NISM SERIES 1 CURRENCY - LAST DAY EXAM 1 - Unlocked PDF

NISM SERIES 1 – CURRENCY DERIVATIVES CERTIFICATION
V.IMP LAST DAY REVISION EXAM 1
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LAST DAY REVISION EXAM 1
Question 1 As a trader you believe EURUSD will move from 1.65 to 1.60 in the next
one month. You are a trader based in India where there is no trading in
EURUSD. Therefore which of the following would you do to execute this
view using currency future contracts of EURINR and USDINR.
(a) Short EURINR
(b) Long EURINR
(c) Long EURINR and Short USDINR
(d) Short EURINR and Long USDINR
Question 2 Indo Trading. Ltd has taken a foreign currency loan in GBP and the
repayment of this loan has to be done by monthly installments. The MD
of this company is of the strong view that the interest rate gap between
UK and India will widen in the coming months. So which is the most
appropriate step he should take ?
(a) Do nothing as the GBP futures is generally at a premium.
(b) Buy current GBPINR future and sell one year GBPINR future
(c) He should buy GBPINR future
(d) He should sell GBPINR future
Correct Answer 1 Short EURINR and Long USDINR
Correct Answer 2 He should buy GBPINR future
Answer When the interest rate gap widens between GBP and India, the forward
Explanation premium also goes up.
So by buying GBPINR futures he can hedge his position and safegaurd
against possibility of a higher GBPINR price in future due to interest rate gap
widening.
Question 3 A trader takes a long position in USDINR futures contract at a price of

58 by buying 10 lots. At the expiry, the settlement price is 57.30. How
much Profit or Loss did the trader make ?
(a) Profit of 700
(b) Profit of 7000
(c) Loss of 700
(d) Loss of 7000
Question 4 A trading member has two clients Jay and Vijay - in currency futures
segment and one client - Veer Gin currency option segment. During the
day, each of the clients in currency futures segment sold 6000 USD and
bought 3000 USD. At the end of a trading day, each of the client in
currency futures segment have 6000 USD short position and 3000 USD
long position. Additionally, the currency option client has 3000 USD long
position. What is the gross open position for the trading member for the
purpose of monitoring open position
(a) 6000 USD
(b) 9000 USD
(c) 3000 short for currency futures and 2000 long for currency options
(d) No Open Position
Correct Answer 3 Loss of 7000
Answer The trader went long which means he bought USDINR at 58.
Explanation Settlement price is 57.30
P/L = Selling Price - Buying Price
= 57.30 - 58
= (-) 0.70 Loss
(-) 0.70 x 10 Lots X 1000 ( lot size of USDINR )
= (-) 7000 Loss
Correct Answer 4 9000 USD
Answer Open postion of Jay : - 6000 + 3000 USD = 3000 USD Short
Explanation Open position of Vijay : - 6000 + 3000 USD = 3000 USD Short
Open position of Veer : 3000 USD Long
Gross open position of the trading member is the sum of open position of all
clients
9000
= 9000 USD
Question 5 If more than one contract in a series are outstanding at the time of
expiry/ squaring off, the contract price of the contract so squared off
should be determined using ______________.
(a) LIFO method
(b) FIFO method
(c) Average price method
(d) Weighted price method
Question 6 In managed float, countries have controls on flow of capital and central
bank intervention is a common tool to contain sharp volatility and
direction of currency movement - True or False ?
(a) TRUE
(b) FALSE
Correct Answer 5 FIFO method
Answer If more than one contract in a series are outstanding at the time of expiry/
Explanation squaring off, the contract price of the contract so squared off should be
determined using First-in, First-out (FIFO) method for calculating profit/loss
on squaring-up.
Correct Answer 6 TRUE

Question 7 A _____________ can trade in his own account as well as on account of

its client.
(a) Participant
(b) Custodian
(c) Trading cum clearing member
(d) Trading Member
Question 8 In the OTC market, one month GBPINR is quoting at 76.50 / 76.70 and
futures for same maturity is quoting at 77.35 / 77.45. Which of the
following describes possible arbitrage trade and possible arbitrage profit
per GBP if the arbitrage trade is carried until maturity?
(a) Buy USDINR in OTC and sell in futures, 85 paise
(b) Sell USDINR in OTC and buy in futures, 85 paise
(c) Sell USDINR in OTC and sell in futures, 60 paise
(d) Buy USDINR in OTC and sell in futures, 65 paise
Correct Answer 7 Trading Member
Answer Trading members are members of an authorized Exchange. They can trade
Explanation either on their own account or on behalf of their clients including participants.
Correct Answer 8 Buy USDINR in OTC and sell in futures, 65 paise
Answer Arbitrageurs take advantage of a discrepancy between prices in two different

Explanation markets. ie. buy in one market at a lower price and sell in another at a higher
price.
Here, in the OTC Market the Bid Ask price is 76.50 / 76.70. So an arbitrageur
will buy at 76.70.
In Futures Market the Bid Ask price is 77.35 / 77.45. So the arbitrageur will
sell at 77.35.
Thus he will make an arbitrage profit of Rs 0.65 ( 77.35 - 76.70 )
Question 9 Mr. Shastri invested Rs 200000 in US Shares when the USDINR rate was
60 After three years his investments were down by 6%. He sold of these
shares and repatriated the money back to India at the then existing rate
of USDINR at 63. What would be his real yearly returns in INR.
(a) 1.30% Loss
(b) 0.43 % Loss
(c) 1.30 % Profit
(d) 0.43 % Profit
Question 10 A trading member buys 12 lots of two month GBPINR future in his
proprietary account. What is his open position at the end of that day in
GBP ?
(a) 12000
(b) 6000
(c) 1200
(d) NIL
Correct Answer 9 0.43 % Loss
Answer Mr Shastri invested Rs 200000 at GBRINR 60. So he invested 200000 / 60 =

