rises
(iii) wait till the price of PQR futures and cash market price become same
(iv) wait till the prices drop to the lowest level
Question 90 Mr. Singh purchases a call option on a stock at Rs. 10 per call with
strike price of Rs. 140. If on exercise date, stock price is Rs. 168 ,
ignoring transaction cost, Mr. Singh will choose
(i) To exercise the option
(ii) Not to exercise the option
(iii) May or may not depending on the balance he has in his bank account
(iv) May or may not depending on the recommendation of experts
Correct Answer buy PQR futures now and sell them later when it rises
89
Correct Answer To exercise the option

90
Answer Mr Singh has purchased a CALL and on the expiry day he is in a profitable
Explanation position as the price of the stock has risen and the spot price is above the
strike price. So he will exercise his option.
NISM SERIES VIII
QUESTION SET 3
Question 91 Which of the below options is the best way to manage risk in the
underlying cash market ?
(i) by speculating in the futures market
(ii) by hedging in the futures market
(iii) by playing in the options market
Question 92 A put option gives the buyer a right to sell how much of the underlying
to the writer of the option?
(i) Only the specified quantity (lot size of the option contract)
(ii) The specified quantity or less than the specified quantity
(iii) The specified quantity or more than the specified quantity
(iv) Any quantity
Correct Answer by hedging in the futures market

91
Correct Answer
Only the specified quantity (lot size of the option contract)
92
NISM SERIES VIII
QUESTION SET 3
Question 93 The intrinsic value of a CALL option of Reliance of strike price 910 and
spot price 919 is .
(i) 10
(ii) 19
(iii) 9
(iv) 29
Question 94 The regulatory framework for derivatives markets in India have been
developed by .
(i) LC Gupta committee
(ii) JR Verma committee
(iii) Rangrajam Committee
(iv) PL Mehta Committee
Correct Answer
9
93
Answer Intrinsic Value for a Call Option is the difference between Spot Price and
Explanation Strike Price.
Correct Answer
LC Gupta committee
94
NISM SERIES VIII
QUESTION SET 3
Question 95 spread involves same strike, same type but different expiry
options.
(i) Vertical
(ii) Diagonal
(iii) Horizontal
(iv) Parbolical
Question 96 NISM stands for .

(i) National Institution of Security Market
(ii) National Institute of Stock Markets
(iii) National Institute of Securities Markets
(iv) National Integrated Stock Market
Correct Answer
Horizontal
95
The reasoning behind horizontal spreads is that these two options would
Answer have different time values and the difference between the time values of
Explanation these two options would shrink or widen.
This is essentially a play on premium difference between two options prices
squeezing or widening
Correct Answer
National Institute of Securities Markets
96
NISM SERIES VIII
QUESTION SET 3
Question 97 The Client level position limits in derivative trading should not exceed
5% of the free float market capitalization or 10% of the open interest
in all derivative contracts in the same underlying stock whichever is
higher - True or False
(i) TRUE
(ii) FALSE
Question 98 to be paid on assigned positions of Clearing Members

towards final exercise settlement obligations for option contracts on
individual securities, till such obligations are fulfilled.
(i) Mark to Market Margin
(ii) Initial Margin
(iii) Assigned Initial Margin
(iv) Assigned Margin

97
Answer The Client level position limits in derivative trading should not exceed 1% of the free f
Explanation market capitalization or 5% of the open interest in all derivative contracts in the same
underlying stock whichever is higher
Correct Answer
Assigned Margin
98
NISM SERIES VIII
QUESTION SET 3
Question 99 In the books of the buyer of the option, the premium paid would
be .
(i) Credited
(ii) Debited
(iii) No entry is passed
Question 100 When the client level/NRI/sub-account of FII/scheme of mutual fund

violation is on account of open position exceeding of the open
interest, a penalty of per instance would be levied to the
clearing member.
(i) 3%, Rs 3000
(ii) 5% , Rs 5000
(iii) 15%, Rs 10,000
(iv) 10%, Rs 10,000
Correct Answer Debited

99
Answer The buyer/ holder of the option is required to pay the premium. In the books
Explanation of the buyer/ holder, such premium should be debited to an appropriate
account.
In the books of the seller/ writer such premium received should be credited
to an appropriate account.
Correct Answer 5% , Rs 5000

100
NISM SERIES VIII
QUESTION SET 4

QUESTION SET 4
Question 1 The total number of outstanding / unsettled contracts in the market,

at any point of time is known as OPEN INTEREST- True or False ?
(a) TRUE
(b) FALSE
Question 2 The clearing corporation may utilize the client account margins
deposited with it for fulfilling the dues which a clearing member
may owe to the clearing corporation for the trades on the clearing
members own account. State True or False ?
(a) TRUE
(b) FALSE
Answer
Explanation An open interest is the total number of contracts outstanding (yet to
be settled) for an underlying asset.
Answer Clients money cannot be used by the Clearing or Trading member for
Explanation his trades.
NISM SERIES VIII
QUESTION SET 4
Question 3 A clearing member has deposited eligible liquid assets of Rs.75 lakhs.
The exchange has minimum liquid net worth requirement of Rs. 50
lakhs. The member has not entered into any transactions so far.
What is the margin available for trading. (in lakhs)
(a) 75
(b) 50
(c) 25
(d) 125
Question 4 Is it true that an efficient cash market is required for an efficient

futures market ? Yes or No ?
(a) Yes
(b) No
Correct Answer 3 25
Answer Liquid Networth is defined as Liquid Assets minus Initial Margin.

Explanation In above case he has deposited Rs 75 lakhs as liquid assets. Rs 50 lakhs
is the requirement, so the balance Rs 25 lakhs will be used as initial margin.
Correct Answer 4 Yes

NISM SERIES VIII
QUESTION SET 4
Question 5 If the price of a future contract increases, the mark to market margin
account of the holder of the short position in that contract is credited
for the gain. State whether True or False ?
(a) TRUE
(b) FALSE
Question 6 The absolute amount of minimum capital adequacy requirement

for derivative brokers is same as that for cash market - True or False ?
(a) TRUE
(b) FALSE
Answer In a short position, if the price increase their is a loss. So the mark to
Explanation market margin will be debited.
Answer The absolute amount of minimum capital adequacy requirement for

Explanation derivative brokers/dealers has to be much higher than for cash market.
Further, if a broker/dealer is involved both in cash and futures segments,
or in several exchanges, the capital adequacy requirement should be
satisfied for each exchange/segment separately.
NISM SERIES VIII
QUESTION SET 4
Question 7 Change in option premium for a unit change in is known

as Rho.
(a) market volatility
(b) Price of the underlying asset
(c) Risk free interest rate
(d) liquidity
Question 8 The ask price is the price at which

(a) the cleaning corporation settles the transaction
(b) the trader is prepared to sell the share
(c) the trader is prepared to purchase the share
(d) the trader is prepared to either buy or sell the share
Correct Answer 7 Risk free interest rate
Answer Rho is the change in option price given a one percentage point change
Explanation in the risk-free interest rate.
Correct Answer 8 the trader is prepared to sell the share
Answer BID ASK price means Buyer and Seller price - eg Rs 100 - 101
Explanation So Ask price is the price at which the trader is prepared to sell the share.
NISM SERIES VIII
QUESTION SET 4
Question 9 In India, futures and options on individual stocks are allowed

on .
(a) A few selected stocks only
(b) All stocks listed on any of the exchanges
(c) All stocks with stock price of more than Rs.100 or Rs 50 in A and B group resp.
(d) Only those stocks which are simultaneously listed on all the stock exchange
in India
Question 10 Higher the price volatility, higher would be the initial margin
requirement - State True or False ?
(a) TRUE
(b) FALSE
Correct Answer 9 A few selected stocks only
Answer Only those stocks are included to be traded in the derivatives segment
Explanation which meet the SEBI / Exchange criteria for derivatives trading,
Correct Answer TRUE

10
Answer If the price of a stock is very volatile, the risk of losses increases. So the
Explanation Stock Exchanges collect higher initial margins in such cases.
NISM SERIES VIII
QUESTION SET 4
Question 11 In a derivative exchange, the net worth requirement for a clearing

member is higher than that of a non-clearing member.
(a) TRUE
(b) FALSE
Question 12 Money and securities deposited by clients with the trading members
should be kept by them in a separate clients account - True or False ?
(a) TRUE
(b) FALSE
Correct Answer TRUE

11
Correct Answer TRUE

12
NISM SERIES VIII
QUESTION SET 4
Question 13 All active members of the Exchange are required to make initial
contribution towards Trade Guarantee Fund of the Exchange –
State True or False ?
(a) TRUE
(b) FALSE
Question 14 An increase in the interest rates will lead to .

(a) increase the premium on put options
(b) decrease the premium on put options
(c) No effect on put options
(d) Expiration of the option automatically
Correct Answer TRUE

13
Correct Answer decrease the premium on put options

14
Answer High interest rates means high cost of capital and this will result in
Explanation an increase in the value of a call option and a decrease in the value of
a put option.
NISM SERIES VIII
QUESTION SET 4
Question 15 In a forward contract, the party thats agrees to sell the underlying
asset on a certain specified date for a certain specified price is said
to have assumed
(a) A long position
(b) a square off position
(c) a short position
(d) a trade off position
Question 16 Mr. Hitesh is a trading member. One of his clients has purchased 12
contracts of March series index futures and another client as has sold
10 contracts of March series index futures. The exposure of Mr. Hitesh
as trading member is .
(a) grossed up at 22 contracts
(b) netted out at 2 contracts
(c) maximum of 10 and 12 which is 12 contracts
(d) The Exchange will decide to either gross up or net out the exposure
depending upon his past record
Correct Answer a trade off position

15
Answer Trade off basically means- an exchange where you give up one thing
Explanation in order to get something else. In a forward contract for eg - the
farmers sells his crop two months hence in exchange of some amount
of money.
Correct Answer grossed up at 22 contracts

16
Answer The open position of all the clients of a trading member are grossed up
Explanation to arrive at the total exposure of the trading member.
NISM SERIES VIII
QUESTION SET 4
Question 17 In case of Call options, if the market price is less than the exercise
(strike) price, the option will .
(a) expire worthless
(b) seller of the option will exercise it
(c) will definitely get exercised
(d) none of the above
Question 18 Does the difference between exercise price of the option and spot
price affects option premium ? State Yes or No.
(a) Yes
(b) No
Correct Answer expire worthless

17
Answer If market price is below strike price, the option expires worthless as the
Explanation buyer will incur the maximum loss of his premium paid and the seller
will earn the premium received.
Correct Answer Yes

