Nism Series 1 Currency - Real Feel Mock Test 2

NISM SERIES 1 – CURRENCY DERIVATIVES CERTIFICATION
UPDATED REAL FEEL EXAM 2
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REAL FEEL EXAM 2 – LATEST UPDATED QUESTIONS
Question 1 Who first recommended introduction of exchange traded currency

futures in India ?
(a) SEBI RBI Technical committee
(b) SEBI internal committee
(c) Ministry of Commerce
(d) Committee on Fuller Capital Account Convertibility
Question 2 What is the co-relation between price of a CALL option to the changes in
spot price ?
(a) Increase in price with increasing spot price
(b) Increase in price with decreasing spot price
(c) Decreasing price with increasing spot price
(d) No Co-relation
Correct Answer 1 SEBI RBI Technical committee
Answer With the expected benefits of exchange traded currency futures, it was
Explanation decided in a joint meeting of RBI and SEBI on February 28, 2008, that an
RBI-SEBI Standing Technical Committee on Exchange Traded Currency and
Interest Rate Derivatives would be constituted. To begin with, the Committee
would evolve norms and oversee the implementation of Exchange
traded currency futures.
Correct Answer 2 Increase in price with increasing spot price

Answer In General –
Explanation In a Call Option - The price of option increases with increase in spot price
In a Put Option - The price of option decreases with increase in spot price
Question 3 An Indian investor has invested Rs 390000 in US securities. At the time

of investment, the exchange rate was 65. Two years later he noticed that
his investments have gained 25% in USD terms and liquidated his
investments. He repatriated the money to India at the then existing rate
of Rs 62. What would be his real returns( returns in INR terms) ?
(a) 18.56%
(b) 19.23%
(c) 20.87%
(d) 21.30%
Question 4 Specify the lot size for EURINR futures contract.
(a) 1000 EUR
(b) 1000 INR
(c) 100000 INR
(d) 10000 EUR
Correct 19.23%
Answer 3
Answer The investor invested Rs 390000 in US Stock when the USDINR rate was 65
Explanatio
n
So he had invested 390000 / 65 = 6000 Dollars in US Stocks.
His investment grew by 25% : 6000 x 25% = 6000 + 1500 = 7500
He is repatriating at USDINR rate of 62 : 7500 x 62 = 465000
Therefore his investment in INR terms have grown from Rs 390000 to Rs 465000
465000 x 100 / 390000 = 119.23
This is an increase of 19.23 %
Correct 1000 EUR

Answer 4
Answer The lot size in the case of EURINR is EUR 1000
Explanatio
n
In case of USDINR it is USD 1000; GBPINR it is GBP 1000; JPYINR it is JPY 100,000.
Question 5 Mr. Amit is working with a of a currency broking house is an expert in

currency movements. As per his view, INR should appreciate against
EUR in next 6 months and accordingly he advised some of his clients to
take a short position by selling EUR against INR and also he guaranteed
against any losses. The manager of the employee takes an action against
Mr. Amit for violating some trading guidelines. What should Mr. Amit
have done to avoid the punishment ?
(a) Amit should have advised the clients correctly to take short position for 1
months and not 6 months as 6 month is a long period
(b) Amit should have also clearly mentioned the risk to his view
(c) Amit should not have guaranteed against losses
(d) Amit should have advised the clients correctly to take short position for 12
months and not 6 months as 6 month is a short period
Question 6 A person sells GBPINR and buys EURINR for an equivalent amount . what
view has he expressed ?
(a) INR appreciation against GBP
(b) EUR appreciation against GBP
(c) EUR depreciation against GBP
(d) INR depreciation against GBP
Correct Amit should not have guaranteed against losses

Answer 5
Answer Exchange regulations specify codes of conduct related to the currency derivatives segment.
Explanatio All trading members must comply with these. One of the code of conduct is :
n
- No Trading Member or person associated with the Trading Member shall guarantee a client
against a loss in any transactions effected by the Trading Member for such client.
Correct EUR appreciation against GBP

Answer 6
Answer Selling GBPINR - view is weakening of GBP against INR
Explanatio
n Buying EURINR - view is strengthening of EUR against INR
Taking a collective view - GBP weakening against EUR or EUR strengthening against GBP
Question 7 What is the order called which if not executed during the day, the system
cancels the order automatically at the end of the day ?
(a) Immediate or Cancel Order (IOC)
(b) Stop Loss Order
(c) Good Till Cancelled order
(d) Day Order
Question 8 Non Farm payroll indicator measures ________ .
(a) Currency Fluctuations
(b) Employment scene
(c) Inflation scene
(d) Wage scene
Correct Answer 7 Day Order

Answer A day order is an order which is valid for the day on which it is entered. If the
Explanation order is not executed during the day, the system cancels the order
automatically at the end of the day..
Correct Answer 8 Employment scene

Answer Nonfarm payrolls represent the number of jobs added or lost in the economy
Explanation over the last month
Question 9 A trader expects GBYINR to remain stable at 80.00 levels over next one
month. One month GBPINR premium is 50paise. What is the likely trade
that trader would do to execute the view and how much profit he would
make per GBP if his views comes correct ?
(a) Buy 3 month GBPINR futures, 150 paisa
(b) Sell 3 month GBPINR futures, 150 paisa
(c) Buy one month GBPINR futures, 50 paisa
(d) Sell one month GBPINR futures, 50 paisa
Question 10 Which of these is a key assumption of Technical Analysis ?
(a) The price movement captures in all the available market information
(b) Traders use only technical analysis to decide direction of currency
(c) In the currency market the fundamental analysis does not work
Correct Answer 9 Sell one month GBPINR futures, 50 paisa
Answer If the price is stable it will result in losses due to time decay for the buyer. So
Explanation selling is the right option.
Correct Answer 10 The price movement captures in all the available market information
Answer The assumption that price discounts everything essentially means the market
Explanation price of a security at any given point in time accurately reflects all available
information, and therefore represents the true fair value of the security. This
assumption is based on the idea the market price always reflects the sum total
knowledge of all market participants.
Question 11 While computing the Mark To Market profit/loss of brought forward

positions of futures contracts, which methodology is used ?
(a) Multiply the units brought forward with contract size and the difference
between buy price and current settlement price
(b) Multiply the units brought forward with contract size and the difference
between days high price and day’s settlement price
(c) Multiply the units brought forward with contract size and the difference
between previous day’s settlement price and current days settlement price
(d) Multiply the units brought forward with contract size and the difference
between last traded price and day’s settlement price
Question 12 The settlement date for Exchange Traded Currency futures is _______ .
(a) Two business days before the contract expiry date
(b) Two business days after the contract expiry date
(c) Two calendar days after the contract expiry date
(d) Last working day of the expiry month
Correct Multiply the units brought forward with contract size and the difference between previous days
Answer 11 settlement price and current days settlement price
Answer The computational methodology for MTM –

Explanatio A. For squared off position: The buy price and the sell price for contracts executed during the
n day and squared off.
B. For positions not squared off: The trade price and the day's settlement price for contracts executed
during the day but not squared up.
C. For brought forward positions: The previous day's settlement price and the current day's
settlement price for brought forward contracts.
Correct Answer 12 Last working day of the expiry month
Answer Last trading day (or Expiry day) - Two working days prior to the last business
Explanation day of the expiry month
Final Settlement Day - Last working day (excluding Saturdays) of the expiry
month.
Question 13 _______ best describes the total open interest which is used for the
purpose of monitoring open position during the day.
(a) 'Total open interest at 12.00'
(b) 'Total open interest at the time of monitoring'
(c) 'Total open interest at the end of previous day'
(d) 'Maximum open interest in the previous day'
Question 14 A trader does the following currency futures trade - sells EURINR and
Buy JPYINR for an equivalent amount. What view has he executed ?
(a) INR weakening against EUR
(b) EUR weakening against JPY
(c) EUR strengthening against JPY
(d) INR strengthening against EUR
Correct Answer 13 'Total open interest at the end of previous day'