Explanation 3333.33 USD
His investment fell by 6 % ie.200 less 6% = 3133.33 USD
He repatriated this amount at USDINR 63 = 3133.33 X 63 = 197399.79
So his money has gone down from 200000 to 197399.79 in two years = 1.30
% loss
On a yearly basis its 1.30 / 3 = 0.43 % Loss
Correct Answer 10 12000
Answer The lot size for GBPINR future contract is 1000

Explanation So 12 Lots X 1000 = 12000 GBP
Question 11 In the morning trades GBPINR was trading at 72.50 / 72.75 and
GBPUSD was trading at 1.6525 - 1.6550. At 2 pm on the same day
GBPINR moves to 72.00 / 72.25 and GBPUSD moves to 1.5050 / 1.5075.
What would best describe these movements ?
(a) GBP has appreciated against INR and appreciated against USD
(b) GBP has appreciated against INR and depreciated against USD
(c) GBP has depreciated against INR and appreciated against USD
(d) GBP has depreciated against INR and depreciated against USD
Question 12 One year interest rate in US is 2 % and in India its 10 %. Assume

current USDINR spot rate is 58 and one year future price is 62.
Assuming other things remaining the same, what would be the one year
future value of USDINR if the interest rate gap widens between US and
India ?
(a) Higher than 62
(b) Lower than 62
(c) Lower than 58
(d) Equal to 58
Correct Answer 11 GBP has depreciated against INR and depreciated against USD
Correct Answer 12 Higher than 62
Answer There was a 8 % ( 10 - 2 % ) gap in the interest rates and as per this gap the
Explanation spot and future price were 58 and 62 respectively.
If the interest rate gap widens, the gap between spot rate and future rate will
also widen and so the future rate will be above 62.
(And if the interest rate gap becomes less, the future price will come down
accordingly)
Question 13 The minimum networth required for a company for applying to become
a authorised exchange of currency futures is Rs 200 crores - True or
False ?
(a) TRUE
(b) FALSE
Question 14 A trader buys 20 lots of USDINR at 54.50 and sells 6 lots the same day at
54.60. The settlement price for the day was 54.40. What would be his
mark to market margin ?
(a) -800
(b) -1400
(c) -1000
(d) NIL
Correct Answer 13 FALSE
Answer The minimum networth required for a company for applying to become an
Explanation authorised exchange of currency futures is Rs 100 crores.
Correct Answer 14 -800
Answer Mark to Market margin is calculated on three positions - Squared up, Not
Explanation Squared up and Bought forward.
In the above example :
Squared Up : 6 lots 54.60 -54.50 = 0.10 x 6 lots x 1000 lot size = Rs 600
profit
Not Squared up : 14 lots ( 20 - 6 )
Settlement Price - Contract Price = 54.40 - 54.50 = - 0.10
- 0.10 x 14 lots x 1000 lot size = Rs 1400 loss
Bought Forward : NIL
So Mark to Market Margin = -1400 + 600 = -800
Question 15 Mr. Sumer purchased US Securities worth USD 6000 when the USDINR
rate was 48. After one year he sold those securities for USD 5900 and the
USDINR rate was 52. What was his profit / loss for the year?
(a) -6.52%
(b) 6.52%
(c) -10.59%
(d) 10.59%
Question 16 According to SEBI guidelines, the currency exchanges have to offer some
monthly series and some quarterly maturity currency future options
contract. How many series have they to offer ?
(a) 2,2
(b) 3,2
(c) 3,4
(d) 3,3
Correct Answer 15 6.52%
Answer Investment of Mr Sumer = 6000 X 48 = Rs 288000

Explanation Sale Price of this investment = 5900 X 52 = 306800
Profit : 306800 - 288000 = 18800
So on a investment of Rs 288000 he has made a profit of Rs 18800
In % terms 18800 x 100 / 288000 = 6.52 % in a year
Correct Answer 16 3,3
Answer The Exchanges have to offer three serial monthly contracts followed by three
Explanation quarterly contracts of the cycle March/June/September/December.
Question 17 Currently American options ie. options which can be exercised by the
buyer on or before maturity, are not allowed in currencies in India -
True or False ?
(a) TRUE
(b) FALSE
Question 18 A trader sells USDINR call option at premium of 40 paise per contract.
What is the maximum profit he may gain ?
(a) NIL
(b) Unlimited
(c) 40 paise per contract
(d) 120 paise per contract
Answer Options are of two types - European and American.

Explanation European options can be exercised by the buyer of the option only on the
expiration date.
American options can be exercised by the buyer any time on or before the
expiration date.
IN INDIA, ALL CURRENCY OPTIONS ARE OF EUROPEAN TYPE IE.
EXERCISED BY THE BUYER ONLY ON THE EXPIRATION DATE.
Correct Answer 18 40 paise per contract
Answer For an Option seller ( for both Call or Put options ), the maximum profit is
Explanation the premium he receives. In the above case its 40 paise per contract.
For an Option buyer, the profits can be unlimited.
Question 19 Of the below - which currency pair is allowed in Currency OPTION

trading in India ?
(a) USDINR
(b) USDEUR
(c) GBPINR
(d) USDJPY
Question 20 A trader wants to buy EURINR one month future at 66.70 when the
current price is 66.80. When he is entering the limit order, the price is
fluctuating between 66.50 to 66.90. At what price is the order likely to get
executed ?
(a) At or below 66.70
(b) Any price below 66.70
(c) 66.8
(d) Any price above 66.70
Correct Answer 19 USDINR
Answer Only USDINR is allowed in currency option trading in India.