18
Answer The Option premium is a combination of intrinsic value and time value and
Explanation other factors.
The Intrinsic value is difference between Spot and Exercise Price (Strike Price).
Exercise price remains constant whereas the Spot price fluctuates.
So the option premium will fluctuate as per the movement in Spot price.
NISM SERIES VIII
QUESTION SET 4
Question 19 A high initial margin level improves solvency & financial capability
of the clearing corporation - True or False ?
(a) TRUE
(b) FALSE
Question 20 An American put option gives the buyer the right but not the
obligations to sell to the writer an underlying asset at a specified
price on or before the expiry date - State whether True or False ?
(a) TRUE
(b) FALSE
Correct Answer TRUE

19
Answer Higher intial margin collection from trading members reduces the chances
Explanation of their defaults thus improving the solvency & financial capability of the
clearing corporation.
Correct Answer TRUE

20
Answer The owner of American option can exercise his right at any time on or
Explanation before the expiry date/day of the contract.
The owner of European option can exercise his right only on the expiry
date/day of the contract.
NISM SERIES VIII
QUESTION SET 4
Question 21 State True or False - A futures contract is usually referred to by its

delivery month.
(a) TRUE
(b) FALSE
Question 22 Mr A sold a put option of strike Rs.400 on PQR stock for a premium of
Rs.32. The lot size is 500. On the expiry day, PQR stock closed at
Rs. 350. What is your net profit or loss?
(a) -25000 (Loss)
(b) -9000 (Loss)
(c) 9000 (Profit)
(d) 25000 (Profit)
Correct Answer TRUE

21
Answer A key characteristic of a futures contract that designates when the contract
Explanation expires and when the underlying asset must be delivered. The exchange on
the futures contract is traded will also establish a delivery location and a
date within the delivery month when the delivery can take place.
Not all futures contracts require physical delivery of a commodity, and
many are settled in cash.
Delivery Month is also referred to as "contract month."
Correct Answer -9000 (Loss)

22
Answer Mr. A sold a PUT option, that means he has a bullish or neutral view on
Explanation PQR stock.
However, PQR stock has fallen by Rs 50 ( 400 - 350 ).
Which means he has lost Rs 50.
Since he has sold a PUT, he will receive the premium which is Rs 32.
So his net loss will be Rs 50 (Loss) - Rs 32 (Premium Recd) = Rs 18
Total Loss = Rs 18 x 500 (lot size) = Rs. 9000
NISM SERIES VIII
QUESTION SET 4
Question 23 In an Index Futures contract, the tick size is 0.2 of an index point &
the index multiple is Rs 50, then a tick is valued at .
(a) Rs 50
(b) Rs 100
(c) Rs 10
(d) Rs 2.50
Question 24 The securities which are placed by clearing members with the clearing
corporation as a part of liquid assets are .
(a) marked to market on a periodical basis
(b) is not marked to market as they are blue chip shares
(c) may or may not be marked to market depending on the decision of the
Stock Exchange
23
Answer Rs 50 X 0.2 = Rs 10.
Explanation Each tick movement will result in profit or loss of Rs 10 for the Index
buyer or seller resp.
Correct Answer marked to market on a periodical basis

24
Answer As per Prof. J. R. Verma Committee recommendations the securities placed
Explanation with the Clearing Corporation shall be marked to market on a periodical
basis (weekly).
NISM SERIES VIII
QUESTION SET 4
Question 25 Contract month means

(a) Month in which the transaction is done
(b) Month of expiry of the futures contract
(c) Month of beginning of the futures contract
Question 26 Initial margin is calculated based on

(a) Average price movement in the last 5 working days
(b) Value-At-Risk (VAR) based margining.
(c) fixed at 25% for most of the scrips and 35% for volatile scrips
(d) As per the The Black & Scholes Model
Correct Answer Month of expiry of the futures contract

25
Answer Contract month is the maturity month of the contract.
Explanation For eg - A trader may buy an March month contract in January.
So March will be the contract month.
Correct Answer Value-At-Risk (VAR) based margining.

26
Answer Initial margin requirements are based on 99% value at risk over a one
Explanation day time horizon.
NISM SERIES VIII
QUESTION SET 4
Question 27 Daily Trading Price Limits define the maximum percentage by which
the price of a future contract can rise above or fall below the previous
days settlement price - State whether True or False ?
(a) TRUE
(b) FALSE
Question 28 For portfolio hedging by institutions and mutual funds, index based
derivatives are more suitable and are much more cost effective than
derivative based on individual stocks - State True or False ?
(a) TRUE
(b) FALSE
Correct Answer TRUE

27
Correct Answer TRUE

28
NISM SERIES VIII
QUESTION SET 4
Question 29 A Clearing Member is responsible to the exchange for his transactions

& also for the position of his trading members under him - True or False ?
(a) FALSE
(b) TRUE
Question 30 A default by a member in the derivatives segment will be not be

treated as default in the cash segments of that exchange - State
True or False ?
(a) FALSE
(b) TRUE
Correct Answer TRUE

29

30
Answer A default by a member in the derivatives segment will be treated as default
Explanation in all segments of that exchange and as default on all exchanges where
he is a member.
NISM SERIES VIII
QUESTION SET 4
Question 31 Does trading in derivatives become expensive due to high margins ?

State Yes or No.
(a) Yes
(b) No
Question 32 risk is the component of price risk that is unique to particular

events of the company and/or industry and this risk could be reduced
to a certain extent by diversifying the portfolio.
(a) Unsystematic Risk
(b) Systematic Risk
(c) Arbitrage Risk
(d) Interest Rate Risk
Correct Answer Yes

31
Answer Cost components of futures transaction include margins, transaction costs
Explanation (commissions), taxes etc.
So higher the margins more expensive the trading.
Correct Answer Unsystematic Risk

32
NISM SERIES VIII
QUESTION SET 4
Question 33 The Clearing of trades on a stock exchange can be done by .

(a) by the trading members
(b) by the clearing members
(c) both by clearing members and trading members
Question 34 In an in the money PUT option

(a) strike price would be lower than the market price
(b) exercise price would be equal to the market price
(c) strike price would be higher than the market price
(d) strike price would be zero
Correct Answer by the clearing members

33
Correct Answer strike price would be higher than the market price
34
Answer A put option is said to be In The Money when market price is lower
Explanation than strike price.
NISM SERIES VIII
QUESTION SET 4
Question 35 Delta measures the expected change in the option premium for a
unit change in .
(a) Volatility of underlying asset
(b) treasury interest rates
(c) time to option expiry
(d) spot price of underlying asset
Question 36 In an out-of-the money put option

(a) Strike price would be higher than the market price
(b) Exercise price would be equal to the market
(c) Strike price would be lower than the market price
(d) strike price would be zero
Correct Answer spot price of underlying asset

35
Answer Delta measures the sensitivity of the option value to a given small change
Explanation in the price of the underlying asset.
Correct Answer Strike price would be lower than the market price
36
Answer A put option is said to be OTM when spot (market) price is higher than
Explanation strike price.
A call option is said to be OTM, when spot (market) price is lower than
strike price.
NISM SERIES VIII
QUESTION SET 4
Question 37 Liquid assets criterion for professional clearing members is different

from that of the trading cum clearing members - True or False ?
(a) TRUE
(b) FALSE
Question 38 A trader sold on ABC Stock Futures Contract at Rs.354 & the lot size
is 900. What is your profit or loss if you purchase the contract back
at Rs.341 ?
(a) Rs 11700
(b) - Rs 11700 (Loss)
(c) Rs 8300
(d) - Rs 8300 (Loss)
Correct Answer TRUE

37

38
Answer He sold at Rs 354 and bought back at Rs 341 which means he has made
Explanation a profit.
Rs 354 - Rs 341 = Rs 13
Rs 13 X 900 (Lot size) = Rs 11700 Profit
NISM SERIES VIII
QUESTION SET 4
Question 39 When would a trader make a profit on a short position of September

futures?
(a) when he buys a October future at a lower price
(b) when he sells another September future at a lower price
(c) he square of this short position by buying the September future at
lower price
(d) when he sells October futures at a lower price.
Question 40 Which of the following is not an application of indices?

(a) index derivatives
(b) exchange traded funds
(c) private equity funds
(d) Index funds
Correct Answer he square of this short position by buying the September future at
39 lower price
Answer Profit can be made in a short position when the price falls and the same is
Explanation bought back.
For eg - You sold a stock at Rs 100 ie. created a short position. When price
falls to say Rs 80 and you buy it back, you make a profit of Rs 20.
In case of futures, you have to square up in the same expiry month.
Correct Answer private equity funds

40
Answer Private Equity Funds are not connected to any index nor are they listed
Explanation on a stock exchange.
NISM SERIES VIII
QUESTION SET 4
Question 41 Options contracts are not symmetrical with respect to rights &
obligations of the parties involved - State True or False ?
(a) TRUE
(b) FALSE
Question 42 Time value and intrinsic value of a call option are always either
positive or zero- True or False ?
(a) TRUE
(b) FALSE
Correct Answer TRUE

41
Answer The buyer of an option has a right but not the obligation in the contract.
Explanation Also his risks are limited to the extent of premium paid.
The writer/seller of an option is one who receives the option premium and
is thereby obliged to sell/buy the asset if the buyer of option exercises his
right. His risks are unlimited.
Thus Option contracts are not symmetrical as the buyers and sellers have
different obligations and risk factors.
On the other hand obligations and returns in Futures are symmetrical for
both buyer and sellers.
Correct Answer TRUE

42
Answer Only in-the-money options have intrinsic value whereas at-the-money
Explanation and out-of-the-money options have zero intrinsic value. The intrinsic value
of an option can never be negative.
Time value also can never be negative.
NISM SERIES VIII
QUESTION SET 4
Question 43 The gain or loss is realized on daily basis due to mark to market
mechanism in which of the following contracts ?
(a) Forward Contracts
(b) Contracts in Swaps
(c) Future market contracts
(d) Equity Cash Market contracts
Question 44 Stock Brokers are allowed to fund margin requirement of their clients.
They may not collect such margins from their clients - State True or
False ?
(a) TRUE
(b) FALSE
Correct Answer Future market contracts

43

44
Answer As per Dr. L. C. Gupta Committee all clients should pay margins. Brokers
Explanation should not fund margins of clients.
NISM SERIES VIII
QUESTION SET 4
Question 45 The main logic behind Position limits is to .
(a) prevent the market being unduly influenced by the activities of an

individual/group of investors
(b) prevent the market being unduly influenced by Central Govt policies
(c) give direction to the market to move up or down as determined by SEBI
(d) to encourage high networth investors to provide direction to the market
Question 46 The seller of the put option gains if price of underlying asset
(a) Decreases
(b) Increases
(c) Does not change
(d) Both 2 and 3
Correct Answer prevent the market being unduly influenced by the activities of an
45 individual/group of investors
Answer Position limits are the maximum exposure levels which the entire market can
Explanation go up to and each Clearing Member / Trading member or investor can
go up to.
Thus no investor can take an extra ordinary large position and influence
the direction of a scrip / market.