Answer Positions during the day are monitored based on the total open interest at the
Explanation end of the previous day’s trade.
Correct Answer 14 EUR weakening against JPY

Answer Selling EURINR - view is weakening of EUR against INR
Explanation Buying JPYINR - view is strengthening of JPY against INR
Taking a collective view - EUR weakening against JPY
Question 15 Who recommended the eligibility norms for existing and new Exchanges
for Currency Trading, product design, margin requirements and other
risk mitigation measures on an ongoing basis and surveillance
mechanism and dissemination of market information?
(a) Committee on Fuller Capital Account Convertibility
(b) Special Committee formed by SEBI on Currency Futures
(c) FEDAI
(d) SEBI-RBI Standing Technical Committee
Question 16 Who acts as the central counter party to JPYINR future trades in India ?
(a) The Currency Broker who executed the trade
(b) Bank trading and clearing member
(c) Clearing corporation
(d) Exchange
Correct Answer 15 SEBI-RBI Standing Technical Committee
Correct Answer 16 Clearing corporation

Answer For exchange traded derivative contracts, the Clearing Corporation acts as a
Explanation central counterparty to all trades.
Question 17 Assume that the one year interest rate is 1% in US, 2% in UK and 7% in
India. If current GBPINR spot rate 91.60 , what would be the one year
future rate of GBPINR ?
(a) Higher than 91.60
(b) Lower than 91.60
(c) Equal to 91.60
(d) Cannot be determined with the above data
Question 18 Internationally for most of the currency pairs, the base currency is ____ .
(a) INR
(b) GBP
(c) EUR
(d) USD
Correct Answer 17 Higher than 91.60

Answer The rate will be higher as the difference in interest rates will be added to the
Explanation future price.
Correct Answer 18 USD

Answer In the interbank market, USD is the universal base currency
Explanation
Question 19 A reputed exim company has export revenue in USD and it uses part of it
to make import payments in EUR and balance is converted in INR. The
company is concerned about USDINR risk. Which of the foll best
describes company’s risk and currency futures strategy that it may use
to counter the risk ?
(a) USD depreciating against INR, long USDINR
(b) USD appreciating against INR, short USDINR
(c) USD depreciating against INR, short USDINR
(d) USD appreciating against INR, long USDINR
Question 20 A trading member buys 13 lots of EURINR one month futures on day 1
and also sells 6 lots of the same contract on the same day in his
proprietary books. What would be his open position at the end of the day
in EUR ?
(a) 19000
(b) 7000
(c) 13000
(d) 6000
Correct Answer 19 USD depreciating against INR, short USDINR
Answer The company should be worried about USD depreciating against INR and so
Explanation should short USDINR to counter this risk.
For example - It is expecting export remittance at say USDINR = 65. But if

this depreciates to say 64, it will incur a loss. So it should short USDINR to
hedge its position.
Correct Answer 20 7000

Answer Bought 13 lots and sold 6 lots, so net position is of 7 lots X 1000 (lot size) =
Explanation 7000
Question 21 When a client defaults in making payments in respect of a daily

settlement, the contract is closed out. The amount not paid by the client
is adjusted against the _______ .
(a) bank fixed deposits of the client
(b) PPF balance of the client
(c) initial margin paid by the client
(d) Shares deposited by the client with the trading member
Question 22 What would be the base price on the first day of launch of USDINR
currency futures contract ?
(a)
What ever is the first price which is entered by a trader
(b)
Theoretical price for that contract derived using interest rate parity principle
(c)
The daily settlement price
(d) The settlement price in the OTC market
Correct Answer 21 initial margin paid by the client
Correct Answer 22 Theoretical price for that contract derived using interest rate parity
principle
Answer Base price of the futures contracts on the first day of its life shall be the
Explanation theoretical futures price. The base price of the contracts on subsequent trading
days will be the daily settlement price of the previous trading day.
Question 23 The maximum net NPA % which an AD category 1 bank can have for it
to become a trading and clearing member of any recognized currency
futures exchange is ____ .
(a) 1%
(b) 2%
(c) 2.50%
(d) 3%
Question 24 What is the minimum net worth for a company for it to be eligible for
applying to become an authorized exchange for currency futures ?
(a) Rs 10 crore
(b) Rs 50 crore
(c) Rs 75 crore
(d)
Rs 100 crore
Correct 3%
Answer 23
Answer Banks authorized by the Reserve Bank of India under section 10 of the Foreign Exchange Management
Explanatio Act, 1999 as ‘AD Category - I bank’ are permitted to become trading and clearing members of the
n currency futures segment of the recognized stock exchanges, on their own account and on behalf of their
clients, subject to fulfilling the following minimum prudential requirements:
a) Minimum net worth of Rs. 500 crores.
b) Minimum Capital adequacy ratio (CAR) of 10 per cent.
c) Net NPA should not exceed 3 per cent.
d) Made net profit for last 3 years
Correct Answer 24 Rs 100 crore

Question 25 A trader takes a long position in USDINR futures contract at a price of

65 by buying 40 lots. On expiry of contract the settlement price was
65.40. What is his profit or loss ?
(a) Loss of Rs 16000
(b) Profit of Rs 16000
(c) Loss of Rs 1600
(d) Profit of Rs 1600
Question 26 An accountant of a clearing member was reconciling the cash position

with the clearing house. He found that for July 2017, across all trading
members , total volume of short options were USD 8000 and total volume
of long options were USD 6000. At that time, the net option value of each
short option was INR 0.7 and value of each long option was INR 0.8.
How much cash would be added to the liquid net worth of his employer
by the clearing house ?
(a) Rs. 1000
(b) Rs. 1200
(c) Rs. 1400
(d) Rs. 1600
Correct Answer Profit of Rs 16000

25
Answer The trader buys at 65 and sells at 65.40. So the profit is 0.40
Explanation 0.40 x 40 lots x 1000 (lot size) = Rs 16000 profit
Correct Rs. 1400

Answer 26
Answer All futures contracts are cash settled, i.e. through exchange of cash in Indian Rupees.
Explanatio The settlement amount for a CM is netted across all their TMs/clients, with respect to their obligations on
n Mark-to-Market (MTM) settlement.
The Net Position in the above question is 8000 - 6000 = 2000 short
2000 x .7 = 1400
Question 27 Who is/are allowed to trade in currency futures ?
(a) Corporate not having exposure to foreign currency
(b) FIIs
(c) NRIs
(d) All of the above
Question 28 Ms. Mamta buys 10 lots of USDINR 1 month futures when price was
65.00/65.10 and squares off 5 lots after a week when price was
65.15/65.35. What were her profits or losses ?
(a) -500
(b) 500
(c) 250
(d) 1250
Correct Answer 27 Corporate not having exposure to foreign currency

Answer At present, FIIs and NRIs would not be permitted to participate in currency
Explanation futures market.
Correct Answer 28 250

Answer Purchase price 65.10
Explanation Sale Price 65.15
Profit .05
.05 x 5 Lots x 1000 (lot size)
= 250 Profit
Question 29 What are the main features of a managed float currency ?
(a) Free Capital Movements with No Central Bank Interventions
(b) Free Capital Movements with Central Bank Interventions
(c) Capital controls and interventions of Central Bank
(d) None of the above
Question 30 _______ has issued guidance notes on accounting of index futures

contracts from the view point of parties who enter into such futures
contracts as buyers or sellers.
(a) SEBI
(b) RBI
(c) CRISIL
(d) ICAI
Correct Answer 29 Capital controls and interventions of Central Bank