Explanation
Correct Answer 20 At or below 66.70
Answer When a person enters a limit buy order, his order cannot get executed above
Explanation the limit price. However if the price falls while entering the order, he can get
it at a lower price.
So in the above case, he can get EURINR at the limit price of 66.70 or lower
if the price falls while entering the order.
Question 21 An exporter and importer of India does his trade in USD. His imports
are about 30% more than the exports. Which of the below risk should he
manage ?
(a) Widening trade deficit between USE and China
(b) INR depreciating against USD
(c) INR appreciating against USD
(d) Break out of wars in the world
Question 22 With respect to settlement in OTC forward market, the market

participant can decide to settle it via gross settlement mechanism or net
settlement mechanism - True or False ?
(a) TRUE
(b) FALSE
Correct Answer 21 INR depreciating against USD
Answer If INR depreciates against USD ( for eg - USD appreciates to 60 from 55 ),

Explanation the imports will become more expensive. So he has to do proper hedgeing to
mitigate this risk.
Correct Answer 22 False

Answer It is always delivery based
Explanation
Question 23 A trading member sells 30 lots of USDINR of August futures on day 1.

On the same day he also buys 16 lots of September USDINR futures.
What would be his position in his proprietary book at the end of the day
in USD ?
(a) 14,000
(b) 16,000
(c) 30,000
(d) 46,000
Question 24 Which of the following best describes the key aspect of discretionary
trading done by trading member in account of its client ?
(a) Trading member can use his discretionary power to trade to the extent of
1000 lots on behalf of his clients per day.
(b) The clients has given prior written authorization to a stated individual or
individuals to use discretionary power
(c) Trading member can use his discretionary power to trade to the extent of 10
% of clients networth on behalf of his clients per day.
(d) The clients has given prior written authorization to a stated individual or
individuals to use discretionary power and the account has been accepted by
the Trading Member
Answer For contracts of different maturity, each maturity is taken as a separate

Explanation contract and there is no netting off done across contracts.
So to get the Open position, both the contracts will added up.
30 + 16 = 46 X 1000 ( Lot size for USDINR)
= 46,000
Correct Answer 24 The clients has given prior written authorization to a stated individual or
individuals to use discretionary power and the account has been accepted by
the Trading Member
Answer As per the Trading Principles - No Trading Member shall exercise any
Explanation discretionary power in a constituent’s account unless such constituent has
given prior written authorization to a stated individual or individuals and the
account has been accepted by the Trading Member, as evidenced in writing
by the Trading Member.
Question 25 If everything else remaining the same, any policy matters which may give
a boost to inflow of foreig capital in India may result in what kind of
movement of INR against JPY ?
(a) No change
(b) INR appreciating against JPY
(c) INR depreciating against JPY
Question 26 Mr Mehta invested Rs 1.00,000 in UK Stock Markets when the GBPINR

rate was 75. After one year his investment appreciated by 20% in GBP
terms. He sold of his investments and repatriated the money to India at
the then existing rate of 80. What is his real returns in INR ?
(a) He has made a Profit of 20%
(b) He has made a Loss of 20%
(c) He has made a profit of 28%
(d) He has made a Loss of 28%
Correct Answer 25 INR appreciating against JPY
Answer An increase in capital inflows will cause the local currency to appreciate
Explanation generally against all currencies since there is a higher demand for that local
currency.
Alternately if there is outflow of foreign capital, the local currency will
weaken.
Correct Answer 26 He has made a profit of 28%
Answer Mr. Mehta invested Rs1,00,000 in UK Stock when the GBPINR rate was 75.
Explanation So he had invested 1,00,000 / 75 = 1333.33 pounds in UK Stocks.
His investment grew by 20% : 1333.33 x 20% = 1333.33 + 266.66 = 1600
He is repatriating at GBPINR rate of 80 : 1600 x 80 = 128000
Therefore his investment in INR terms have grown from Rs 1,00,000 to Rs
1,28,000
128000 x 100 / 100000 = 128
This is an increase of 28 %
Question 27 A person who works in a currency broking firm is an expert in analyzing

the trends in currency futures. He has studied GBPINR movements very
carefully and is of a very strong opinion that GBP will appreciate against
INR in the next few months. So he has advised his clients to go long in
GBPINR and also guaranteed them against any losses. His actions have
violated some trading guidelines. What should this person have done so
that he would not have broken the trading guidelines ?
(a) He should have as asked his clients to take a calendar spread to avoid big
risks
(b) He should not have guaranteed against any losses
(c) He should have asked his clients to take short positions
(d) He should have asked his clients to go long in 3 months future and short in 1
year future
Question 28 If the spot price of EURINR is 70, what will be the moneyness of a short
EUR put option on a strike price of 68 ?
(a) In the money
(b) At the money
(c) Out of the money
Correct Answer 27 He should not have guaranteed against any losses
Correct Answer 28 In the money
Answer When we short a Put option, we are of the belief that the underlying will rise.
Explanation Here EURINR spot is above the strike price ( it has risen) so it will be In the
Money.
In the Money option - Profitable
Out of the Money option - Loss
At the money option - No P/L
Simple Facts :
Buying a Call - Bullish , Selling a Call - Bearish
Buying a Put - Bearish, Selling a Put - Bullish
Question 29 A member with a right to trade on its own account as well as on account
of its clients and who can clear and settle the trades for self and for
others through the Clearing House is called a _______________.
(a) Professional Clearing Member
(b) Trading Member
(c) Clearing Member
(d) Trading cum Clearing Member
Question 30 An importer has to make payments in USD while most of its revenue is in
INR. The importer is concerned about USDINR risk. Which of the
following strategy should it consider to mitigate this risk ?
(a) USD appreciating against INR - Long USDINR futures
(b) USD appreciating against INR - Short USDINR futures
(c) USD depreciating against INR - Long USDINR futures
(d) USD depreciating against INR - Short USDINR futures
Correct Answer 29 Trading cum Clearing Member
Correct Answer 30 USD appreciating against INR - Long USDINR futures
Answer The risk which the importer faces is the rise of USDINR as he has to make
Explanation import payments in USD.
So to hedge this risk, he will go long in USDINR futures.
Question 31 Mr Rohit is very bullish on GBPINR and thinks that this pair will trade
at 80 in the next few weeks. The current price of GBPINR is 75. Mr.
Rohit wants to maximize his profits if this view turns out to be correct.
Which of the below strategies should he consider ?
(a) Buy GBPINR Call option
(b) Sell GBPINR Call option
(c) Buy GBPINR Put option
(d) Sell GBPINR Put option
Question 32 State True or False - An option seller or writer shall always be obliged to
perform but never gets the right to demand ?
(a) FALSE
(b) TRUE
Correct Answer 31 Buy GBPINR Call option
Answer Buy a Call option or Selling a Put option - both signify bullish view. Buy
Explanation when you sell a Put option, the profits are limited to the extent of premium
received.
So to maximise his profits, he will buy a Call Option where the profit
potential is unlimited.