46
Answer The seller of PUT option is either bearish or neutral. He gains the premium
Explanation received if the underlying increases or remains flat.
NISM SERIES VIII
QUESTION SET 4
Question 47 A portfolio with 50 different stocks is twice as risky as another

portfolio with 100 stocks in it - State whether True or False ?
(a) TRUE
(b) FALSE
Question 48 Mr A buys a call option with lower strike price and sells another
call option with higher strike price both on the same underlying share
and same expiration date, the strategy is called
(a) Bull Spread
(b) Bear Spread
(c) Butterfly Spread
(d) Calendar Spread
Correct Answer TRUE

47
Answer Higher the number of stocks, better the diversification and lower the risks.
Explanation
Correct Answer Bull Spread

48
Answer A bull call spread is constructed by buying a call option with a low strike
Explanation price, and selling another call option with a higher strike price.
NISM SERIES VIII
QUESTION SET 4
Question 49 Futures trading is considered more risky than equity trading due to .
(a) high leverage
(b) High pressure
(c) high volatility
(d) high liquidity
Question 50 Institutional investors pay higher margins than the individual investors
for derivatives trading - State True or False ?
(a) TRUE
(b) FALSE
Correct Answer high leverage

49
Answer Traders can trade in derivatives by paying a small margin ( around 25 to 3
Explanation 0% of the total contract value), This leverage increases the risk as the trader
can take up positions beyond his capacity.

50
NISM SERIES VIII
QUESTION SET 4
Question 51 The derivatives segment of a Stock Exchange is under the same

governing council as the cash segment - State True or False ?
(a) TRUE
(b) FALSE
Question 52 You have bought a futures contract and the price drops, you
will .
(a) Make a profit
(b) Make a loss
(c) given information is incomplete to arrive at a conclusion

51
Answer The derivatives exchange/segment has a separate governing council and
Explanation no common members are allowed between the Cash segment Governing
Board and the Derivatives segment Governing Council of the exchange.
Correct Answer Make a loss

52
NISM SERIES VIII
QUESTION SET 4
Question 53 Stock price is .

(a) same as in the near month future contract
(b) same as exercise price of an option
(c) same as strike price of an option
(d) the price of the underlying in the spot market
Question 54 A naked call option means that the writer does not currently owns
the underlying - State True or False ?
(a) TRUE
(b) FALSE
Correct Answer the price of the underlying in the spot market

53
Answer Stock price or Spot price means the current market price of that stock in
Explanation the cash market.
Correct Answer TRUE

54
Answer An options strategy in which an investor writes (sells) call options on the
Explanation open market without owning the underlying security.
This strategy is sometimes referred to as an "uncovered call" or a "short call".
NISM SERIES VIII
QUESTION SET 4
Question 55 Factor(s) influencing option pricing include which of the following ?

(a) time to expire
(b) volatility of the underlying shares
(c) dividend pay out
Question 56 When ordinary cash dividends are declared, put option values will
decrease - State True or False ?
(a) TRUE
(b) FALSE

55

56
Answer Cash dividends issued by stocks have big impact on their option prices.
Explanation This is because the underlying stock price is expected to drop by the
dividend amount on the ex-dividend date.
Put options gets more expensive due to the fact that stock price always
drop by the dividend amount after ex-dividend date.
In case of call options, they can get discounted by as much as the dividend
amount.
NISM SERIES VIII
QUESTION SET 4
Question 57 A Writer of an option .

(a) has obligation in the contract
(b) receives the premium
(c) has choice in the contract
(d) Both 1 and 2
Question 58 The daily settlement prices of equity derivatives are decided

by .
(a) Clearing Corporation
(b) SEBI
(c) Brokers Association
(d) RBI

57
Answer The writer of an option is one who receives the option premium and is
Explanation thereby obliged to sell/buy the asset if the buyer of option exercises his right.
Correct Answer Clearing Corporation

58
Answer One of the responsibilities of the Clearing Corporation is to decide the
Explanation Daily Settlement Prices.
NISM SERIES VIII
QUESTION SET 4
Question 59 The maximum possible loss for the option buyer is the premium paid ,
but the profits can be higher depending on the underlying price
movement. This is true for which type of options ?
(a) true for all types of options
(b) true for American options only
(c) true for European options only
(d) false for all types options
Question 60 If a Clearing members defaults, the margin paid on his own account
only is allowed to be used by the clearing corporation for realizing
its dues from the member. The clients margin remain unaffected –
(a) TRUE
(b) FALSE
Correct Answer true for all types of options

59
Answer The difference between American and European options is relating to the
Explanation time of exercising the contract. Profit potential in both of them is same,
Correct Answer TRUE

60
Answer In case of Clearing Member default, margins paid by the Clearing Member
Explanation on his own account alone would be used to settle his dues.
NISM SERIES VIII
QUESTION SET 4
Question 61 A future contract is a very standardized contract that leaves very little
(except the price) open to negotiation - State True or False ?
(a) FALSE
(b) TRUE
Question 62 Shorter the time to maturity of the call option, higher will be the
time value - State whether True or False ?
(a) TRUE
(b) FALSE
Correct Answer TRUE

61
Answer Terms of the future contracts are standardized wrt. quantity, time period
Explanation etc. Only price is decided by the demand supply and other market
situations.
A forward contract on the other hand is not standardized.

62
Answer Other things being equal, options tend to lose time value each day
Explanation throughout their life. This is due to the fact that the uncertainty element
in the price decreases.
Thus shorter the time to maturity, lower will be the time value.
NISM SERIES VIII
QUESTION SET 4
Question 63 Mr. Anand asks his broker to buy certain number of contracts at
the market price, this instruction is called
(a) arbitrage order
(b) limit order
(c) stop loss order
(d) market order
Question 64 A client registration form contains clients

(a) investment objectives
(b) background
(c) beneficial identity
Correct Answer market order

63

64
NISM SERIES VIII
QUESTION SET 4
Question 65 Any person who wishes to open a Trading Account must be given
the following documents by his trading member –
(a) Complete version of all the laws of SEBI
(b) Risk disclosure document
(c) All the rules & regulations of the exchange
(d) SEBI guidelines on the subject
Question 66 The ASK price is always .

(a) greater than the bid price
(b) equal to bid price
(c) lower than the bid price
Correct Answer Risk disclosure document

65
Answer Model Risk Disclosure Document is issued by the members of Exchanges
Explanation and contains important information on trading in Equities and F&O
Segments of exchanges.
Correct Answer greater than the bid price

66
Answer Bid and Ask price means the Buyer and Seller price.
Explanation For eg price of a stock as quoted on a stock market is Rs. 100 - 101.
So 100 is the Bid price and 101 is the Ask price.
The Ask will will always be higher tha Bid price.
NISM SERIES VIII
QUESTION SET 4
Question 67 Mr. Mohan entered into a contract with Mr. Soham to buy 500 bags
of Cotton at a price of Rs 800 per bag. Delivery of goods and payment
of money will take place 4 months from now. Both Mr. Mohan and
Mr. Soham have a right as well as an obligation under this contract.
What type of contract is this?
(a) Options
(b) Forwards
(c) Futures
(d) Swaps
Question 68 The process by which a futures contract is terminated by a transaction

that is equal and opposite to the original transaction is called .
(a) netting
(b) off setting
(c) hedgeing
(d) mark to market
Correct Answer Forwards

67
Answer Forward contract is an agreement made directly between two parties to
Explanation buy or sell an asset on a specific date in the future, at the terms decided
today. There is no Stock Exchange, Commodity Exchange etc. involved.
Correct Answer off setting

68
Answer A closing transaction is one that reduces or eliminates an existing position
Explanation by an appropriate offsetting purchase or sale.
NISM SERIES VIII
QUESTION SET 4
Question 69 The Clearing members in derivatives exchange are required to make a

minimum deposit of Rs 20 lakhs with the exchange/clearing corporation
in the form of liquid assets -State True or False ?
(a) FALSE
(b) TRUE
Question 70 If you have a long or short position in a futures contract, this can be
closed by initiating a reverse trade - True or False ?
(a) TRUE
(b) FALSE

69
Answer Clearing Members have to maintain a Minimum Deposit in Liquid Assets
Explanation of Rs 50 lakhs with the exchange or it’s Clearing Corporation.
Correct Answer TRUE

70
NISM SERIES VIII
QUESTION SET 4
Question 71 The idea and economic rational of introducing forward contracts is

to
(a) help arbitrage
(b) help trading
(c) help hedgeing
(d) both 1 and 3
Question 72 As per Accounting Standards, the initial margin paid by an option

seller is shown under in the balance sheet
(a) Bad Debts
(b) Fixed Assets
(c) Current Assets
(d) Current Liabilities
Correct Answer help hedgeing

71
Answer The essential idea of entering into a forward is to fix the price and thereby
Explanation avoid the price risk. By entering into forwards, one is assured of the price
at which one can buy/sell an underlying asset.
Thus Forward contracts are basically meant for hedgeing / managing
the risks.
Correct Answer Current Assets

72
Answer The seller/ writer of the option is required to pay initial margin for entering
Explanation into the option contract and its should be debited to an appropriate account,
say, "Equity Index/ Stock Option Margin Account".
In the balance sheet, such account should be shown separately under the
head "Current Assets".
NISM SERIES VIII
QUESTION SET 4
Question 73 A person who is bullish and a payer of premium is a .