Answer In managed float, countries have controls on flow of capital and central bank
Explanation intervention is a common tool to contain sharp volatility and direction of
currency movement.
Correct Answer 30 ICAI

Answer ICAI - The Institute of Chartered Accountants of India
Explanation
Question 31 From the below given options, which parameters were used by RBI to
decide which banks could run foreign currency INR option book ?
(a) Networth, Capital adequacy , Profitability, Net non performing assets %
(b) Networth, Capital adequacy , Net non performing assets %
(c) Networth, Number of years of operation, Profitability
(d) net non performing assets %, Profitability, Capital adequacy ,
Question 32 The current spot is 62, what would be the moneyness of a long USD put
option with a strike price of 63?
(a) In the money
(b) Out of the money
(c) At the money
Correct Answer 31 Networth, Capital adequacy , Profitability, Net non performing assets %
Answer Banks were allowed to run option book subject to their meeting certain
Explanation parameters with respect to net worth, profitability, capital adequacy and
NPA%.
Correct Answer 32 Out of the money
Answer A call option would be Out of the Money, if underlying price is lower than the strike price.
Explanatio
n
The underlying price (current price) ie. 62 is lower than strike price ie. 63. ( Loss situation)
======
A put option would be out of the money if underlying price is higher than the strike price.
A call option would be in the money, if underlying price is higher than the strike price
A put option would be in the money if underlying price is lower than the strike price
======
Question 33 A 'DERIVATIVE PRODUCT' can be best described as a ______ .
(a) complex product which is traded only amongst banks and large institutions
(b) product whose value is derived from value of one or more underlying
variables
(c) product which can be from Equity / Currency or Commodity markets and are
traded on a recognised stock exchange.
Question 34 Mr. Gopal has invested Rs 100000 in UK securities. At the time of

investment the exchange rate was 100. After two years his investment
gained 25% in GBP terms and he liquidated his investment and
repatriated the money to India at the then exchange rate of 105. What
would be his real returns (in INR terms)
(a) 27.50%
(b) 31.25%
(c) 23.65%
(d) 42.80%
Correct Answer 33 product whose value is derived from value of one or more underlying
variables
Answer Derivative is a product whose value is derived from the value of one or more
Explanation basic variables, called bases (underlying asset, index, or reference rate).
The underlying asset can be equity, foreign exchange, commodity or any
other asset. It can be traded on an exchange or on OTC.
Correct Answer 34 31.25%
Answer Mr Gopal invested Rs 100000 at GBRINR 1000. So he invested 100000 / 100 = 1000 GBP
Explanatio
n
His investment rose by 25 % ie.1000 plus 25% = 1250 GBP
He repatriated this amount at GBPINR 105 = 1250 X 105 = 131250
In real terms the growth is from Rs 100000 to Rs 131250 ie. 31.25%
(131250 x 100 / 100000 = 131.25)

Question 35 A trader sells 20 lots of USDINR 1 month futures when price was 65.60 /
65.90 and squares off 10 lots after a week when price was 64.65/64.85 .
How much money (in Rupees) did he make/ lose on the part of the
transaction that was squared off ?
(a) 6800
(b) -6800
(c) 7500
(d) -7500
Question 36 State True or False - Unlike options, future contracts gives the seller both
rights and obligations.
(a) TRUE
(b) FALSE
Correct 7500
Answer 35
Answer When the price was 65.60 / 65.90, the trader sold USDINR - so he sold at 65.60 as that is the Bid (Buyers)
Explanatio price.
n
When the price was 64.65 / 64.85, the trader bought USDINR, so he bought at 64.85 as that is the Ask
(Sellers) price.
Out of the 20 lots bought, he has squared off only 10 lots.
65.60 - 64.85 = 0.75 ( Profit )
Total Profit = 0.75 x 10 lots x 1000 (each lot of USDINR) = 7500
Correct FALSE
Answer 36
Answer Futures give the buyer and seller both the right and the obligation to fulfill the contract’s obligations.
Explanatio
n 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.
Question 37 Consider a scenario - In the OTC market, one month GBPUSD is

quoting at 1.6120/1.6150. In the currency future market, one month
USDINR is 64.10 / 64.50 and one month GBPINR is 93.40/93.70. A trader
does his calculations and feels that he can construct a GBPUSD position
using currency future USDINR and GBPINR futures and it will be at a
premium to the GBPUSD quote of the OTC market. Which of the
following trade strategy can best capture this arbitrage opportunity ?
(Both OTC and futures have same settlement dates)
(a) Buy GBPUSD on OTC , Sell GBPINR & Buy USDINR in currency futures
(b) Buy GBPUSD on OTC , Buy GBPINR & Sell USDINR in currency futures
(c) Sell GBPUSD on OTC , Sell GBPINR & Buy USDINR in currency futures
(d) Sell GBPUSD on OTC , Buy GBPINR & Sell USDINR in currency futures
Question 38 An Indian company has both imports and exports in GBP of equal
amounts. However the export realization comes a week after the
payments are made for imports. Which type of currency risk is the
company facing ?
(a) Risk of INR appreciation
(b) Risk of INR depreciation
(c) Risk of forward premia
(d) There is no currency risk
Correct Buy GBPUSD on OTC , Buy GBPINR & Sell USDINR in currency futures
Answer 37
Answer It is mentioned that GBPUSD Currency Futures will be at a premium to GBPUSD in OTC. So the
Explanatio trader will have to BUY in OTC as its at a discount.
n
Since the premium is for GBPUSD which means GBP should appreciate against USD. So Buying
GBPINR and
Selling USDINR will be the right strategy.
Correct Risk of INR appreciation

Answer 38
Answer Lets assume the GBOINR rate is 80 and the export and imports are 1000 GBP
Explanatio
n
The company makes payments for imports at GBPINR 80 x 1000 = Rs. 80,000
After a week if INR appreciates, the GBPINR rate becomes say 78. So it will receive for its exports
78 x 1000 = Rs. 78000
So it will receive less amount than it has paid for imports.

Question 39 A Currency exchange trading member buys 20 lots of USDINR one

month futures on day 1 at 65.80 and also sells 4 lots of the same contract
on the same day at 65.90 in the proprietary book. The settlement price
for the day was 65.80. what would be mark to market (MTM) margin on
the open positions (in Rs.) ?
(a) Zero
(b) -400
(c) 800
(d) -600
Question 40 The tick size for USDINR currency futures contract in India is _______ .
(a) 2.5 Rupees
(b) 0.25 Rupees
(c) 0.025 Rupees
(d) 0.0025 Rupees
Correct Answer 39 Zero

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 : 4 lots squared up : 65.80 - 65.90 = 0.10 x 4 lots x 1000 lot size
= Rs 400 profit
Not Squared up : 16 lots ( 20 - 4 )
Settlement Price - Contract Price = 65.80 - 65.80 = 0
No MTM on non squared up position as Settlement Price & Contract Price
are same
Bought Forward : NIL
So Mark to Market Margin = + 400
In this case the M to M is receivable from the exchange, so he has to pay Zero
Correct Answer 40 0.0025 Rupees

Answer For currency futures contract in India, the tick size is 0.25 paise or 0.0025
Explanation Rupee
Question 41 When a person buys a put option, it means that he is buying a right to
buy underlying asset - State True or False ?
(a) TRUE
(b) FALSE
Question 42 Mr. Vaibhav believes that USDINR will appreciate and accordingly he
enters into a derivative contract to execute his view of appreciating
USDINR. His view proved correct but he observed that his profits are
not increasing along with the USDINR appreciation. What type of
derivative contract would he have entered in ?
(a) Long Call option
(b) Long Put Option
(c) Short Call option
(d) Short Put option
Correct Answer 41 FALSE