Question 33 Future contracts give the seller both the right and obligation which is not
the case in Options - True or False ?
(a) TRUE
(b) FALSE
Question 34 At what time does the GBPINR and USDINR futures contract stops
trading on the contract expiry day ?
(a) 11:00 AM
(b) 12 noon
(c) 2:00 PM
(d) 5
Answer Futures give the buyer and seller both the right and the obligation to fulfill the
Explanation contract’s obligations.
Options give the holder the right (or option) but not the obligation to exercise
the contract. The seller of the option, on the other hand, is required to fulfill
the contract’s obligations if the holder chooses to exercise the contract.
Correct Answer 34 12 noon

Question 35 Assume that USDINR spot price to remain the same in the next 30 days
and premium on USD to INR to continue. So which of the below actions
will result in losses ?
(a) Selling USDINR futures
(b) Selling USDINR OTC forward
(c) Buying USDINR futures
Question 36 As per SEBI rules, the currency exchanges have to offer ____ series
monthly contracts and ____ quarterly maturity currency futures options
contract.
(a) 4,4
(b) 3,3
(c) 3,4
(d) 4,3
Correct Answer 35 Buying USDINR futures
Answer The buyer of future contract suffers a loss if there is no movement in the
Explanation underlying due to the concept of time decay.
Answer Exchanges have to offer three serial monthly contracts followed by three
Explanation quarterly contracts of the cycle March / June / September / December.
Question 37 Mr. Swami entered in a spread trade. He bought 20 lots October

USDINR at Rs 59.70 and sold 20 lots November USDINR at 59.90. After
a month he reverses his spread by selling 20 lots October USDINR at
59.30 and buying 20 lots of November USDINR at 59.20. How much
profit or loss has he made in this spread trading ?
(a) Profit of Rs 60
(b) Profit of Rs 6000
(c) Loss of Rs 60
(d) Loss of Rs 6000
Question 38 Mr A believes that USDJPY will move from 87 to 82 in the next 2-3
months. Since USDJPY contracts are not traded in India, which of the
following would Mr A do using future contracts of USDINR and
JPYINR
(a) Long JPYINR
(b) Long USDINR
(c) Long USDINR and Short JPYINR
(d) Long JPYINR and Short USDINR
Correct Answer 37 Profit of Rs 6000
Answer In the first leg of the spread trade : Bought at 59.70 and sold at 59.90. Here he
Explanation has made a profit of 0.20
In the second leg he bought at 59.20 and sold at 59.30. Here he has made a
profit of 0.10
So overall he has made a profit of 0.20 + 0.10 = 0.30 X 20 lots x 1000 lot size
of USDINR
= Rs 6000 profit
Correct Answer 38 Long JPYINR and Short USDINR
Answer Since Mr. A believes that USDJPY will fall from 87 to 82, he is assuming
Explanation that USD will weaken against JPY. So in India he will short USDINR and
long JPYINR.
Question 39 If one year interest rate in US is 1% and 4 % in Great Britain and the
current GBPUSD spot rate is 1.74. What would be the one year futures
of GBPUSD ?
(a) Lower than 1.74
(b) Higher than 1.74
(c) 1.74
Question 40 As per the Foreign Exchange Management Act an 'AD Category 1' bank
can have a maximum net NPA of _____ % to become a Trading and
Clearing Member of currency futures segment at a recognised stock
exchange.
(a) 4%
(b) 4.80%
(c) 3%
(d) 2.50%
Correct Answer 39 Lower than 1.74
Answer The formula for Interest Rate Parity is :

Explanation Future Rate = Spot Rate X (1 + Interest Rate of Quoted Currency) /
( 1 + Interest Rate of Base Currency)
= 1.74 X ( 1 + 0.01 ) / ( 1 + 0.04 )
= 1.74 X ( 1.01 / 1.04)
= 1.74 x 0.9711
= 1.689
Thus the future rate will be at a discount as Quoted Currency interest rates are
less than base currency interest rates.
Correct Answer 40 3%
Question 41 Which of the following is true?