(a) buyer of call option
(b) seller of call option
(c) buyer of put option
(d) seller of put option
Question 74 Investor Mr. X wants to sell 11 contracts of Feb series at Rs.6300 &
investor Mr. Y wants to sell 13 contracts of March series at Rs.6450. Lot
size is 50 for both these contracts. The initial margin is fixed at 6%.
How much initial margin is required to be collected from both these
investors(sum of initial margin of X and Y) by the broker?
(a) Rs 251550
(b) Rs 459450
(c) Rs 640000
(d) Rs 374900
Correct Answer buyer of call option

73

74
Answer Margin from Mr. X
Explanation Rs 6300 X 11 contracts X 50 (lot size) X 6% = 207900
Margin from Mr. Y
Rs 6450 X 13 contracts X 50 (lot size) X 6% = 251550
Total Margin = 207900 + 251550 = 459450.
NISM SERIES VIII
QUESTION SET 4
Question 75 A trader has taken a short position of one contract in Sept ABC futures
(contract multiplier 50) at a price of Rs.1800. When he closed this
position after a few days, he realized that he has made a profit a
Rs.5000. Which of the foll closing actions would have enabled him
to generate the profit? ( Please ignore brokerage costs) .
(a) Buying 1 Sept ABC futures contract at 1900
(b) Buying 1 Sept ABC futures contract at 1700
(c) Selling 1 Sept ABC futures contract at 1900
(d) Selling 1 Sept ABC futures contract at 1700
Question 76 The option which gives the holder a right to buy the underlying asset
on or before a particular date for a certain price, is called as
(a) European put option
(b) American put option
(c) American call option
(d) European call option.
Correct Answer Buying 1 Sept ABC futures contract at 1700

75
Answer To make a profit of Rs 5000, he has to earn Rs 100 per share ( 5000 / 50
Explanation (lot size) = 100 )
Since he has gone short, he will make a profit when the price falls and he
buys at the reduced price.
He has sold at Rs 1800, so when he buys back at Rs 1700 he make Rs 100
profit per share.
Rs 100 X 50 ( Lot size ) = Rs 5000 profit.
Correct Answer American call option

76
Answer In case of American options, buyers can exercise their option any time before
Explanation the maturity of contract.
In case of European options, owner of such option can exercise his right only
on the expiry date/day of the contract.
NISM SERIES VIII
QUESTION SET 4
Question 77 A call option gives the holder a right to buy how much of the underlying
from the writer of the option?
(a) The specified quantity or less than the specified quantity
(b) The specified quantity or more than the specified quantity
(c) Only the specified quantity
Question 78 Which of the following is closest to the forward price of a share if

cash price is Rs 425, forward contract maturity=12 months from date,
market interest rate 12%
(a) 425
(b) 482
(c) 476
(d) 437
Correct Answer Only the specified quantity

77
Answer Only the specified quantity as per the lot size of the option contract.
Explanation
Correct Answer 476

78
Answer 12 months maturity means full one year of interest cost.
Explanation So 12% of 425 = 425 x 12 / 100 = 51
425 + 51 = 476 is closest to the one year forward price
NISM SERIES VIII
QUESTION SET 4
Question 79 A trader is very bearish on specific companies. However he is bullish

on the market as a whole. Which of the following is the most appropriate
strategy to take advantage from this view?
(a) sell the shares of those specific companies and also sell index futures
(b) sell the shares of those specific companies and buy index futures
(c) buy the shares of those specific companies and sell index futures.
(d) do nothing
Question 80 The concept in which the derivative trader gets a higher exposure
for the small portion of margin amount brought by him is called as .
(a) Arbitrage
(b) Leverage
(c) Delta Hedgeing
(d) Speculation
Correct Answer sell the shares of those specific companies and buy index futures
79
Correct Answer Leverage

80
NISM SERIES VIII
QUESTION SET 4
Question 81 The networth criterion for Professional clearing Members is the same
as that for Trading cum clearing members - State whether True or False ?
(a) TRUE
(b) FALSE
Question 82 Which of the following problem(s) that exist in the forward contracts are
solved by the Futures contracts ?
(a) a central agency for monitoring

(b) settlement problems
(c) counter party risk

81
Answer The Professional clearing Member is required to bring in additional Interest
Explanation free security deposit of Rs. 2 Lakhs and Collateral security deposit of
Rs. 8 Lakhs per trading member whose trades he undertakes to clear and
settle in the F&O segment.

82
NISM SERIES VIII
QUESTION SET 4
Question 83 Loss incurred on derivatives transactions can be carried forward for

a period of 12 assessment years - State whether True or False ?
(a) TRUE
(b) FALSE
Question 84 A short position in a CALL option can be closed out by taking a long
position in a PUT option with same exercise date and exercise price.
(a) TRUE
(b) FALSE

83
Answer Loss incurred on derivatives transactions which are carried out in a recognized
Explanation stock exchange can be carried forward for a period of 8 assessment years.

84
Answer A short position in a CALL option can be closed out by taking a long position
Explanation in a same CALL option with same exercise date and exercise price.
NISM SERIES VIII
QUESTION SET 4
Question 85 Which of the following complaints can be taken up by the exchange

for redressal ?
(a) Claims for notional loss, opportunity loss for the disputed period or trade
(b) Complaints pertaining to trades not executed on the Exchange by the
complainant
(c) Claims of sub-broker/authorized persons for private commercial dealings
with the trading member
(d) Excess Brokerage charged by Trading Member / Sub-broker
Question 86 Mr. Ravi purchases 10 call option on stock at Rs. 20 per call with
strike price of Rs 350. If on exercise date, stock price is Rs. 310,
ignoring transaction cost, Mr. Ravi will choose
(a) to exercise the option
(b) not to exercise the option
(c) may or may not exercise the option depending on whether he likes the
company or not
(d) may or may not depending on whether he is in town or not
Correct Answer Excess Brokerage charged by Trading Member / Sub-broker

85
Answer Exchanges provide assistance if the complaints fall within the purview of
Explanation the Exchange and are related to trades that are executed on the Exchange
Platform. Excess Brokerage charged by Trading Member / Sub-broker comes
under this assistance.
Correct Answer not to exercise the option

86
Answer Mr. Ravi has bought a Call Option assuming that the price will rise.
Explanation The price has fallen and he is in a loss. So he will not choose to exercise
his option.
His loss is restricted to the premium he has paid.
NISM SERIES VIII
QUESTION SET 4
Question 87 Trading members are required to possess a higher level of Capital

Adequacy (as per balance sheet) than clearing members- True or False ?
(a) TRUE
(b) FALSE
Question 88 A trader sold a call option on a share of strike price Rs. 200 and received
a premium of Rs. 12 from the option buyer. What can be his maximum
loss on this position.
(a) Rs 200
(b) Rs 188
(c) Rs 12
(d) Unlimited

87
Answer Clearing Members are permitted to settle their own trades as well as the
Explanation trades of the other non-clearing members known as Trading Members who
have agreed to settle the trades through them.
Thus the Capital Adequacy requirement is higher for Clearing Members.

88
Answer When a trader sells a Call option he is bearish / neutral on that scrip. But
Explanation in case the price rises, he makes losses and theoretically price can rise to
any levels - so his losses can be unlimited.
NISM SERIES VIII
QUESTION SET 4
Question 89 Investor protection fund for the derivatives segment is

(a) same as that of cash segment
(b) Independent of that of cash segment
(c) contributed by ministry of finance
(d) no investor protection fund is there for the derivative segment
Question 90 The contract size in futures market is defined by

(a) The Stock Brokers
(b) The Stock Exchange
(c) The Parties to the contract
(d) SEBI
Correct Answer Independent of that of cash segment

89
Correct Answer The Stock Exchange

90
Answer The Contract size (Lot size) is specified by the exchange. (minimum value of
Explanation Rs 2,00,000).
NISM SERIES VIII
QUESTION SET 4
Question 91 In Options - the seller of an contract pays an upfront premium at the

time of entering into the contract - State whether True or False ?
(a) TRUE
(b) False as the premium is paid on maturity
(c) False as the premium is paid by the buyer and not the seller
Question 92 The mark-to-market margin debits for index options are made
on .
(a) weekly basis
(b) daily basis
(c) fortnightly basis
(d) every friday
Correct Answer False as the premium is paid by the buyer and not the seller
91
Correct Answer daily basis

92
Answer All types of Mark to Market margin debits are made on daily basis.
Explanation
NISM SERIES VIII
QUESTION SET 4
Question 93 A calendar spread in index futures is treated as in a far month

contract when the near months contract is expired.
(a) long position
(b) hedged position
(c) naked position
(d) Short position
Question 94 The main objective of derivatives is to enable market participants to

(a) Trade
(b) Manage the risks
(c) Speculate
(d) Arbitrage
Correct Answer naked position

93
Correct Answer Manage the risks

94
NISM SERIES VIII
QUESTION SET 4
Question 95 Higher the interest rate, the higher the CALL option premium –
(a) TRUE
(b) FALSE
Question 96 A Buyer or holder of the option is the party to the contract who has .
(a) the obligation but not the right
(b) the right but not the obligation
(c) the right and the obligation
Correct Answer TRUE

95
Answer High interest rates will result in an increase in the value of a call option
Explanation and a decrease in the value of a put option.
Correct Answer the right but not the obligation

96
Answer A Call option gives the buyer the right, but not the obligation to buy the
Explanation underlying at the strike price.
A put option gives the buyer of the option the right, but not the obligation,
to sell the underlying at the strike price.
NISM SERIES VIII
QUESTION SET 4
Question 97 The Trading members on the exchanges derivatives segment are not
required to be registered with SEBI.- State whether True or False ?
(a) FALSE
(b) TRUE
Question 98 A unique principle of futures trading makes trading possible for those
who do not want to make or take delivery of underlying assets. Which
is that principle ?
(a) Traded on a recognised exchange
(b) Price uncertainty
(c) Standardisation of contracts
(d) Cash settlement

97
Correct Answer Cash settlement

98
NISM SERIES VIII
QUESTION SET 4
Question 99 On the National Stock Exchange, for its index futures, what would be
the opening day of its April series?
(a) Last Friday of March month
(b) Last Friday of April month
(c) Last Friday of January month
(d) Last Friday of February month
Question 100 Operational risks include losses due to

(a) natural calamities
(b) computer system failure
(c) power failure
Correct Answer Last Friday of January month

99
Answer There are 3 series of index futures active all the time. A new series is
Explanation
introduced as the older series expires.
Lets assume the Jan, Feb and March series are active currently.
On the last Thursday of Jan, the Jan series will expire.
So that next day ie. on the last Friday of Jan, the April series will be
activated. This will be the opening day for April series. Thus we will
have three series active ie. Feb, March and April.
Correct Answer computer system failure

100
Answer Operational Risk include losses incurred from risks resulting from
Explanation breakdowns in internal procedures, people and systems.
NISM SERIES VIII
QUESTION SET 5

QUESTION SET 5
Question 1 Long Straddle is a strategy of .

(i) Unlimited profits and limited losses
(ii) Unlimited profits and unlimited losses
(iii) Limited profits and limited losses
(iv) Limited profits and unlimited losses
Question 2 Nifty is currently at 4900. An investor feels Nifty will not rise beyond
5000 in the next three months. He sells two Nifty calls of strike price
4900 at Rs 100 per lot. Because of positive indicators Nifty rises to
4950 on expiry day. What is his profit/loss ? (1 lot = 50 shares)
(i) Profit of Rs 5000
(ii) Loss of Rs 5000
(iii) Profit of Rs 10000
(iv) Loss of Rs 10000
Correct Answer 1 Unlimited profits and limited losses
Answer A long straddle position is created by buying a call and a put option
Explanation of same strike and same expiry.
His maximum loss will be equal to the sum of these two premiums paid.
Any significant move in either direction will result in handsome profits.
Correct Answer 2 Profit of Rs 5000
Answer The investor sells 2 Nifty calls at Rs 100.