Answer In a Put Option, the buyer has the right to sell an agreed quantity of the
Explanation underlying asset.
Only in a Call Option, the buyer has the right to buy an agreed quantity of a
asset .
Correct Short Put option

Answer 42
Answer Buying a Call option or Selling a Put option - both have similar view ie. appreciation of the
Explanatio underlying.
n
However in Selling a Put option, the gains are limited to the premium received.
So Mr. Vaibhav must have shorted a Put Option and received the premium. Now even if the
USDINR appreciates by a huge extent, his profits will be restricted to the premium received.
If he had gone long on a call option, he would have paid a premium buy his gains would have been
much more in co-relation to the rise in USDINR.
Question 43 What is true for OTC ie. Over The Counter traded derivatives?
(a) OTC is only available for Currencies and Equity stock
(b) It has centralized counterparty credit risk management
(c) Decentralized counter party credit risk management
(d) It has centralized trade settlement
Question 44 A person wants to buy GBPINR one month futures at 80.50 when the
current price is 80.80 and enter a limit order for 80.50. Assume market
moves in the range of 80.40 and 81 after you have entered the limit order,
at what price is your order likely to get executed ?
(a) 80.5
(b) At or below 80.50
(c) Any price above 80.50
(d) Any price between 80.40 and 81
Correct Answer 43 Decentralized counter party credit risk management

Answer OTC trades are between two or more parties and the risks are borne by them.
Explanation There is no centralised risk management authority like the clearing
corporation in futures exchange.
Correct Answer 44 80.5

Answer When a limit order is placed at a particular price, it will get executed at that
Explanation price only or will not get executed.
Question 45 Consider the following data - - Current USDINR Spot Rate = Rs 66 -

Premium for December 2017 maturity Call option of strike price 65.50 is
0.45 / 0.48 - Premium for December 2017 maturity Put option of strike
price 66 is 0.32 / 0.34 A trader executes the following trades : - Buys a
Put option of strike price 66 - Sells a Call option of strike price 65.50 The
RBI reference rate on expiry for USDINR is Rs 66 Calculate the Profit or
Loss which the trader has made.
(a) Profit of Rs. 350
(b) Profit of Rs. 410
(c) Loss of Rs. 430
(d) Loss of Rs. 370
Question 46 An importer sells 10 lots one month USDINR futures at 65. At the expiry,
the settlement price was announced as 65.70. Calculate his profit or loss.
(a) Profit of Rs 700
(b) Profit of Rs 7000
(c) Loss of Rs 700
(d) Loss of Rs 7000
Correct Loss of Rs. 430

Answer 45
Answer The trader has bought a PUT and Sold a CALL - In both the cases he has assumed that the USDINR will
Explanatio fall to make a profit.
n Trade 1 - Buys a Put option at 0.34. So he has to pay a preimum of Rs. 0.34. The RBI reference rate is 66.
So there is no Profit or loss due to this as its the same as strike price. However he has lost the premium
paid of Rs 0.38 x 1000 (lot size) = Rs 380
Trade 2 - Sell a Call option at Rs. 0.45. So he receives this premium of Rs.0.45. The RBI reference rate is
66 and the strike price is 65.50. So here is makes a loss of Rs. 0.50 (65.50 - 66) due to adverse price
movement. The net loss is 0.45 (premium received) - 0.50 = 0.05 x 1000 (lot size) = Rs. 50
Total Loss from Trade 1 ( 380 ) and trade 2 ( 50 ) = Rs 430.
Correct Loss of Rs 7000

Answer 46
Answer He has sold USDINR expecting a weakening of prices. But the prices have risen, so he sufers a loss
Explanatio
n 65 - 65.70 = - 0.70
0.70 x 10 Lots x 1000 (lot size) = - 7000 Loss
Question 47 What is the initial deposit that is required to initiate a currency futures
position called?
(a) Initial Margin
(b) Initial Capital
(c) Portfolio Margin
(d) Account opening margin
Question 48 Consider a scenario in which USDINR was quoting as 63.40/63.42 and

EURUSD as 1.1450 / 1.1453 in the morning and by the day end USDINR
moves to 63.10/63.12 while EURUSD moves to 1.1420/1.1422. What
would best describe the movement of currency during the day ?
(a) USD has appreciated against INR and also appreciated against EUR
(b) USD has depreciated against INR and also depreciated against EUR
(c) USD has appreciated against INR and depreciated against EUR
(d) USD has depreciated against INR and appreciated against EUR
Correct Answer 47 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 USD has depreciated against INR and appreciated against EUR
Answer 48
Answer Whenever the base currency buys more of the quotation currency, the base currency has strengthened /
Explanatio appreciated and the quotation currency has weakened /depreciated. For example, if USDINR has
n moved from 65.00 to 65.25, the USD has appreciated and the INR has depreciated. Similarly if
USDINR moves from 65.00 to 64.50, the USD has depreciated and INR has appreciated.
So in the above question - USDINR has moved from 63.40 to 63.10 , so USD has depreciated
against INR.
EURUSD has moved from 1.1450 to 1.1420 - This means EUR has depreciated against USD or
USD has appreciated against EUR.
Question 49 A trading member Mr. Madan buys 70 lots of GBPINR one month futures
on day 1 at 91.5 and also sells 80 lots of the same contract on the same day
at 91.6 in his proprietary book. The settlement price for the day was 91.20.
What would be Mark to Market margin on the open positions (in Rs.)?
(a) 4000
(b) -4000
(c) 5000
(d) -5000
Question 50 What is true with respect to Governing Council of currency futures segment
of an exchange ?
(a) Governing council of currency futures and equity derivative /cash segment can
have maximum 25% common members
(b) Governing council of currency futures and equity derivative /cash segment can
(c) Governing council of currency futures and equity derivative /cash segment can
(d) Governing council of currency futures and equity derivative /cash segment can
Correct -4000
Answer 49
Answer Please note, here only the mark to market (MTM) margin on OPEN POSITION is required to be
Explanatio calculated.
n
So we ignore the profits or losses made in trading.
Mr. Madan had bought 70 lots and sold 80 lots, so his net position is 'Short GBPINR 10 lots at 91.60'
The settlement price is 91.20.
For Short positions > Settlement price - Trade price is the MTM difference
91.20 - 91.60 = - 0.40 x 10 lots x 1000 (lot size) = - 4000
(This means no MTM is payable and there is a credit in the MTM margin account)
Correct Answer 50 Governing council of currency futures and equity derivative /cash
segment can have maximum 50% common members
Answer The currency futures segment of the Exchange should have a separate
Explanation Governing Council on which the representation of Trading /Clearing
Members of the currency futures segment should not exceed 25%. Further,
50% of the public representatives on the Governing Council of the currency
futures segment can be common with the Governing Council of the
cash/equity derivatives segments of the Exchange.
Question 51 The prices of a commodity in the spot market were volatile due to which
many traders were going bankrupt. In what way would the introduction
of an organised futures market help the spot market of this commodity ?
(a) There will be increased volume in the spot market
(b) When futures are introduced, it will shift the speculative activities to a
controlled environment which will have good risk management systems
(c) When futures are introduced, it will lead to new entrepreneurial activity
(d) The risk will be transferred
Question 52 M/s Sun Exporters hedges 10000 USD by buying September 2017 put
option at a strike of Rs 63.00 when price was Rs 0.44/0.46. The company
receives USD in its account on 15th September. So the company decided
to cancel the option on 15th September when the price for the same
contract was Rs 0.27/0.28. How much loss did the company make on
cancelling the put option if latest available RBI reference rate was Rs
62.50 ?
(a) Loss of 2600
(b) Loss of 1900
(c) Loss of 3700
(d) Loss of 2150
Correct Answer 51 When futures are introduced, it will shift the speculative activities to a
controlled environment which will have good risk management systems
In the futures market, the entire risk is managed by the Clearing Corporation
by effective margining systems etc. This will lead to controlled speculation
and thus avert bankruptcies etc
Correct Answer 52 Loss of 1900
Answer This is a simple case of buying and selling a Put Option.