(a) Exchange rates are quoted in per unit of quotation currency
(b) Quotation currency is the first currency in a currency pair
(c) Base currency is the second currency in a currency pair
(d) Base currency is the first currency in a currency pair
Question 42 At 11 am, USDINR was quoting at 56.40/56.60. At 3 pm it was quoting at

56.50/56.70. What would best describe currency move during the day ?
(a) INR has appreciated against USD by 10 paise
(b) USD has appreciated against INR by 10 paise
(c) INR has appreciated
(d) USD has appreciated
Correct Answer 41 Base currency is the first currency in a currency pair
Answer For eg, in the currency pair USDINR, USD is the Base Currency and INR is
Explanation the quoted currency.
Correct Answer 42 USD has appreciated against INR by 10 paise

Question 43 Mr Khan buys May USDINR contract which cost him Rs 49000. The
RBI reference rate for final settlement is fixed at 48.70. How much profit
/ loss did he make ?
(a) Rs 300 Profit
(b) Rs 300 Loss
(c) Rs 30 Profit
(d) Rs 30 Loss
Question 44 Which term best describes EUR currency?

(a) Free floating
(b) Managed float
(c) Pegged to gold
(d) Pegged to USD
Correct Answer 43 Rs 300 Loss
Answer USDINR contract lot is 1000.

Explanation Mr. Khan has bought one lot for a cost of Rs 49000
So 49000 / 1000 = 49 Buying Price
Settlement Price is 48.70
48.70 - 49.00 = (-) 0.30 loss x 1000 lot size
= Rs 300 Loss
Correct Answer 44 Free floating
Answer All popular currencies of the world like USD, EYR are free flaoting.
Explanation
Question 45 A trader sells 20 lots of USDINR September futures at 53.20 and squares
off this position after INR depreciates by 60 ticks. What is his profit / loss
for this trade ?
(a) Profit of Rs 3000
(b) Loss of Rs 3000
(c) Profit of Rs 300
(d) Loss of Rs 300
Question 46 In OTC market, one month USDINR is quoting at 47.75/48.00 and

futures for same maturity is quoting at 48.50/48.70. Which of the
following describes possible arbitrage trade and possible arbitrage profit
per USD if the arbitrage trade is carried until maturity?
(a) Buy USDINR in OTC and sell in futures, 60 paise
(b) Sell USDINR in OTC and buy in futures, 85 paise
(c) Buy USDINR in OTC and sell in futures, 50 paise
(d) Buy USDINR in OTC and sell in futures, 75 paise
Correct Answer 45 Loss of Rs 3000
Answer INR has depreciated which means the price of USDINR will rise. As the
Explanation trader has sold USDINR he will face losses in this situation.
Tick Size is Rs .0025
60 Ticks X .0025 = 0.15 X 20 lots X 1000 ( Lot size of USDINR)
= Rs 3000 loss.
Correct Answer 46 Buy USDINR in OTC and sell in futures, 50 paise
Answer Arbitrageurs make profits by simultaneously entering opposite side

Explanation transactions in two or more markets ie. buy in one market at a lower price and
sell in another at a higher price.
Here, in the OTC Market the Bid Ask price is 47.75 / 48.00. So an arbitrageur
will buy at 48.00.
In Futures Market the Bid Ask price is 48.50 / 48.70. So the arbitrageur will
sell at 48.50.
Thus he will make an arbitrage profit of Rs 0.50 ( 48.50 - 48.00 )
Question 47 A trader in currencny markets believes that GBPUSD will move from
1.75 to 1.79 in next 1 months. Which of the following would you do to
execute this view using currency futures contract of GBPINR and
USDINR?
(a) Short GBPINR, Long USDINR
(b) Long GBPINR, Short USDINR
(c) Long GBPINR
(d) Short GBPINR
Question 48 Volatility is the measure of uncertainty in prices of the underlying asset -

True or False ?
(a) TRUE
(b) FALSE
Correct Answer 47 Long GBPINR, Short USDINR
Answer GBPUSD moving from 1.75 to 1.79 means GBP becoming stronger against
Explanation USD. So he will buy GBPINR and Sell USDINR.
Answer Volatility measures the magnitude of the change of prices (up or down) of
Explanation the underlying asset. Higher the volatility, higher is the option premium and
vice versa.
Question 49 The initial deposit which is required for initiating a currency future
position is known as ___________.
(a) Mark to Market Margin
(b) Special Margin
(c) Initial Margin
(d) VaR Margin
Question 50 A trader wants to SELL GBPINR one month future at 70.60 when the
current price is 70.50. When he is entering the limit order, the price is
fluctuating between 70.40 to 70.80. At what price is the order likely to get
executed ?
(a) Any price between 70.40 to 70.80
(b) Any price above 70.60
(c) Any price below 70.60
(d) At or above 70.60
Correct Answer 49 Initial Margin
Answer The initial security deposit paid by a member is considered as his initial
Explanation margin for the purpose of allowable exposure limits.
Initially, every member is allowed to take exposures up to the level
permissible on the basis of the initial deposit.
Correct Answer 50 At or above 70.60
Answer When a person enters a limit SELL order, his order cannot get executed
Explanation below the limit price. However if the price rises while entering the order, he
can sell it at a higher price.
So in the above case, he can sell GBPINR at the limit price of 70.60 or higher
if the price rises while entering the order.
Question 51 As per the giudelines issued with respect to permissions for trading in
'PRO ACCOUNT' by the trading member, which of the below is true ?
(a) Pro Account orders can be entered from many locations as approved by the
trading member / broker.
(b) Pro Account orders can be entered from any five locations as approved by the
Exchange
(c) Pro Account orders can be entered from more than one locations as approved
by the Exchange
(d) Pro Account orders can be entered from any ten locations as approved by the
trading member / broker.
Question 52 A trader in India expects international gold prices to appreciate from