Explanation So he receives premium of Rs 100 x 2 lots x 50 (lot size) = Rs 10,000
He had a negative outlook on Nifty but Nifty rose, so he will incur a loss.
4900 - 4950 = Rs 50 Loss
Rs. 50 x 2 Lots x 50 (lot size) = Rs 5000
So Net he is in a profit : 10,000 - 5000 = Rs 5000
NISM SERIES VIII
QUESTION SET 5
Question 3 Intrinsic value of an OUT OF MONEY option is

(i) zero
(ii) 1
(iii) -1
Question 4 A penalty or suspension of registration of a stock broker from

derivatives exchange/segment under SEBI (Stock Broker and
Sub-broker) Regulations, 1992 can take place if
(i) The stock broker violates the conditions of registration
(ii) The stock broker fails to pay fees
(iii) The stock broker is suspended by the stock exchange
(iv) In any of the above situations
Correct Answer 3 zero
Correct Answer 4 In any of the above situations

NISM SERIES VIII
QUESTION SET 5
Question 5 An 'authorised person' in the Futures & Options segment is .

(i) a person authorised by the exchange as an approved user of a trading
member
(ii) any person who is acting in any capacity on behalf of the trading member
or a participant for any activity relating to the trades done and executed
(iii) an approved user of a participant
(iv) all of the above
Question 6 A butterfly spread is an extension of strategy.

(i) Covered call
(ii) Long straddle
(iii) Short straddle
(iv) Long Strangle
Correct Answer 5 all of the above
Correct Answer 6 Short straddle
Answer The downside in short straddle is unlimited if market moves

Explanation significantly in either direction.
So to put a limit to this downside, along with short straddle, trader
buys one out of the money call and one out of the money put. This
strategy is called “Butterfly Spread”.
NISM SERIES VIII
QUESTION SET 5
Question 7 In the derivatives segment , Clients' positions cannot be netted

off against each other while calculating initial margin - True or False ?
(i) FALSE
(ii) TRUE
Question 8 After SPAN has scanned the 16 different scenarios of underlying

market price and volatility changes, it selects the loss.
(i) Average Loss
(ii) Smallest Loss
(iii) Largest Loss
(iv) Medium Loss
Correct Answer 8 Largest Loss

NISM SERIES VIII
QUESTION SET 5
Question 9 If you sell a put option with strike of Rs. 375 at a premium of Rs.50,
how much is the maximum gain that you may have on expiry of this
position?
(i) Unlimited
(ii) Rs 50
(iii) Rs 325
Question 10 being anticipated profit should be ignored and

no credit for the same should be taken in the profit and loss account.
(i) Credit balance in the "Mark-to-Market Margin Account"
(ii) Debit balance in the "Mark-to-Market Margin Account"
(iii) Debit balance in the Initial Margin A/c
(iv) Credit balance in the Initial Margin A/c
Correct Answer 9 Rs 50
Answer Seller of an option - be it Call or Put receives the premium and that shall
Explanation be his maximum profit.
Correct Answer Credit balance in the "Mark-to-Market Margin Account"

10
Answer As per the rules of Accounting for open interests as on the balance sheet
Explanation date :
Net amount received (represented by credit balance in the "Mark-to-Market
Margin Account") being anticipated profit should be ignored and no credit
for the same should be taken in the profit and loss account.
NISM SERIES VIII
QUESTION SET 5
Question 11 Which statement is false with respect to Futures market ?

(i) There is daily settlement
(ii) There are standardised contract terms
(iii) No margin payment is required
(iv) Traded on organised exchanges
Question 12 of the option is the one who by paying the option

premium buys the right but not the obligation to exercise his option
on the seller.
(i) Buyer
(ii) Seller
(iii) Buyer or Seller
Correct Answer No margin payment is required

11
Correct Answer Buyer

12
NISM SERIES VIII
QUESTION SET 5
Question 13 Intrinsic value of an Out of the Money option is .

(i) 1
(ii) -1
(iii) zero
Question 14 Around 60% of the trading volume on the American Stock Exchange
is from
(i) Index Futures
(ii) Index Funds
(iii) ETFs
(iv) Index Options
Correct Answer Zero

13
Answer An Out of the Money option has no intrinsic value and it cannot
Explanation be negative.
Correct Answer ETFs

14
Answer ETF - Exchange Traded Funds
Explanation
NISM SERIES VIII
QUESTION SET 5
Question 15 Spot value of Reliance Industry share is Rs 800 and an investor

buys one month Reliance call option of strike price 820 at a premium
of Rs 3. The option is .
(i) In the Money
(ii) At the Money
(iii) Out of the Money
(iv) Deep In the Money
Question 16 As per the recommendations of the L.C.Gupta Committee,

CROSS MARGINING ( which takes into account the combined
position in the cash and derivative market) is currently not permitted.
(i) FALSE
(ii) TRUE
Correct Answer Out of the Money

15
Answer When the Strike price of a call option is higher than the Spot price,
Explanation its Out of the Money. There is no intrinsic value but only time value.
Correct Answer TRUE

16
Answer As per the major recommendations of the L.C.Gupta Committee –
Explanation Cross margining (linking overall cash and derivative positions for margining)
is not permitted.
NISM SERIES VIII
QUESTION SET 5
Question 17 An option with zero intrinsic value is called .

(i) OTM - Out of The Money option
(ii) ATM - At The Money option
(iii) ITM - In The Money option
(iv) Expiry day options
Question 18 measures the sensitivity of the option value to a given

small change in the price of the underlying asset.
(i) Delta
(ii) Theta
(iii) Rho
(iv) Vega
Correct Answer ATM - At The Money option

17
Answer At the Money option means a situation where an option's strike price
Explanation is identical to the price of the underlying security. Both call and put
options will be simultaneously "at the money."
For example, if ABC stock is trading at 100, then the ABC 100 call option
is at the money and so is the ABC 100 put option. An at-the-money
option has no intrinsic value, but may still have time value.
Correct Answer Delta

18
Answer The most important of the ‘Greeks’ is the option’s is “Delta”. This measures
Explanation the sensitivity of the option value to a given small change in the price of
the underlying asset. It may also be seen as the speed with which an option
moves with respect to price of the underlying asset. Delta = Change in
option premium/ Unit change in price of the underlying asset. Delta for
call option buyer is positive. This means that the value of the contract
increases as the share price rises. For example, with respect to call options,
a delta of 0.6 means that for every Rs.1 the underlying stock increases, the
call option will increase by Rs 0.60
Put option deltas, on the other hand, will be negative, because as the
underlying security increases, the value of the option will decrease. So a
put option with a delta of -0.6 will decrease by Rs.0.60 for every Rs 1 the
underlying increases in price.
The knowledge of delta is of vital importance for option traders because
this parameter is heavily used in margining and risk management
strategies.
NISM SERIES VIII
QUESTION SET 5
Question 19 A stock exchange has ON LINE SURVEILLANCE capability to

monitor the .
(i) Volumes
(ii) Prices
(iii) Positions
Question 20 Theta is .
(i) is the change in option price given a one percentage point change in
(ii) a measure of the sensitivity of an option price to changes in market
volatility
(iii) the change in option price given a one-day decrease in time to expiration.
(iv) speed with which an option moves with respect to price of the underlying
asset.

19
Correct Answer the change in option price given a one-day decrease in time to expiration.
20
NISM SERIES VIII
QUESTION SET 5
Question 21 The basic test of whether a trade done in the future market is for
hedging or speculation is centered on the premise that there already
exist a related commercial position which is exposed to the risk due
to price fluctuations.
(i) TRUE
(ii) FALSE
Question 22 The options which are traded on a exchange are standardised.

(i) TRUE
(ii) FALSE
Correct Answer TRUE

21
Answer Hedgeing basically means making an investment to reduce the risk of
Explanation adverse price movements
in an asset. Normally, a hedge consists of taking an offsetting position
in a related security, such as a futures contract.
An example of a hedge would be if you owned a stock, then sold a futures
contract stating that you will sell your stock at a set price, therefore
avoiding market fluctuations.
Correct Answer TRUE

22
Answer Exchange traded options are standardised as per the rules of the exchange
Explanation in terms of time, duration, quantity etc.
Forward options are customised as per the agreement between the trading
parties.
NISM SERIES VIII
QUESTION SET 5
Question 23 You are long in ICICI Bank Ltd futures at price Rs 1000. The prices
rises to Rs 1020 next day. The Mark to Market margin will be credited
to your account. True or False ?
(i) FALSE
(ii) TRUE
Question 24 The networth of clearing members does not include –

(i) Bad Deliveries
(ii) Doubtful Debts
(iii) Unlisted Securities
(iv) All of the Above
Correct Answer TRUE

23
Correct Answer All of the Above

24
Answer The minimum networth for clearing members of the derivatives clearing
Explanation corporation/house
shall be Rs.300 Lakhs. The networth of the member shall be computed
as follows:
- Less non-allowable assets which are :
o Fixed assets
o Member’s card
o Bad deliveries
o Prepaid expenses
o Intangible assets
NISM SERIES VIII
QUESTION SET 5
Question 25 The Option which gives its holder a positive cash flow is called
a .
(ii) Out of the money option
(iii) In the money option
(iv) Delta
Question 26 In case of CALL OPTION, it gives the buyer the right to .

(i) buy the underlying at market price
(ii) buy the underlying at set price
(iii) sell the underlying at market price
(iv) sell the underlying at set price
Correct Answer In the money option

25
Answer An 'In the money' (ITM) option gives the holder a positive cash flow, if it
Explanation were exercised immediately.
A call option is said to be ITM, when spot price is higher than strike price.
And, a put option is said to be ITM when spot price is lower than strike
price.
Correct Answer buy the underlying at set price

26
Answer A call option is a financial instrument that gives the buyer the right, but
Explanation not an obligation, to buy a set quantity of a security at a set strike price
at some time on or before expiration.
In easy terms - what ever may be the market price, the buyer will get
the security at the set price or strike price as he has paid a premium for it.
NISM SERIES VIII
QUESTION SET 5
Question 27 You have bought a CALL of Reliance of Strike price of Rs 900 of

January. To close the position, you will SELL a PUT of same strike
price of January. True or False ?
(i) FALSE
(ii) TRUE
Question 28 Tick size depends on

(i) The Delta of the security
(ii) Its fixed by the exchange
(iii) Volume in that security
(iv) The Interest rates

27
Answer If you have bought a CALL option, then to close the position you will have
Explanation to sell a CALL option Rs 900 strike price.
Correct Answer Its fixed by the exchange

28
Answer Tick size is the minimum move allowed in the price quotations. Exchanges
Explanation decide the tick sizes on traded contracts as part of contract specification.
Tick size for Nifty futures is 5 paisa.
NISM SERIES VIII
QUESTION SET 5
Question 29 The Strangle strategy is similar to straddle strategy in outlook but

different in .
(i) implementation
(ii) aggression
(iii) cost
Question 30 If you are a seller of put option, you expect .