Explanation
He bought the Put Option at 0.46 and sold the option at 0.27
Loss = 0.27 - 0.46 = - 0.19 x 10000 = - 1900

Question 53 A car company is giving a three year warranty to its customers for Rs
10000 against any repairs or replacement of important spare parts. Who
is the buyer of the option and what is the type of option being bought ?
(a) Customer is the buyer , Call Option
(b) Customer is the buyer , Put Option
(c) Motor cycle company , Call option
(d) Motor cycle company , Put option
Question 54 Aditya is going to USA for higher studies and gets a loan sanctioned of
Rs 10 lacs. As he has to make the payment to the University after one
month, he is worried about foreign exchange fluctuation. To hedge the
this currency risk, he buys a few lots of call option. Consider the strike
rate of 50, calculate how many lots did he buy ?
(a) 20 Lots
(b) 50 Lots
(c) 30 Lots
(d) 40 Lots
Correct Customer is the buyer , Put Option

Answer 53
Answer When you get your car insured, you pay an insurance premium to the insurance company and the
Explanatio
n insurance company guarantees to compensate you for the damages to your car during the insurance
period.
In this example, you are buying a put option from the insurance company and paying it an option
premium in form of insurance premium. If your car gets damaged during the insurance period, you
can use your policy to claim the compensation and if all goes well and you do not need to claim
the compensation, the insurance company keeps the premium in return for taking on the risk.
Correct Answer 20 Lots

54
Answer Aditya has received Rs 10,00,000
Explanation Divide this by 50 (USDINR Rate) we get 20,000 USD
The lot size of USDINR contract is 1000
So 20000 / 1000 = 20 Lots
Question 55 A trader sells 10 lots of EURINR 1 month futures when price was
82.60/82.80 and squares off 5 lots after a week when price was
83.75/83.85 . Calculate the profit or loss on the squared up transaction.
(a) -7500
(b) -5450
(c) -3750
(d) -6250
Question 56 Mr. Amit sells a USD put option at strike of 66 and receives a premium
of INR 0.4. What would be the break even point for the two
transactions ?
(a) 65.6
(b) 66.4
(c) 66
(d) 65.4
Correct Answer 55 -6250
Answer The trader sold at 82.60 and bought back at 83.85. So he made a loss of 1.25
Explanation ( 82.60 - 83.85 )
1.25 x 5 Lots x 1000 (Lot size)
= 6250 Loss
Answer The breakeven point for a short put is the strike price of the option minus the
Explanation premium.
So 66 - 0.40 = 65.60
(In easier terms, when a person sells PUT, he has a bullish view and believes
that price will rise. He has bought at 66 and he receives .40 premium so his
buying price reduces by .40 ie. 65.60 which is break even price)
Question 57 A trader sees that 3 month USDINR forward is quoting at 65.5 while
futures is quoting at 65.8. So he sells in futures and buys in forward
market. Determine the type of market participant would this trader be ?
(a) He is a speculator
(b) He is hedger
(c) He is a technical analyst
(d) He is an arbitrageur
Question 58 A trader in currency markets believes that USDJPY will move from 105
to 108 in next 1 months. Which of the following would you do to execute
this view using currency futures contract of JPYINR and USDINR?
(a) Long JPYINR
(b) Short JPYINR
(c) Long JPYINR and short USDINR
(d) Short JPYINR and Long USDINR
Correct Answer 57 He is an arbitrageur

Answer Arbitrageurs are market participants who identify mispricing in the market
Explanation and use it for making profit.
Arbitrageurs lock in a profit by simultaneously entering opposite side
transactions in two or more markets.
Correct Answer 58 Short JPYINR and Long USDINR
Answer USDJPY moving from 105 to 108 means USD becoming stronger against
Explanation JPY. So he will buy USDINR and Sell JPYINR.
Question 59 A currency trader has strong bullish view on USDINR. He also expects a
decrease in volatility from the current levels in the coming days. He
wants to execute both these views and therefore what option strategy is
he likely to use ?
(a) Long Call option
(b) Short Call option
(c) Long Put option
(d) Short Put option
Question 60 Mr. Satish in India expects international gold prices to appreciate by

10% from USD 1200 per ounce to USD 1320 in the next six months. To
take advantage from the view he buys 30 grams of gold at Rs. 25000 per
gram and also sold 15 lots of 6 month USDINR futures at 60. After six
months, the trader sold gold at Rs 28000 per gram and unwinds currency
futures at Rs 63 . Assuming 1 ounce is equal to 3 grams, which of the
following best describes the return for Mr. Satish and the hedging
strategy that he has used ?
(a) Positive returns, Long USDINR futures
(b) Negative returns, Short USDINR futures
(c) Positive returns, Short USDINR futures
(d) Negative returns, Long USDINR futures
Correct Answer 59 Short Put option

Answer When a person sells a Put option, he has receives the premium and also he
Explanation has a bullish view.
When volatility decreases there is less movement in option prices. So buying
a Call option (bullish view) may not fetch him good returns. But if he sells a
PUT option (again bullish view) - this means he will benefit of the bullish
move by retaining the entire premium received by him.
Correct Answer 60 Positive returns, Short USDINR futures
Answer Mr. Satish has bought 30 grams gold at 25000 and sold at 28000
Explanation The profit he has made = 28000 - 25000 x 30 = Rs 90000
He has also sold 15 lots USDINR at 60 and covered back at 63. So he has
made a loss here
60 - 63 X 15 X 1000 (lot size)
= -45000 Loss
Net Position : 90000 Profit - 45000 Loss = 45000 Profit
Question 61 Rohan buys GBPINR futures at various price points over two days. He
buys 20 lots at 80.00 at 11.30 am and 15 lots at 80.25 at 1.30 pm on Day 1.
On Day 2 he buys 25 lots at 80.50 at 11 am and 10 lots at 80.40 at 2 pm.
On day 3 he sells 10 lots at 79.90. Calculate his Profit / loss on the
squared off position using FIFO method.
(a) 250
(b) -100
(c) -10
(d) 150
Question 62 Mr. Singh executes the following currency futures trade â€“ buys
USDINR and sells EURINR for an equivalent amount. What view has
Mr. Singh executed ?
(a) INR depreciating against USD
(b) INR appreciating against USD
(c) EUR depreciating against USD
(d) EUR appreciating against USD
Correct Answer 61 -100

Answer FIFO means First In First Out - which means the price of the contracts bought
Explanation first will be considered first in case of square up.
Mr. Rohan has squared off only 10 contracts. So we should consider the
buying price of the first 10 contracts and ignore rest of the data.
First 10 contracts were bought at 80.00 and these were sold on day 3 at 79.90
So 80 - 79.90 = .10 Loss x 1000 (lot size) = Rs 100 Loss
Correct Answer 62 EUR depreciating against USD