USD 1500 per ounce to USD 1800 in next six months. To benefit from the
view, he buys 30 grams of gold at Rupees 22,000 per gram and also sold 6
month USDINR futures at 46. After six months, gold prices appreciated
to USD 1800 per ounce and the trader sold gold at Rupees 24,000 per
gram and unwinds currency futures contract at 44. Assuming 1 ounce is
equal to 3 grams, how many lots of currency futures would he have used
to hedge the currency risk and how much was the real return for the
investor?
(a) 18 lots, 13%
(b) 15 lots, 13.6%
(c) 15 lots, 13%
(d) 18 lots, 13.6%
Correct Answer 51 Pro Account orders can be entered from more than one locations as approved
by the Exchange
Answer When a Trading Member requires the facility of using ‘Pro-account’ through
Explanation trading terminals from more than one location, such Trading Member shall
request the Exchange stating the reason for using the ‘Pro-account’ at
multiple locations.
The Exchange may, on a case to case basis after due diligence, consider
extending the facility of allowing use of ‘Pro-account’ from more than one
location.
Correct Answer 52 15 lots, 13.6%
Answer Part 1 - 3 grams = 1 ounce

Explanation 30 grams = 10 ounce
So he has to hedge 10 ounce worth of USD = 1500 x 10 = 15000 USD.
One lot is of 1000 USD, So he has to sell 15 lots.
Part 2 : He bought 30 grams gold at Rs 22,000 per gram and sold at Rs
24,000
So the profit is 2000 X 30 = Rs 60000
He also makes a profit in futures where he sell 15 lots at 46 and buys them
back at 44.
So Rs 2 profit x 15 lots X 1000 lot size = Rs 30000
Total profit Rs 60000 + Rs 30,000 = Rs 90,000
His investments was 30 grams gold at Rs 22000 per gram = Rs. 6,60,000
So on investment of Rs 660000 he has made a profit of Rs 90,000
So his profit rate of return is 90,000 x 100 / 660000 = 13.6 %
Question 53 If one year interest rate is 1% in US and 9% in India. If current

USDINR spot rate is 56, which of the following could be closest to the six
month future rate of USDINR?
(a) 59.63
(b) 58.21
(c) 55.8
(d) 53.76
Question 54 _______________ recommended introduction of exchange traded

currency futures in India.
(a) NSE Currency Futures Committee
(b) RBI-SEBI Standing Technical Committee
(c) Ministry of Finance
(d) Currency Futures Standing Committee
Correct Answer 53 58.21
Answer The formula for Interest Rate Parity is :

Explanation Future Rate = Spot Rate X (1 + Interest Rate of Quoted Currency) /
( 1 + Interest Rate of Base Currency)
= 56 X ( 1 + 0.09 ) / ( 1 + 0.01 )
= 56 X ( 1.09 / 1.01)
= 56 x 1.0792
= 60.435
So the interest cost is 60.435 - 56 = 4.435 for one year
For six months it will be 4.435 / 2 = 2.217
So the six month future rate will be 56 + 2.217 = 58.21
ANOTHER EASIER WAY OF SOLVING THIS IS BY APPROXIMATE
METHOD :
The difference betwwen the interest rates is 8% ( 9% - 1%)
8% of 56 = 4.48 per year
for six months : 4.48 / 2 = 2.24
So the appx. six month future rate for USDINR = 56 + 2.24 = 58.24
Correct Answer 54 RBI-SEBI Standing Technical Committee
Answer On February 28, 2008 in a joint meeting of RBI and SEBI it was decided that
Explanation an RBI-SEBI Standing Technical Committee on Exchange Traded Currency
and Interest Rate Derivatives would be constituted.
Based on the recommendations of this committee, exchange traded currency
futures started in India.
Question 55 An export firm is expecting to receive USD 50,000 after one month. It
wants to hedge the same but it finds that different banks are giving
different pricing. The firm however wants a transparent pricing - so
what type of contract it should use ?
(a) Long OTC USD.
(b) Short OTC USD
(c) Long Exchange Traded USD
(d) Short Exchange Traded USD
Question 56 Mr.Mohit buys 35 lots of USD INR 1 month future when the price was
45.50/45.65 and squares off 20 lots when the price was 46.30/46.50. How
much profit or loss does he make on the trades that were squared off ?
(a) Loss of 11500
(b) Profit of 12300
(c) Profit of 13000
(d) Profit of 11750
Correct Answer 55 Short Exchange Traded USD
Answer Trading in Exchange Traded Currency Futures is tranparent and safe. So it

Explanation will prefer this mode.
Since it is getting USD after two months, it will sell / short one month USD
futures as a hedge against fluctuations.
Correct Answer 56 Profit of 13000
Answer When the price was 45.50/45.65, Mr Mohit bought USDINR - so he bought at
Explanation 45.65 as that is the Ask (Sellers) price
When the price was 46.30/46.50, he sold USDINR, so he sold at 46.30 as that
is the Bid (Buyers) price.
46.30 - 45.65 = 0.65 ( Profit)
Out of the 35 lots bought, he has squared off only 20 lots.
Total Profit = 0.65 x 20 lots x 1000 (each lot of USDINR)
= 13000
Question 57 Which of the following acts is mainly responsible for governing the
securities trading in India?
(a) SC(R)A, 1956
(b) FEMA, 1999
(c) SEBI Act
(d) RBI Act
Question 58 A trader executes following currency futures trade: buys one lot of
EUR/INR and sells one lot of JPY/INR. What is the view that he has
executed?
(a) JPY strengthening against EUR
(b) JPY weakening against EUR
(c) INR strengthening against EUR
(d) INR weakening against JPY
Correct Answer 57 SC(R)A, 1956
Answer Securities Contract ( Regulation ) Act - 1956.