(i) No change in the price
(ii) Increase in the price
(iii) Decrease in the price
(iv) Both 1 and 2

29
Answer Long Strangle As in case of straddle, the outlook here (for the long strangle
Explanation position) is that the market will move substantially in either direction, but
while in straddle, both options have same strike price, in case of a strangle,
the strikes are different. Also, both the options (call and put) in this case
are out-of-the-money and hence the premium paid is low.

30
Answer When you sell a put option you expect the price to rise. Even if the price
Explanation remains stable, you earn the option premium.
NISM SERIES VIII
QUESTION SET 5
Question 31 is not an application of indices.
(i) Venture capital funds
(ii) Index Funds
(iii) Index Derivatives
(iv) Exchange Traded Funds
Question 32 The features of Futures are quiet similar to .
(i) Options
(ii) Swaps
(iii) Debentures
(iv) Forwards
Correct Answer Venture capital funds

31 Traditionally, indices were used as a measure to understand the overall
Answer direction of stock market. However, few applications on index have
Explanation emerged in the investment field such as Index Funds, Index Derivatives,
Exchange Traded Funds etc.
Correct Answer Forwards
32
Answer A futures contract is similar to a forward, except that the deal is made
Explanation through an organized and regulated exchange rather than being
negotiated directly between two parties.
We may say that futures are exchange traded forward contracts.
NISM SERIES VIII
QUESTION SET 5
Question 33 The Bye Laws of an Indian Stock Exchange are to be approved

by .
(i) Finance Ministry
(ii) RBI
(iii) Clearing Corporation
(iv) SEBI
Question 34 On exercise of the option, the seller/writer will pay the adverse
difference, between the final settlement price as on the exercise/
expiry date and the strike price. Such payment will be recognized
as a .
(i) Profit
(ii) Loss
(iii) Debt
Correct Answer SEBI

33
Correct Answer Loss

34
NISM SERIES VIII
QUESTION SET 5
Question 35 Are Treasury Bills included in the list of permitted liquid assets
which can be offered to Clearing Corporation by the Clearing
Members ?
(i) Yes
(ii) No
Question 36 Cross margining between cash and derivative segments of an

exchange helps reduce the overall margin level applicable to investors
and traders - State True or False ?
(i) TRUE
(ii) FALSE
Correct Answer Yes

35 Liquid Assets can be in the form of Cash, Cash Equivalents (Government
Answer Securities, Fixed Deposits, Treasury Bills, Bank Guarantees, and Investment
Explanation Grade Debt Securities) and Equity Securities.
Correct Answer TRUE

36
Answer Cross margining is available across Cash and Derivatives segment.
Explanation
If an trader has credit balance in his trading account in the cash segment,
he can use it to margin his derivative trading, thus reducing his overall
margin level.
NISM SERIES VIII
QUESTION SET 5
Question 37 The Clearing Corporation can transfer client positions from one
broker member to another broker member in the event of a default
by the first broker member. No SEBI approval is required for this
action - State True or False ?
(i) TRUE
(ii) FALSE
Question 38 A short position in futures contract can be reversed only with the
same counter party to whom the contract was originally sold - State
True or False ?
(i) TRUE
(ii) FALSE

37 The Stock Exchange / Clearing Corporation has to send a report to SEBI
Answer stating the defaults by broker-members.
Explanation

38 A long or short futures contract is executed on an exchange and the buyers
Answer and sellers are unknown to each other. These trades can be reversed by
Explanation executing a suitable trade on the exchange.
NISM SERIES VIII
QUESTION SET 5
Question 39 The price at which the market maker is ready to buy is known as BID
price - State True or False ?
(i) TRUE
(ii) FALSE
Question 40 High level of initial margins deter brokers and clients from trading
in the derivatives market - State True or False ?
(i) TRUE
(ii) FALSE
Correct Answer TRUE

39
Answer Bid price is the price buyer / market maker is willing to pay and ask price
Explanation is the price seller is willing to sell.
For eg - If the price of Reliance Industries Ltd as seen on the trading
screen is Rs 1000 - 1001, this means Rs 1000 is the bid price and Rs 1001
is the ask price.
Correct Answer TRUE

40 Risk involved in trading in derivatives are higher as compared to spot
Answer market due to bigger trading lot sizes.
Explanation Margin levels in derivatives are kept at a higher level so that brokers and
clients who do not have adequate finances , do not trade in this market as
they do not have the risk bearing financial capacity.
NISM SERIES VIII
QUESTION SET 5
Question 41 Among the given options, which one can be the main driver of the
movement of stock index ?
(i) Inflation
(ii) Price movement in shares
(iii) Interest Rates
(iv) Currency Rates
Question 42 If a Day Order is not executed during the day, it will .
(i) get cancelled automatically once the trading time for the day is over
(ii) get executed the next day if its in the price range
(iii) get executed in the special auction market
Correct Answer Price movement in shares

41
Correct Answer get cancelled automatically once the trading time for the day is over
42 A Day order is an order which is valid for a single day on which it is entered.
Answer If the order is not executed during the day, the trading system cancels
Explanation the order automatically at the end of the day.
NISM SERIES VIII
QUESTION SET 5
Question 43 The Intrinsic value of an In the Money option is the difference

between the Market Price and the Exercise price - State True or False ?
(i) TRUE
(ii) FALSE
Question 44 Outsiders i.e. Non Broker members are allowed to be appointed on

the Governing Board of the Clearing Corporation of the Derivatives
segment - State True or False ?
(i) TRUE
(ii) FALSE
Correct Answer TRUE

43
Answer Intrinsic value refers to the amount by which option is in the money i.e.
Explanation the amount an option buyer will realize, before adjusting for premium
paid, if he exercises the option instantly.
For call option which is in-the-money, intrinsic value is the excess of spot
price over the exercise price.
For put option which is in-the-money, intrinsic value is the excess of
exercise price over the spot price.
Correct Answer TRUE

44
Answer As per Dr. L. C. Gupta Committee recommendations :
Explanation - A separate Governing Board should be constituted for the Clearing
Corporation of the Derivatives segment.
- No broker members should be allowed to sit on the Governing Board
of the Clearing Corporation.
NISM SERIES VIII
QUESTION SET 5
Question 45 The losses for a seller of a Call options are .
(i) limited
(ii) unlimited
Question 46 A Professional Clearing Member can act only for Institutional

clients - State True or False ?
(i) TRUE
(ii) FALSE
Correct Answer unlimited

45
Answer The seller of a call option believes that prices will go down.
Explanation The losses begin when the prices rise and theoretically prices can rise
to unlimited levels, so the losses can be unlimited.

46
Answer Professional clearing member clears the trades of his associate Trading
Explanation Member and institutional clients.
NISM SERIES VIII
QUESTION SET 5
Question 47 A writer of a naked PUT option is .
(i) Bullish and pays the premium
(ii) Bullish and receives the premium
(iii) Bearish and pays the premium
(iv) Bearish and receives the premium
Question 48 The quality of the underlying asset is standardized by the

in case of futures contract.
(i) RBI
(ii) SEBI
(iii) Exchange
(iv) The buyer and seller
Correct Answer Bullish and receives the premium

47
Answer A writer i.e. seller of a PUT option is bullish or neutral and receives the
Explanation premium
A writer i.e. seller of a CALL option is bearish or neutral and receives the
Premium In options - A writer always receives the premium and the buyer
always pays the premium
Correct Answer Exchange

48
Answer Exchange traded futures and options are standardized as per the rules of
Explanation the Exchange in terms of quality, time, duration, quantity etc.
NISM SERIES VIII
QUESTION SET 5
Question 49 Strike price is the price per share for which the underlying security
may be purchased or sold by the option holder - State True or False ?
(i) TRUE
(ii) FALSE
Question 50 The ratio of change in delta for a unit change in the price of
underlying is called .
(i) Vega
(ii) Theta
(iii) Alpha
(iv) Gamma
Correct Answer TRUE

49

50
Answer Gamma measures change in delta with respect to change in price of the
NISM SERIES VIII
QUESTION SET 5
Question 51 What happens when the price of the underlying rises after a future
contract is initiated ?
(i) Price changes in the underlying will not effect the price of futures
(ii) The short position will become profitable
(iii) The long position will become profitable
(iv) The long position will become unprofitable
Question 52 When the price of a future contract rises, the margin account .
(i) of the buyer is credited for the gain
(ii) of the seller is debited for the loss
(iii) Both 1 and 2
Correct Answer The long position will become profitable

51
Answer A long future position become profitable when the price of the
Explanation underlying rises as a rise in the underlying price will result in the price
of futures also rising.