Answer Buying USDINR - view is USD appreciating against INR
Explanation Selling EURINR - View is EUR depreciating against INR
Combined view - USD appreciating against EUR or EUR depreciating
against USD
Question 63 A person sells ten lots of USDINR April futures contract at 66.50 and
squared off his position after INR appreciated by 100 ticks. What will be
the profit or loss on this trade ?
(a) Profit of Rs. 250
(b) Loss of Rs. 250
(c) Profit of Rs. 2500
(d) Loss of Rs. 2500
Question 64 USDINR three month future is quoting at 65.50 and six month is quoting
at 66.10. Mr. Bharat expects that after a month the three month future
should quote at 65.20 and the six month should quote at 66. If Mr Bharat
executes a spread trade and the view goes right, how much profit will he
make ?
(a) Rs 450
(b) Rs 380
(c) Rs 300
(d) Rs 200
Correct Answer 63 Profit of Rs. 2500

Answer INR has appreciated against USD, which means USD has depreciated. So the
Explanation USDINR rate will fall.
The trader has sold USDINR, so he will profit from the fall.
Tick Size is Rs .0025
100 Ticks X .0025 = 0.25
0.25 X 10 lots X 1000 ( Lot size of USDINR)
= Rs 2500 Profit
Correct Answer 64 Rs 200
Answer In this problem, Mr. Bharat, while executing the spread trade will have to
Explanation make a loss first and than a profit.
In the first leg of trade he will buy at 66.10 (6 month)and sell at 65.50 (3
month) - Thus making a loss of 0.60
In the second leg of trade (after a month) he will square up the above trades
by buying at 65.20 (3 month) and selling at 66 (6 month) - Thus making a
profit of 0.80
Net Profit = 0.80 - 0.60 = 0.20 x 1000 (lot size) = Rs 200
Question 65 A currency futures trade at one maturity which is hedged by an opposite

trade at a different maturity is known as ________ .
(a) Arbitrage trade
(b) Tango
(c) Calendar Spread
(d) Circular Trading
Question 66 An active trader in currency options market wants to execute his view on
change in volatility over a period of time and wants to be insulated from
changes in other factors impacting option pricing. What option strategy
is he likely to use ?
(a) Covered call
(b) Calendar spread
(c) Long option
(d) Short option
Correct Answer 65 Calendar Spread

Answer Calendar Spread ( also known as intra-currency pair spread ) consists of one
Explanation long futures and one short futures contract. Both have the same underlying
but different maturities.
Correct Answer 66 Calendar spread

Answer A long currency option position at one maturity and a short option position at
Explanation a different maturity in the same series, both having the same strike price
would be treated as a calendar spread.
Question 67 As per the guidelines issued with respect to permissions for trading in
'PRO ACCOUNT' by the trading member, which of the below is true?
(a) A trading member has to get Exchange’s permission if he wants to enter ‘Pro
account’ orders from multiple locations
(b) ‘Pro account’ orders can be entered from multiple location and multiple
terminal
(c) ‘Pro account’ orders can be entered from only one location as approved by
Clearing Corporation
(d) ‘Pro account’ orders can be entered from a specific location as approved by
SEBI
Question 68 The default mode of settlement in OTC spot market is ______ .
(a) As decided by the merchants
(b) Net settlement in cash
(c) Always delivery based
(d) None of the above
Correct Answer 67 A trading member has to get Exchange’s permission if he wants to enter
‘Pro account’ orders from multiple locations
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 68 Always delivery based

Answer The settlement in the OTC spot market happens by actual delivery of
Explanation currency.
Question 69 A significantly better than expected Consumer Price Index from United
Kingdom (UK) will result in what type of movement of GBP against
other countries ?
(a) GBP depreciating against other currencies
(b) GBP appreciating against other currencies
(c) No significant change
Question70 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 is
determined using ______ method for calculating profit/loss on squaring-
up.
(a) First-in, First-out (FIFO)
(b) Last-in, First-out (LIFO)
(c) As per the decision of the Clearing corporation
(d) The Loss making contracts are first squared off
Correct Answer 69 GBP appreciating against other currencies

Answer A rising consumer price index (CPI) means a rising prices for goods and
Explanation services and is an early indicator of inflation.
If rising CPI means likely increase in interest rate by the central bank, the
currency may strengthen in the short term.
Correct Answer 70 First-in, First-out (FIFO)

Question 71 A trading member, Mr. Gupta buys 100 lots of USDINR one months
futures on day 1 at 66.50 and also sells 60 lots of the same contract on the
same day at 66.20 in his proprietary book. The settlement price for day 1
was 66.30 and he paid the MTM margin accordingly at the end of day 1.
The settlement price for day 2 is 66.80. Calculate his mark to market
margin on is position on day 2.
(a) + Rs 17500
(b) + Rs 20000
(c) - Rs 9800
(d) + Rs 22500
Question 72 If a person has bearish view on USDINR, which would be the

appropriate strategy for the objective of maximizing the profit ?
(a) Buy USD Call option
(b) Sell USD Call option
(c) Buy USD Put option
(d) Sell USD Put option
Correct Answer 71 + Rs 20000

Answer In this question, we are required to calculate the MTM for day 2. So we
Explanation ignore the buying and selling of day 1.
(Mark to Market margins for brought forward positions: The previous day's
settlement price Less the current day's settlement price x No. of contracts)
He has bought forward 40 contracts (100 - 60 )
The Settlement price of day 1 was 66.30 and of day 2 was 66.80
We have to consider these two prices to calculate the MTM
66.80 - 66.30 = 0.50 x 40 contracts x 1000 (lot size)
= 20000 positive as there is a notional profit
Correct Answer 72 Buy USD Put option

Answer When a person is bearish he can either sell a Call option or buy a Put option.
Explanation But in case of selling a Call option, his profits will be limited to the extent of
premium received.
So in the above case, where the trader wishes to maximise his profits, buying
a Put Option is the best alternative.
Please note :
Buying Call - Bullish view
Selling Call - Bearish / Neutral view
Buying Put - Bearish view
Selling Put - Bullish / Neutral view
Question 73 The methodology usually used to value European options is ______ .
(a) Binomial pricing
(b) Black and Scholes
(c) London - Paris pricing system
(d) Llyods Theory of option pricing
Question 74 ______ is TRUE for Exchange Traded Derivatives.
(a) Bilateral trade settlement
(b) It is only available in stocks and currencies
(c) Centralized trade settlement
(d) Decentralized counter party credit risk management
Correct Answer 73 Black and Scholes
Answer There are two common methodologies for pricing options:

Explanation - Black and Scholes: This methodology is more analytical, is faster to
compute and is mainly used to price European options.
- Binomial pricing: This methodology is more computational, taken more
computing power and is mainly used to price American options.
Correct Answer Centralized trade settlement

74
Answer For exchange traded derivative contracts, the Clearing Corporation acts as a
Explanation central counterparty to all trades.
The key difference being that exchange traded derivatives are standardized,
more transparent, the counterparty risk is borne by a centralized corporation
with stringent margining systems while OTC contracts are
customized, opaque in pricing, risk management is decentralized and
individual institutions/ clients take counterparty risk of each other.
Question 75 As per the SEBI codes of conduct for brokers, what are the guidelines
with respect to brokers advertising their business in a public media ?
(a) A broker can give advertisements as long as they are ethical
(b) A broker should not advertise his business publicly unless permitted by the
exchange.
(c) A broker who has a trading license for more than 5 years can advertise his
business
(d) A broker who has a trading license for more than 10 years can advertise his
business
Question 76 Mr. Pritam from India invested USD 20000 in US equity markets at an
exchange price of 60 for USDINR. After a year these investments grew to
USD 23000. Mr. Pritam than sold off the entire investments and
repatriated his money to India. He found that his effective return (profit)
was 20%. Calculate the exchange price which Mr. Pritam received when
he repatriated the money to India.
(a) 59.8
(b) 60.56
(c) 61.77
(d) 62.61
Correct Answer 75 A broker should not advertise his business publicly unless permitted by
the exchange.
Answer SEBI Advertisement and Publicity guideline : A broker should not advertise
Explanation his business publicly unless permitted by the exchange.