Explanation
Correct Answer 58 JPY weakening against EUR
Answer Buying EURINR - view is strengthening of EUR against INR

Explanation Selling JPYINR - view is weaking of JPY against INR
Taking a collective view - JPY weakening against EUR.
Question 59 An exporter receives USD as export remittance and wants to sell the
same. The bank quotes a price of 54.20/ 54.30 for USDINR. At what price
can you sell one unit of USD?
(a) 54.25
(b) 54.2
(c) 54.3
(d) 54.5
Question 60 An multinational company has export revenue in USD and it uses part of
it to make import payments in JPY. The company is concerned about
JPYUSD risk for its import payments. What should the company do by
using currency futures strategy to mitigate the risk?
(a) USD appreciating against JPY; Short USDINR and long JPYINR for same
maturity
(b) USD depreciating against JPY; Short USDINR and long JPYINR for same
maturity
(c) USD depreciating against JPY; Short JPYINR and long USDINR for same
maturity
(d) USD appreciating against JPY; Short JPYINR and long USDINR for same
maturity
Correct Answer 59 54.2
Answer 54.20 and 54.30 are the BID and ASK price. This means there are buyers at
Explanation 54.20 and sellers at 54.30.
So if the exporter wants to sell, he has to sell them to the buyer at 54.20
Correct Answer 60 USD depreciating against JPY; Short USDINR and long JPYINR for same
maturity
Answer Since the company is getting USD against its exports and giving JPY against
Explanation its import - it will be adversely effected if USD falls and JPY rises ie. USD
depreciating against JPY.
So it should short USD and long JPY as a hedgeing strategy.
Question 61 A trading member (TM) has two clients "A" and "B" and he also does
proprietary trading in currency futures. On day 1, TM buys 12 lots of
USDINR one month futures and also sells 2 lots of the same contract on
the same day in his proprietary book. On the same day, client "A" buys
12 lots of USDINR one month futures and also sells 2 lots of the same
contract while client "B" buys 12 lots and sells 2 lots. What would be the
open position (in USD) of the trading member, client "A" and client "B"
respectively at the end of day 1?
(a) 30,000; 10,000; 10,000
(b) 10,000; zero; zero
(c) zero, 10,000; 10,000
(d) 10,000; 10,000; 10,000
Question 62 A expert currency trader feels that EUR should strengthen against JPY
in the next few months. Assuming JPYINR remaining same during this
period, what currency future trade should be most profitable for him if
his calculations come out correct ?
(a) Buy EURINR
(b) Buy JPYINR
(c) Sell EURINR
(d) Sell JPYINR
Correct Answer 61 30,000; 10,000; 10,000
Answer TM open position : 12 -2 Lots = 10 lots x 1000 (Lot size) = 10,000

Explanation Client A : 12 -2 Lots = 10 lots x 1000 (Lot size) = 10,000
Client B : 12 -2 Lots = 10 lots x 1000 (Lot size) = 10,000
TM open position is the sum of all open position = 10,000 + 10,000 + 10,000
= 30,000
Correct Answer 62 Buy EURINR
Answer If EUR is to appreciate against JPY and JPY is to remain same against INR
Explanation then EUR will appreciate against INR. So he will buy EURINR.
Question 63 Which of the following best describes the SEBI prescribed open position
limit for EURINR contracts for a Proprietary positions of non-bank
stock brokers, Clients & Category III FPIs ?
(a) 15% of total open interest or EUR100 mn, whichever is higher
(b) 15% of total open interest or EUR 25 mn, whichever is higher
(c) 6% of total open interest or EUR 5 mn, whichever is higher
(d) 6% of total open interest or EUR 100 mn, whichever is higher
Question 64 A trading cum clearing member buys 10 lots of GBPINR one month
futures on day 1 and also sells 4 lots of this contract on that day in his
proprietary account. What would be his open position at the end of day
in GBP ?
(a) 14000
(b) 6000
(c) 10000
(d) 4000
Correct Answer 63 6% of total open interest or EUR 5 mn, whichever is higher
Answer V.IMP Note - Please memorise the open position limits which have been
Explanation prescribed by SEBI for different currency pairs and different market participants
from the NISM book.
Correct Answer 64 6000
Answer 10 lots less 4 lots X 1000 (lot size of GBP) = 6000

Explanation
Question 65 The Profit or Loss for an Option Writer is unlimited - True or False ?
(a) TRUE
(b) FALSE
Question 66 Guidelines for accounting of currency futures contracts are issued by

___________.
(a) RBI
(b) ICWAI
(c) ICAI
(d) FX- CA
Correct Answer 65 FALSE
Answer The Profits for a Option Writer is limited to the extent of premium received
Explanation but his losses can be unlimited.
For eg if he sells a call option ( as he belives that the underlying will fall ) he
collects the premium (limited profit). But in case the underlying rises to a
great extent, his losses can be huge / unlimited.
Correct Answer 66 ICAI
Answer The Institute of Chartered Accountants of India (ICAI) has issued guidance
Explanation notes on accounting of currency futures contracts.
Question 67 An exporter buys a house for INR 500,000 for which payment has to be
made after three months. As he is expecting to receive USD 10,000 in
three months, he executes 10 USDINR futures contracts to hedge
currency risk at a price of 50. When he received the payment, he
converted USD into INR with his bank at a price of 51 for making the
payment for the house and also settles the contract at a price of 49. Given
this situation, would he have sold/ bought USDINR futures and would
the effective price for house be lower than or higher than USD 10,000?
(a) Bought, Lower
(b) Sold, Lower
(c) Sold, Higher
(d) Bought, Higher
Question 68 A trader in currency markets buys a long position in EURINR futures