52
Answer In futures, the account of buyers and sellers are debited or credited daily
Explanation as per their notional profit or losses by the Mark to Market margin.
NISM SERIES VIII
QUESTION SET 5
Question 53 When a new client opens a trading account with a trading member,
which of the following documents have to be compulsorily given
to him ?
(i) SEBI rules regarding trading in stock markets
(ii) Risk disclosure documents
(iii) All the rules of the Stock Exchange
Question 54 A trader sells a PUT option of strike Rs 100 on ABC stock for a
premium of Rs 25. On expiry day, the ABC stock closed at Rs 50.
What is the trader's profit or loss in Rs. ? ( Lot size is 1000 )
(i) 25000
(ii) -25000
(iii) 50000
(iv) -50000
Correct Answer Risk disclosure documents

53
Answer The broker is required to get a Risk Disclosure Document compulsorily
Explanation signed by the client, at the time of client registration.
This document informs clients about the kind of risks that derivatives
can involve for the client.
Correct Answer -25000
54
Answer When a trader sells a PUT option, he believes the stock price will rise.
Explanation Here the stock price has fallen by Rs 50. So his Gross loss is Rs 50 x 1000
(lot size) = Rs 50000.
However, when we sell an option, we receive the premium.
Here the premium received by the trader is Rs 25 x 1000 = Rs 25000
So his net loss is Rs 50000 less Rs 25000 = Rs 25000 loss
NISM SERIES VIII
QUESTION SET 5
Question 55 When an option moves more in the money, the absolute value of
Delta will .
(i) Increase
(ii) Decrease
(iii) No effect on delta
(iv) tend to become zero
Question 56 The liquid assets which are to be deposited by the clearing member
can be in the form of .
(i) Only cash
(ii) Only cash and approved securities
(iii) Cash, Bank Guarantees, Equity Securities and other Cash Equivalents
Correct Answer Increase

55
Answer The value of delta increases as an option moves more in the money.
Explanation For a Call option, the delta increases as price rises and for a put option,
the delta increases as price falls.
Correct Answer Cash, Bank Guarantees, Equity Securities and other Cash Equivalents
56
Answer Liquid Assets can be in the form of Cash, Cash Equivalents (Government
Explanation Securities, Fixed Deposits, Treasury Bills, Bank Guarantees, and Investment
Grade Debt Securities) and Equity Securities.
NISM SERIES VIII
QUESTION SET 5
Question 57 Which one of the below mentioned option will result in a Bear
Spread ?
(i) Selling a Call of a lower strike price and buying a Call of a higher strike price
(ii) Selling a Put of a lower strike price and buying a Call of a higher strike price
(iii) Selling one Call of a lower strike price and buying two Puts of a higher
strike price
Question 58 We can get high returns from many investment products in the
market in an absolutely risk free manner - State True or False ?
(i) TRUE
(ii) FALSE
Correct Answer Selling a Call of a lower strike price and buying a Call of a higher strike pri
57 Bear Spread can be created by :
Answer 1) Selling a low strike call and buying a high strike call OR
Explanation 2) Selling a low strike Put and buying a high strike Put
Remember : Bear spread involves either 2 Calls or 2 Puts and not Call
and Put.

58
Answer Returns are related to the risk taken and hence there cannot be products
Explanation in the market that gives high return in risk free manner.
NISM SERIES VIII
QUESTION SET 5
Question 59 Which tax is applicable for equity transactions done on a recognized

stock exchange ?
(i) Securities Trading Tax
(ii) Equity Trading and Service Tax
(iii) Derivatives Transaction Tax
(iv) Securities Transaction Tax
Question 60 When a futures contract is entered, .
(i) no margin is exchanged between the buyer and seller
(ii) only the buyer pays the margin to the seller
(iii) only the seller pays margin to buyer
(iv) the buyer and seller pay margins to each other
Correct Answer Securities Transaction Tax

59
Answer Trading member has to pay securities transaction tax (STT) on the
Explanation transaction executed on the recognized stock exchange.
Correct Answer no margin is exchanged between the buyer and seller

60
Answer In a futures contract, the margin is payable by both buyer and seller to
Explanation the Clearing Corporation and not to each other.
So among the four given options, option 1 is the most appropriate.
NISM SERIES VIII
QUESTION SET 5
Question 61 An European option can be exercised only on expiry date - State

True or False ?
(i) TRUE
(ii) FALSE
NISM SERIES VIII
QUESTION SET 5
Question 62 Clearing member Ram has 6 trading members who are all in Mumbai
and Clearing member Shyam has 6 trading members who are all
outside Mumbai. Both of them have deposited same amount of
liquid assets with the clearing corporation. Which amongst the
following statement is True ?
(i) Clearing Member Ram will have a higher exposure limit than Clearing
Member Shyam
(ii) Clearing Member Shyam will have a higher exposure limit than Clearing
Member Ram
(iii) Both Ram and Shyam will have the equal exposure limits
Correct Answer TRUE

61 European Option is an option that can only be exercised at the end of
Answer its life, at its maturity / expiry and not before that.
Explanation An American option can be exercised any time.
Correct Answer Both Ram and Shyam will have the equal exposure limits
62
Answer As per Dr. L. C. Gupta Committee recommendations: Members’ exposure
Explanation should be linked to the amount of liquid assets maintained by them with
the clearing corporation.
There is no mention of any geographical limitations.
NISM SERIES VIII
QUESTION SET 5
Question 63 The potential exposure is calculated by the clearing corporation _.
(i) on the last trading day of the contract month
(ii) on the last trading day of the week
(iii) at the end of the trading day
(iv) on real time basis
Question 64 If the far month futures prices are less than near month futures prices,
this is known as .
(i) Delta Hedging
(ii) Contango
(iii) Basis
(iv) Backwardation
Correct Answer on real time basis

63 Clearing corporation’s on-line position monitoring system monitors a
Answer CM’s open position on a real-time basis.
Explanation Clearing corporation monitors the CMs for Initial Margin violation,
Exposure margin violation, while TMs are monitored for Initial Margin
violation and position limit violation.
Correct Answer Backwardation

64
Answer If futures price are lower than spot price of an asset(or far month futures
Explanation is less thannear month futures), market participants may expect the spot
price to come down in future. This expectedly falling market is called
“Backwardation market”.
If futures price is higher than spot price of an underlying asset, market

participants may expect the spot price to go up in near future. This
expectedly rising market is called “Contango market”.
NISM SERIES VIII
QUESTION SET 5
Question 65 A trader sells a future contract and prices rises. The trader will
if he squares up the position.
(i) make a profit
(ii) make a loss
(iii) Insufficient data
Question 66 Mr. A is a risk averse investor. He would prefer secure investments

like fixed deposits and other debt instruments and not market
oriented investments - State True or False ?
(i) TRUE
(ii) FALSE
Correct Answer make a loss

65 For e.g. - He sells at Rs 100 and prices rises to Rs 110. If he squares up,
Answer he shall make a loss of Rs 10.
Explanation
Correct Answer TRUE

66
Answer A risk-averse investor would prefer investments that are more secure and
Explanation thus would have higher portfolio allocations to debt and fixed income
instruments.
On the other hand an investor who is less risk averse would like to have
greater exposure to equity and other risky investments.
NISM SERIES VIII
QUESTION SET 5
Question 67 An Equity based Mutual Fund can sell Index Futures to hedge its
position - True or False ?
(i) Currency
(ii) Securities
(iii) Gold
(iv) Commodities
Question 68 Option premium depends on .
(i) volatility of the underlying

(ii) current price and the strike price
(iii) interest rates in the economy and the time to expiry
Correct Answer Securities

67 As per the Securities Contracts (Regulation) Act-1956, the term ‘Securities’
Answer include:
Explanation - Shares, scrips, stocks, bonds, debentures, debenture stock or other
marketable securities of a like nature in or of any incorporated company
or other body corporate
- Derivative
- Units or any other instrument issued by any collective investment scheme
to the investors in such schemes
- Government securities
- Such other instruments as may be declared by the Central Government
to be securities
- Rights or interests in securities

68
NISM SERIES VIII
QUESTION SET 5
Question 69 Among the following options, in which future contract, the contract
cannot be used as a means to acquire the underlying asset ?
(i) Copper
(ii) Gold
(iii) Individual securities
(iv) Stock index
Question 70 If the price of the underlying stock of a PUT option is very volatile, .
(i) the premium will comparatively be lower
(ii) the premium will comparatively be higher
(iii) the premium will be zero
(iv) No effect on option premium
Correct Answer Stock index

69
Correct Answer the premium will comparatively be higher

70 Vega, which measure of the sensitivity of an option price to changes
Answer in market volatility is positive for a long call and a long put.
Explanation
An increase in the volatility of the underlying increases the expected
payout from a buy option, whether it is a call or a put.
NISM SERIES VIII
QUESTION SET 5
Question 71 A trader is long on ABC stock April futures at 3100. He shall make
a loss if the futures price moves to .
(i) 3300
(ii) 3200
(iii) 3400
(iv) 3000
Question 72 are eligible to clear trades in Index Options.
(i) All trading members of a recognized stock exchange
(ii) All trading members and their sub brokers
(iii) Only members who are registered as clearing members with the
derivative exchange
(iv) All Public sector banks
Correct Answer 3000

71
Answer A long position (purchase) will result in a loss if prices go down from
Explanation the purchase price.
Correct Answer Only members who are registered as clearing members with the
72 derivative exchange
NISM SERIES VIII
QUESTION SET 5
Question 73 If an investor is exposed to a price risk in a stock, by hedging he

would be able to .
(i) make the outcome more profitable
(ii) make the outcome as per SEBI and Stock market regulations
(iii) make the outcome more certain
(iv) make the outcome more volatile
Question 74 Writing a covered call is .
(i) More risky than writing a naked call
(ii) Less risky than writing a naked call
(iii) As risky as writing a naked call
(iv) Covered call cannot be written in Indian markets
Correct Answer make the outcome more certain

73
Answer Hedging does not increases the profit but controls the losses. This makes
Explanation the outcome more certain.
Hedging involves having two opposite positions. Loss in one will be
countered by a profit in the other. So the outcome is more certain.
Correct Answer Less risky than writing a naked call

74
Answer In a naked call, the trader has to take a view on the market and accordingly
Explanation go long or short.
The covered call strategy is used to generate extra income from existing
holdings in the cash market.
Therefore, the naked call strategy is much riskier.
NISM SERIES VIII
QUESTION SET 5
Question 75 The Risk Return profile for a Future contract is symmetric while
that of an Option contract is asymmetric - State True or False ?
(i) TRUE
(ii) FALSE
Question 76 Derivatives can have as an underlying.
(i) a bond
(ii) another derivative
(iii) stock index
Correct Answer TRUE

75
Answer Asymmetric basically means not identical on both sides.
Explanation
When one trades in Options, the gains when the share moves in one
direction is significantly different from the losses when the share moves
in the opposite direction.
For eg - If one buys a call option and the share prices go down the loss
will be limited ie. restricted to the premium paid. But if the share prices
move up, the profits can be huge/unlimited. This is known a asymmetric
return.
On the contrary in futures or cash market, the returns are symmetric ie.
equal value of profits or loss is possible.