Answer Mr. Pritam invested 20000 USD x 60 (Exchange Price) = Rs. 12,00,000
Explanation His return on this investment was 20%
So 20% of Rs 12 lacs = Rs 240000
So he repatriated to India Rs 1200000 + Rs 240000 = Rs 14,40,000
14,40,000 Divided by USD 23000 = 62.61
So the exchange rate on repatriation was 62.61
Question 77 An multinational company has export revenue in JPY and it uses part of
it to make import payments in USD and balance is converted in INR. The
company is concerned about JPYUSD risk for its import payments.
Which of the following best describes company’s risk and currency
futures strategy that it may use to mitigate the risk?
(a) USD appreciating against JPY, Short USDINR and long JPYINR for same
maturity
(b) USD appreciating against JPY, Short JPYINR and long USDINR for same
maturity
(c) USD depreciating against JPY, Short JPYINR and long USDINR for same
maturity
(d) USD depreciating against JPY, Short USDINR and long JPYINR for same
maturity
Question 78 Which of the following best describes the guidelines for brokers with
respect to issuing of contract notes for execution of orders ?
(a) Broker should ensure that his sub brokers issues contract notes every week to
his client
(b) Broker should promptly issue contract notes to his clients and client of his
subbrokers
(c) Brokers should issue contract notes to his clients and client of his subbrokers
every week
(d) Broker should issue contract notes to his clients and client of his subbrokers
not more than twice every week
Correct Answer 77 USD appreciating against JPY, Short JPYINR and long USDINR for
same maturity
Answer The company receives JPY against its exports and has to make payments in
Explanation USD for its imports.
So the currency risks it faces is USD appreciating and JPY depreciating in
future.
To hedge this it will buy USD and sell JPY in the futures market.
Thus if USD rises later on it will make losses in the import payments but
make profits in long USD futures as its is hedged. Same situation for JPY.
Correct Answer 78 Broker should promptly issue contract notes to his clients and client of
his subbrokers
Answer A Broker has to issue contract notes every trading day to his clients as well as
Explanation clients of his sub brokers.
Question 79 What is the simultaneous buying and selling of EURINR futures contract
across two different maturities called ?
(a) Hedge Trading
(b) Speculative Trading
(c) Spread Trading
(d) Arbitrage Trading
Question 80 An vegetable oil factory owner gets into a contract with McDonalds to
sell certain quantity of vegetable oil at a fixed price for a year . which
type of contract has the factory owner entered into with the McDonalds ?
(a) Swap
(b) Arbitrage
(c) Forward
(d) Future
Correct Answer 79 Spread Trading
Answer An intra-currency pair SPREAD consists of one long futures and one short
Explanation futures contract. Both have the same underlying but different maturities.
Correct Answer 80 Forward

Answer A forward contract is a customized contract between two parties, where
Explanation settlement takes place on a specific date in the future at today's pre-agreed
price.
Futures is similar to forward except that it is an Exchange-trade product.

Question 81 When are the mark to market margins collected ?
(a) Before beginning of next days transaction
(b) Real Time every hour
(c) At the end of day at 6 pm
(d) At the end of second days transaction
Question 82 In OTC market, one month USDINR is quoting at 65.25/65.50 and

futures for same maturity is quoting at 66.00/66.10. Which of the
following describes possible arbitrage trade and profit per USD if the
arbitrage trade is carried till maturity ?
(a) Buy USDINR in OTC and sell in futures , 40 paise
(b) Buy USDINR in OTC and sell in futures , 50 paise
(c) Buy USDINR in OTC and sell in futures , 55 paise
(d) Buy USDINR in OTC and sell in futures , 75 paise
Correct Answer 81 Before beginning of next days transaction

Answer The mark-to-market gains and losses are settled in cash before the start of
Explanation trading on T+1 day.
Correct Answer 82 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 65.25 / 65.50. So an arbitrageur
will buy at 65.50
In Futures Market the Bid Ask price is 66.00 / 66.10. So the arbitrageur will
sell at 66.00
Thus he will make an arbitrage profit of Rs 0.50 ( 66.00 - 65.50 )
Question 83 If one year interest rate is 2% in US and 10% in India. If current
USDINR spot rate is 64, which of the foll could be approximately closest
to the six month futures rate of USDINR ?
(a) 65.74
(b) 66.51
(c) 67.02
(d) 67.89
Question 84 The current EURINR spot is 80. The current future price of EUR is at a
premium to INR. A trader believes that on expiry of one month EURINR
futures, the spot may remain at 80. What currency futures trade strategy
would be profitable to the trader if his views comes correct?
(a) Sell EURINR for one month and buy for 2 month
(b) Buy EURINR for one month and sell for 2 month
(c) Buy EURINR
(d) Sell EURINR

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)
= 64 X ( 1 + 0.1 ) / ( 1 + 0.02 )
= 64 X ( 1.1 / 1.02)
= 64 x 1.07843137
= 69.0196
So the interest cost is 69.0196 - 64 = 5.0196 for one year

For six months it will be 5.0196 / 2 = 2.509
So the six month future rate will be 64 + 2.509 = 66.51
Correct Answer 84 Sell EURINR

Answer On expiry the spot and future prices tend to merge ie. become same.
Explanation So the trader should sell the EURINR future which are at a premium (lets
assume it at 83) to spot price (80).
On expiry, the future price will be around 80 and he will sqaure up his
position and make a profit (83 - 80 = 3 )
Question 85 Which of the following example is that of Market Making ?
(a) A real estate agent quoting a price to sell a bungalow
(b) A jewellery store owner quoting a price to buy old jewellery and also quoting
a price to sell new jewellery
(c) A wholesale fruit vendor quoting price to sell fruits at low prices
(d) A steel junk dealer quoting price to buy a very old car
Question 86 Margins across the various clients of a member are collected on a gross
basis - State True or False ?
(a) TRUE
(b) FALSE
Correct Answer 85 A jewellery store owner quoting a price to buy old jewellery and also
quoting a price to sell new jewellery
Answer The mechanism of quoting price for both buying and selling is called as
Explanation market making.
Correct Answer 86 TRUE

Answer Margins across the various clients of a member are collected on a gross basis
Explanation and should not be netted off
For eg. - Client A has bought 10 lots of USDINR and Client B has sold 4 lots
of USDINR on the same day. The margin payable by the member (broker)
will be on 14 lots and not 6 lots.
Question 87 A expert currency futures trader feels that the INR should depreciate
against USD in next few months. What currency futures trade would be
profitable to him if his views comes correct ?
(a) Buy USDINR
(b) Sell USDINR
(c) Buy USDEUR
(d) Sell USDEUR
Question 88 With respect to OTC market, what is TRUE for value date of a forward
contract ?
(a) It can be customized for a maximum period of one year
(b) It can be customized for a maximum period of six months
(c) Value dates are only available for month end date
(d) It can be customized for any period upto 6 month maturity for USDINR and
upto 1 year for other currency pairs
Correct Answer 87 Buy USDINR

Answer INR depreciating against USD means USD appreciating against INR. So he
Explanation will buy USDINR.
Correct Answer 88 It can be customized for a maximum period of one year

Answer Settlement date is also known as Value date.
Explanation Any settlement date after spot value date is called “forward” value dates,
which are standardized into 1-month, 2-month, etc after spot value date. The
forward market can extend up to one year.
Question 89 State True or False - Value of a put option decreases with increase in
spot price.
(a) Always true
(b) Never true
(c) Sometimes true
Question 90 With respect to trading time for worldâ€™s major currencies in OTC
market - which of the following statement is TRUE ?
(a) Currencies are traded across time zones
(b) Currencies are traded as per the permitted time of the respective countries
(c)
None of the above
Correct Answer 89 Always true
Answer In a Call Option, the value increases with increase in Spot price.
Explanation In a Put option, the value decreases with increase in Spot price.
Correct Answer 90 Currencies are traded across time zones