contract at a price of 65.40 and he buys 40 lots of the same. On expiry the
settlement price is announced at 65.60. How much profit (+) or loss (-)
does he make ?
(a) Profit of 8
(b) Profit of 800
(c) Profit of 8000
(d) Loss of 800
Correct Answer 67 Sold, Lower
Answer Since the exporter is expecting USD in three months and to safe gaurd against
Explanation any USD depreciation against INR, he will hedge this by selling USDINR 3
month future at 50. So the answer to the firat part is SELL.
When he received the USD after three months he sold it to a bank and got a
rate of 51 - so here he made a profit of 1 USD per dollar received. Also when
he sqaued up his future trade at 49, he made a profit of 1 USD per dollar
received ( 50 - 49 ). So he has made profits which will bring down the
effective price of the house.
Answer The trader buys at 65.40 and the settlement price is 65.60. So he makes a
Explanation profit of 0.20
He has bought 40 lots and each lot of EURINR is of 1000.
So his total profit is 0.20 X 40 X 1000 = 8000.
Question 69 An importer takes a long position in USDINR futures contract at a price

of 53 by buying 20 lots. At the expiry, the settlement price is 54.3. How
much Profit or Loss did the importer make ?
(a) Profit of 2600
(b) Profit of 26000
(c) Loss of 2600
(d) Loss of 26000
Question70 Of the following what best describes the guidelines for brokers with
respect to execution of client orders?
(a) Intimate the execution or non-execution by the end of the day
(b) Intimate the execution or non-execution within three hour of deal execution
(c) Promptly intimate the execution or non-execution of the order
(d) Intimate the execution or non-execution within two hour of deal execution
Answer The importer went long which means he bought USDINR at 53.
Explanation Settlement price is 54.30
P/L = Selling Price - Buying Price
= 54.30 - 53
= 1.30 Profit
1.30 x 20 Lots X 1000 ( lot size of USDINR )
= 26000
Correct Answer 70 Promptly intimate the execution or non-execution of the order

Practice Question Banks also available for :
NISM
NISM Series I: Currency Derivatives Certification Exam

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

NCFM Capital Market (Dealers) Module
NCFM Derivative Market (Dealers) Module
BSE
Certificate on Security Market (BCSM)


NISM SERIES 1 CURRENCY - LAST DAY EXAM 1 - Unlocked PDF

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NISM SERIES 1 – CURRENCY DERIVATIVES CERTIFICATION

V.IMP LAST DAY REVISION EXAM 1

LAST DAY REVISION EXAM 1

Correct Answer 1 Short EURINR and Long USDINR

Correct Answer 2 He should buy GBPINR future

Question 3 A trader takes a long position in USDINR futures contract at a price of

Correct Answer 3 Loss of 7000

Correct Answer 4 9000 USD

Correct Answer 5 FIFO method

Correct Answer 6 TRUE

Question 7 A _____________ can trade in his own account as well as on account of

Correct Answer 7 Trading Member

Correct Answer 8 Buy USDINR in OTC and sell in futures, 65 paise

Answer Arbitrageurs take advantage of a discrepancy between prices in two different

Correct Answer 9 0.43 % Loss

Answer Mr Shastri invested Rs 200000 at GBRINR 60. So he invested 200000 / 60 =

Correct Answer 10 12000

Answer The lot size for GBPINR future contract is 1000

Question 12 One year interest rate in US is 2 % and in India its 10 %. Assume

Correct Answer 12 Higher than 62

Correct Answer 13 FALSE

Correct Answer 14 -800

Correct Answer 15 6.52%

Answer Investment of Mr Sumer = 6000 X 48 = Rs 288000

Correct Answer 16 3,3

Correct Answer 17 TRUE

Answer Options are of two types - European and American.

Correct Answer 18 40 paise per contract

Question 19 Of the below - which currency pair is allowed in Currency OPTION

Correct Answer 19 USDINR

Answer Only USDINR is allowed in currency option trading in India.

Correct Answer 20 At or below 66.70

Question 22 With respect to settlement in OTC forward market, the market

Correct Answer 21 INR depreciating against USD

Answer If INR depreciates against USD ( for eg - USD appreciates to 60 from 55 ),

Correct Answer 22 False

Question 23 A trading member sells 30 lots of USDINR of August futures on day 1.

Correct Answer 23 46,000

Answer For contracts of different maturity, each maturity is taken as a separate

Question 26 Mr Mehta invested Rs 1.00,000 in UK Stock Markets when the GBPINR

Correct Answer 25 INR appreciating against JPY

Correct Answer 26 He has made a profit of 28%

Question 27 A person who works in a currency broking firm is an expert in analyzing

Correct Answer 27 He should not have guaranteed against any losses

Correct Answer 28 In the money

Correct Answer 29 Trading cum Clearing Member

Correct Answer 30 USD appreciating against INR - Long USDINR futures

Correct Answer 31 Buy GBPINR Call option

Correct Answer 32 TRUE

Correct Answer 33 TRUE

Correct Answer 34 12 noon

Correct Answer 35 Buying USDINR futures

Correct Answer 36 3,3

Question 37 Mr. Swami entered in a spread trade. He bought 20 lots October

Correct Answer 37 Profit of Rs 6000

Correct Answer 38 Long JPYINR and Short USDINR

Correct Answer 39 Lower than 1.74

Answer The formula for Interest Rate Parity is :

Question 41 Which of the following is true?

Question 42 At 11 am, USDINR was quoting at 56.40/56.60. At 3 pm it was quoting at

Correct Answer 41 Base currency is the first currency in a currency pair

Correct Answer 42 USD has appreciated against INR by 10 paise

Question 44 Which term best describes EUR currency?