76
Answer The most common underlying assets include stocks, indices, commodities,
Explanation bonds, currencies etc., but they can also be other derivatives, which adds
another layer of complexity to proper valuation.
NISM SERIES VIII
QUESTION SET 5
Question 77 The daily Mark to Market gain or loss is realized .
(i) in the equity spot market
(ii) in the futures market
(iii) in Swap trading
(iv) in forwards market
Question 78 When a call option on an index is exercised, the call option holder
receives from the option writer an amount equal to excess of spot
price over the strike price of that call option - State True or False ?
(i) TRUE
(ii) FALSE
Correct Answer in the futures market

77
Correct Answer TRUE

78
Answer The positive difference between a call options strike price and the market
Explanation price is the gross profit of the call option buyer which the option writer
has to pay on exercise.
NISM SERIES VIII
QUESTION SET 5
Question 79 It is recommended but not compulsory for the trading members to

have dealers and sales personal in the derivatives market who have
passed a certification programme approved by SEBI - State True or
False ?
(i) TRUE
(ii) FALSE
Question 80 There is only CASH settlement for Nifty futures contract - State
True or False ?
(i) TRUE
(ii) FALSE

79
Answer It is mandatory that trading members are required to have qualified
Explanation approved user and sales person who have passed a certification
programme approved by SEBI.
Each dealer should pass SEBI approved certification exams.
Correct Answer TRUE

80
NISM SERIES VIII
QUESTION SET 5
Question 81 Margins in the derivative segment has to be collected from all

clients, including Financial Institutions and FIIs - State True or False ?
(i) TRUE
(ii) FALSE
Question 82 Investors who are called Bulls are those investors who believe the
market or stock will fall - State True or False ?
(i) TRUE
(ii) FALSE
Correct Answer TRUE

81

82
Answer Bulls believe that market / stock will rise.
Explanation
Bears believe that market / stock will fall.
NISM SERIES VIII
QUESTION SET 5
Question 83 A Mutual Fund floats a new fund offer of a 100% equity scheme.
Till the time it invests this cash in equities, the fund can take equity
exposure by buying stock index futures - State True or False ?
(i) TRUE
(ii) FALSE
Question 84 A portfolio with 200 stocks is only half as risky as another portfolio
with 100 stocks - State True or False ?
(i) TRUE
(ii) FALSE
Correct Answer TRUE

83
Answer FIIs & MF’s can take exposure in equity index derivatives subject to the
Explanation following limits:
Long positions in index derivatives (long futures, long calls and short puts)
not exceeding (in notional value) the FII’s / MF’s holding of cash,
government securities, T-Bills and similar instruments.
Short positions in index derivatives (short futures, short calls and long puts)
not exceeding (in notional value) the FII’s / MF’s holding of stocks.
Correct Answer TRUE

84
Answer Higher the number of shares in a portfolio, lower is the risk.
Explanation
NISM SERIES VIII
QUESTION SET 5
Question 85 A writer / seller of a deep out of the money CALL option is .
(i) Bullish - receiver of premium
(ii) Bullish - payer of premium
(iii) Bearish- receiver of premium
(iv) Bearish - payer of premium
Question 86 The net worth requirements of Clearing Members and Trading

Members is the same for the derivatives exchange - State True or
False ?
(i) TRUE
(ii) FALSE
Correct Answer Bearish- receiver of premium

85
Answer A seller of call option is always bearish. It does not matter if the option
Explanation is In the money or Out of the money.
All sellers ie. of Call or Put options will receive the premium.

86
Answer The Net Worth requirements of Clearing Members is higher than
Explanation Trading Members.
NISM SERIES VIII
QUESTION SET 5
Question 87 You have created a Short Position on futures contract. This can be
squared up by .
(i) by executing a purchase of a Call option of the same security
(ii) by executing a forward contract
(iii) by executing a purchase of the same futures contract
(iv) by executing a sale of the same futures contract
Question 88 A separate client account has to be maintained to keep the money

and securities deposited by clients - State True or False ?
(i) TRUE
(ii) FALSE
Correct Answer by executing a purchase of the same futures contract

87 A short future contract can be squared up by buying the same contract
Answer and in no other way.
Explanation
Correct Answer TRUE

88
Answer The trading members own money and securities cannot be mixed up with
Explanation the clients money and securities.
NISM SERIES VIII
QUESTION SET 5
Question 89 One can use Index Futures for hedging to eliminate or reduce
the .
(i) Unsystematic Risk
(ii) Systematic Risk
(iii) Sector specific Risk
(iv) Operational Risk
Question 90 If a Trading member defaults in the derivative segment, he can still

continue the trading business in the cash segment. - True or False ?
(i) FALSE
(ii) TRUE
Correct Answer Systematic Risk

89
Answer An investor can diversify his portfolio and eliminate major part of price
Explanation risk i.e. the diversifiable/unsystematic risk but what is left is the
non-diversifiable portion or the market risk-called systematic risk.
This systematic risk can be reduced using index based derivatives like
Index Futures.

90
Answer A default by a member in the derivatives segment will be treated as
Explanation default in all segments of that exchange and as default on all exchanges
where he is a member.
NISM SERIES VIII
QUESTION SET 5
Question 91 To be eligible for options trading, the market wide position limit
(MWPL) in the stock shall not be less than .
(i) Rs 200 cr
(ii) Rs 300 cr
(iii) Rs 500 cr
(iv) Rs 600 cr
Question 92 Margins in 'Futures' trading are to be paid by .

(i) Only the buyer
(ii) Only the seller
(iii) Both the buyer and the seller
(iv) The clearing corporation
Correct Answer Rs 300 cr

91
Correct Answer
Both the buyer and the seller
92
Answer In futures both buyers and sellers pay the margin.

Explanation In Options only the seller pays the margin.
NISM SERIES VIII
QUESTION SET 5
Question 93 NSCCL's on-line position monitoring system monitors open position

of on a real time basis.
(i) dealer only
(ii) trading member only
(iii) clearing member only
(iv) clearing member and trading member
Question 94 As per SEBI rules, a Derivative Exchange should have a minimum

of members.
(i) 25
(ii) 50
(iii) 100
(iv) 200
Correct Answer clearing member only

93
Correct Answer
50
94
NISM SERIES VIII
QUESTION SET 5
Question 95 Daily Mark to Market settlement of futures takes place

on basis.
(i) T+1
(ii) T+2
(iii) T+3
(iv) T+5
Question 96 The maximum profit a buyer of call option can make is –

(i) Rs 1 lac per lot
(ii) Difference between Spot price and Strike price
(iii) Unlimited
(iv) Depends on the market volatility
Correct Answer T+1

95
Correct Answer
Unlimited
96
When a person buys a call option, he is bullish on that security.
Answer
Theoretically the security can rise to an unlimited level so the profits
Explanation
to the buyer of an call option can be unlimited.
NISM SERIES VIII
QUESTION SET 5
Question 97 The daily settlement of open futures contract is called –

(i) Final Settlement
(ii) VaR settlement
(iii) Mark to Market settlement (MTM)
(iv) Interim Settlement
Question 98 A portfolio of Rs 25 lacs has a beta of 1.20. A complete hedge is

obtained by .
(i) by selling Nifty futures of Rs 25 lacs
(ii) by selling Nifty futures of Rs 28 lacs
(iii) by selling Nifty futures of Rs 30 lacs
(iv) by buying Nifty futures of Rs 28 lacs
Correct Answer
Mark to Market settlement (MTM)
97
Answer In futures market, the contracts have maturity of several months, so to

Explanation guard against any substantial loss, the 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
traders and pays to the gainers on day-to-day basis.
Correct Answer
by selling Nifty futures of Rs 30 lacs
98
Beta measures the sensitivity of a scrip/ portfolio vis-a-vis index movement
Answer over a period of time, on the basis of historical prices. A beta of 1 indicates
Explanation that the security's price will move with the market. A beta of less than 1
means that the security will be less volatile than the market. A beta
of greater than 1 indicates that the security's price will be more volatile
than the market. For example, if a stock's beta is 1.3, it's theoretically 30%
more volatile than the market.
So to obtain a hedge for a portfolio of shares, one has to sell Nifty futures.
The beta of a portfolio in the above case is 1.20. The portfolio value is
Rs 25 lacs.
25 Lacs x 1.20 = Rs 30 lacs. Therefore to get a complete hedge for this
portfolio, Nifty worth Rs 30 lacs have to be sold.
NISM SERIES VIII
QUESTION SET 5
Question 99 Who finalises the lot size and the margins in the derivative segment ?
(i) SEBI
(ii) The Stock Exchanges
(iii) The Clearing Members ie. Stock Brokers
(iv) CDSL or NSDL
Question 100 Which of the below options will lead to - Limited Profits but
potentially Unlimited Losses.
(i) Buyer of a futures contract
(ii) Seller of a future contract
(iii) Buyer of an option contract
(iv) Seller of an option contract
Correct Answer
The Stock Exchanges
99
Correct Answer
Seller of an option contract
100

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NISM SERIES VIII

EQUITY DERIVATIVES EXAM

NISM SERIES VIII – EQUITY DERIVATIVES EXAM

Question 2 When a Client default in making payment in respect of Daily

Correct Answer 1 TRUE

Correct Answer 2 the contract is closed out

Question 3 At the year-end, any balance in the "Deposit for Mark-to-Market

Correct Answer 3 TRUE

Correct Answer 4 Sell

Correct Answer 5 Fall

Correct Answer 6 FALSE

Correct Answer 7 FALSE

Correct Answer 8 FALSE

Question 9 The advantage of time decay usually goes to .

Question 10 Churning means .

Correct Answer 9 Option Sellers

Correct Answer Excessive unwarranted trading by brokers/agents for generating

Answer Churning refers to when securities professionals making unnecessary

Question 11 When different Clearing Members clear for client/entities in Cash

Question 12 To facilitate Foreign Institutional Investors, SEBI has allowed

Correct Answer TRUE

Correct Answer FALSE

Question 14 SEBI's centralized web based complaints redress system which

Correct Answer FALSE

Correct Answer SCORES

Question 15 STT is applicable on all transactions for both futures and

Question 16 A Manager / Dealer in the Cash market with a registered Trading

Correct Answer Sell

Correct Answer FALSE

Question 17 As per the regulations, the minimum contract value of a futures

Question 18 Accounting for open options as on the balance sheet date is

Correct Answer FALSE

Correct Answer TRUE

Question 19 In the Arbitration procedure, the arbitrator conducts the

Question 20 The option premium is decided by .

Correct Answer Four

Question 21 Equities can also be traded through Professional Clearing

Question 22 ETFs is basket of securities that trade like individual stock on an

Correct Answer FALSE

Correct Answer TRUE

Correct Answer Out of the money option

Question 25 As an option moves more In The Money, the absolute value of

Correct Answer Increase

Correct Answer Rs 14000

Question 28 measures change in delta with respect to change in

Correct Answer TRUE

Correct Answer Gamma

Question 29 Diversification is used to control Systematic Risks - True or False ?

Correct Answer FALSE

Correct Answer Bearish Spread

Question 31 The initial margin in derivatives is fixed depending on the

Question 32 If you SELL a PUT option at premium of Rs 30 at the Strike Price of

Correct Answer TRUE

Correct Answer Rs 68,000

Question 33 Margins are collected on a

Question 34 Index futures is

Correct Answer Daily basis

Question 35 NSE Nifty consists of stocks.

Correct Answer protective put

Correct Answer Long Straddle

Correct Answer a measure of the sensitivity of an option price to changes in

Question 40 A derivative contract made directly over telephone by two parties