Answer For currency market, the concept of a 24-hour market has become a reality. In
Explanation financial centers around the world, business hours overlap; as some centers
close, others open and begin to trade
Question 91 Mahindra Exim Traders has taken a currency loan and has to make the
loan repayments in USD by equal monthly installments. It also has
exports remittances (in USD) every month which are slightly above the
monthly loan repayment amount. How should the company hedge so that
there is no risk involved of currency fluctuations ?
(a) Hedge part of loan payments which is over and above exports
(b) Hedge part of exports which is over and above loan dues
(c) Hedge exports, leave loan payments unhedged
(d) Hedge loan payments , leave exports unhedged
Question 92 What course of action can be followed by an investor is he / she is not

satisfied with decision of Arbitration Tribunal ?
(a)
Nothing as the Tribunals decision is final.
(b)
He / She can approach SEBI for suitable action
(c)
He / She can approach any Court of Law
(d)
He / She can appeal to investor grievance cell of the relevant exchange
Correct Answer 91 Hedge part of exports which is over and above loan dues
Answer The exports are higher than monthly loan payments. So only the amount over
Explanation and above the loan payment is subject to currency risks and should be
hedged.
Correct Answer 92 He / She can approach any Court of Law
Answer The final award of the Arbitration Tribunal is enforceable as if it were the
Explanation decree of the Court.
However any party who is dissatisfied with the Appellate Bench Award may
challenge the same only in a Court of Law.
Question 93 What is the process of actual pay in / pay out of mark to market margin
or profit / loss on cancellation or on maturity of futures contract called ?
(a) MTM
(b) Clearing
(c) Pay in / Pay out
(d) Settlement
Question 94 With respect to exercise of currency options in India , which of the

following is TRUE ?
(a) Only Exchange Traded currency options are American while OTC are
European
(b) Only OTC currency options are American while Exchange Traded are
European
(c) Both OTC and Exchange traded options are European in nature
(d)
Both OTC and Exchange traded options are American in nature
Correct Answer 93 Settlement
Answer Clearing means computing open positions and obligations of clearing

Explanation members in the trading system. Whereas, settlement means actual pay in or
pay out to settle the contract.
Correct Answer 94 Both OTC and Exchange traded options are European in nature
Answer European options can be exercised by the buyer of the option only on the
Explanation expiration date.
In India, all the currency options in OTC and Exchange traded are
of European type.
Question 95 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) 3,3
(b) 3,4
(c) 3,2
(d) 2,2
Question 96 A person buys a gold coin from a bank. Of the below options which best
describes the price risk for this investment ?
(a) USD / GOLD
(b) USDINR
(c) USD / GOLD and USDINR
(d) None of the bove
Correct Answer 95 3,3
Correct Answer 96 USD / GOLD and USDINR

Question 97 In case of currency options, the net option value is added for short
options and its deducted for long options to the liquid net worth of
clearing members - True or False ?
(a) TRUE
(b) FALSE
Question 98 One year interest rate is 4% in US and 1% in UK. If current GBPUSD

spot rate is 1.65, which of the following could be closest to one year
future rate of GBPUSD?
(a) 1.7325
(b) 1.65
(c) 1.6995
(d) 1.6005
Correct Answer 97 FALSE
Answer Remember the current market value of short options is deducted from liquid
Explanation net worth and for long options - its added.
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)
= 1.65 X ( 1 + 0.04 ) / ( 1 + 0.01 )
= 1.65 X ( 1.04 / 1.01)
= 1.65 x 1.0297
= 1.699
ANOTHER EASIER WAY OF SOLVING THIS IS BY APPROXIMATE

METHOD :
The difference between the interest rates is 3 % ( 4% - 1%)
3 % of 1.65 = .0495 per year
So the appx. one year future rate for GBPUSD = 1.65 + .0495 = 1.6995
Question 99 The US govt. declares significantly lower Retail Sales Data. This will
result in USD ___________ against other currencies.
(a) Appreciating
(b) Depreciating
(c) No Impact
Question 100 The initial margin shall be deducted from the liquid networth of the
clearing member _____________.
(a) At 10 am in the morning
(b) On an online, real-time basis
(c) Every 2.5 hours
(d) Every one hour
Correct Answer 99 Depreciating
Answer Retail Sales is a leading indicator and it provides early guidance on the health
Explanation of the economy.
A retail sales number higher than expected may mean relative strengthening
of the currency and lower than expected may mean relative weaking of the
currency of that country.
Correct Answer On an online, real-time basis

100
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
And many more ..
NCFM
NCFM Financial Markets: A Beginners Module

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


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NISM SERIES 1 – CURRENCY DERIVATIVES CERTIFICATION

UPDATED REAL FEEL EXAM 2

REAL FEEL EXAM 2 – LATEST UPDATED QUESTIONS

Question 1 Who first recommended introduction of exchange traded currency

(b) SEBI internal committee

(c) Ministry of Commerce

(d) Committee on Fuller Capital Account Convertibility

(a) Increase in price with increasing spot price

(b) Increase in price with decreasing spot price

(c) Decreasing price with increasing spot price

Correct Answer 1 SEBI RBI Technical committee

Correct Answer 2 Increase in price with increasing spot price

Question 3 An Indian investor has invested Rs 390000 in US securities. At the time

Question 4 Specify the lot size for EURINR futures contract.

(a) 1000 EUR

(b) 1000 INR

(c) 100000 INR

(d) 10000 EUR

His investment grew by 25% : 6000 x 25% = 6000 + 1500 = 7500

He is repatriating at USDINR rate of 62 : 7500 x 62 = 465000

465000 x 100 / 390000 = 119.23

This is an increase of 19.23 %

Correct 1000 EUR

Question 5 Mr. Amit is working with a of a currency broking house is an expert in

(c) Amit should not have guaranteed against losses

(a) INR appreciation against GBP

(b) EUR appreciation against GBP

(c) EUR depreciation against GBP

(d) INR depreciation against GBP

Correct Amit should not have guaranteed against losses

Correct EUR appreciation against GBP

(b) Stop Loss Order

(c) Good Till Cancelled order

(d) Day Order

Question 8 Non Farm payroll indicator measures ________ .

(a) Currency Fluctuations

(b) Employment scene

(c) Inflation scene

(d) Wage scene

Correct Answer 7 Day Order

Correct Answer 8 Employment scene

(a) Buy 3 month GBPINR futures, 150 paisa

(b) Sell 3 month GBPINR futures, 150 paisa

(c) Buy one month GBPINR futures, 50 paisa

(d) Sell one month GBPINR futures, 50 paisa

Question 10 Which of these is a key assumption of Technical Analysis ?

(b) Traders use only technical analysis to decide direction of currency

Correct Answer 9 Sell one month GBPINR futures, 50 paisa

Question 11 While computing the Mark To Market profit/loss of brought forward

(a) Two business days before the contract expiry date

(b) Two business days after the contract expiry date

(c) Two calendar days after the contract expiry date

(d) Last working day of the expiry month

Answer The computational methodology for MTM –

Correct Answer 12 Last working day of the expiry month

(b) 'Total open interest at the time of monitoring'

(c) 'Total open interest at the end of previous day'

(d) 'Maximum open interest in the previous day'

(a) INR weakening against EUR

(b) EUR weakening against JPY

(c) EUR strengthening against JPY

(d) INR strengthening against EUR

Correct Answer 13 'Total open interest at the end of previous day'