NISM Equity Derivatives Free Mock Test

Question 1. A portfolio of Rs 25 lacs has a beta of 1.20. A complete

hedge is obtained by __________
A. by selling Nifty futures of Rs 25 lacs
B. by selling Nifty futures of Rs 28 lacs
C. by selling Nifty futures of Rs 30 lacs
D. by buying Nifty futures of Rs 28 lacs

Explanation: Beta measures the sensitivity of a scrip/ portfolio vis-a-vis index movement over
a period of time, on the basis of historical prices. A beta of 1 indicates that the security's price
will move with the market. A beta of less than 1 means that the security will be less volatile
than the market. A beta of greater than 1 indicates that the security's price will be more
volatile than the market. For example, if a stock's beta is 1.3, it's theoretically 30% more
volatile than the market.
So, to obtain a hedge for a portfolio of shares, one has to sell Nifty futures.
The beta of a portfolio in the above case is 1.20. The portfolio value is Rs 25 lacs.
25 Lacs x 1.20 = Rs 30 lacs. Therefore, to get a complete hedge for this portfolio, Nifty worth
Rs 30 lacs have to be sold.

Question 2. Which of the following costs is not actually paid by the

market participants but arises due to lack of liquidity?
A. Securities Transaction Tax
B. Impact cost
C. SEBI charges
D. Brokerage

Question 3. Liquid Assets maintained by Mr A (Clearing Member) are

higher than that maintained by Mr B (Clearing Member). Which of the
following statements is true?
A. Mr A can enjoy higher exposure levels in futures than Mr B
B. Mr B can enjoy higher exposure levels in futures than Mr A
C. Both Mr A and Mr B enjoy the same exposure levels
D. No need to maintain liquid assets for exposure in derivatives markets
Question 4. A trader has bought 100 shares of XYZ at Rs 780 per share.
He expects the price to go up but wants to protect himself if the price
falls. He does not want to lose more than Rs1000 on this long position
in XYZ. What should the trader do?
A. Place a limit sell order for 100 shares of XYZ at Rs 770 per share
B. Place a stop loss sell order for 100 shares of XYZ at Rs770 per share
C. Place a limit buy order for 100 shares of XYZ at Rs 790 per share
D. Place a limit buy order for 100 shares of XYZ at Rs770 per share

Question 5. A penalty or suspension of registration of a stock broker

from derivatives exchange/segment under the SEBI (Stock Broker)
Regulations, 1992 can take place if _____
A. The stock broker fails to pay fees
B. The stock broker violates the conditions of registration
C. The stock broker is suspended by the stock exchange
D. In any of the above situations

Question 6. If one does a calendar spread contract in index futures,

then it attracts ___________
A. Lower margin than sum of two independent legs of futures contract
B. No margin needs to be paid for calendar spread positions
C. Higher margin than sum of two independent legs of futures contract
D. Same margin as sum of two independent legs of futures contract

Explanation: Calendar spread position is a combination of two positions in futures on the

same underlying - long on one maturity contract and short on a different maturity contract.
When the market fluctuates, if there is a loss in the long position then there will be an almost
equal profit in short position.
So, Calendar spreads carry no market risk - hence lower margins are adequate.
Calendar spread carries on only basis risk. Basis risk means both the contracts will not
fluctuate identically.
Question 7. A trader buys a call and a put option of same strike price
and same expiry. This is called as ________
A. Butterfly
B. Short Straddle
C. Long Straddle
D. Calendar Spread

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

Question 8. Which of the following is a hedged position?

A. Short straddle
B. Short strangle
C. Covered call
D. Protective put

Question 9. A member has two clients C1 and C2. C1 has purchased 800
contracts and C2 has sold 900 contracts in August XYZ futures series.
What is the outstanding liability (open position) of the member
towards Clearing Corporation in number of contracts?
A. 800
B. 1700
C. 900
D. 100
Question 10. Mr. X purchases 100 put option on stock S at Rs 30 per
call with strike price of Rs280. If on exercise date, stock price is Rs 350,
ignoring transaction cost, Mr. X will choose ________
A. To exercise the option
B. Not to exercise the option
C. May or may not exercise the option depending on whether he is in his hometown or
not at that time.
D. May or may not exercise the option depending on whether he like the company S or
Not.

Question 11. An investor, who is anticipating a broad stock market fall,

but is not willing to sell his entire portfolio of stocks, can offset his
potential losses by shorting a certain number of Index futures.
A. True
B. False

Question 12. Which of the following statements about interoperability

of clearing corporations is TRUE?
A. It allows brokers to trade on only one exchange but clear and settle their trades
through multiple clearing corporations.
B. it will lead to an increase in trading costs.
C. it allows brokers to trade on any exchange but clear and settle trades through the
clearing corporation of any other exchange.
D. it will reduce competition among clearing corporations.

Question 13. Mr. Kailash has bought 200 shares of ABC Industries Ltd.
at Rs.850 per share. He expects the price to go up but wants to protect
himself if the price falls. He does not want to lose more than Rs. 4000
on this long position. What should he do?
A. Place a limit buy order for 200 shares Rs.830 per share.
B. Place a limit sell order for 200 shares Rs. 830 per share.
C. Place a stop loss sell order for 200 shares Rs.830 per share.
D. Place a limit buy order for 200 shares at Rs.870 per share.

Explanation: Mr. Kailash will make a loss if the price of ABC Industries Ltd. falls. His loss
bearing capacity is Rs 4000. Therefore 4000 / 200 shares = Rs 20.
So, if the shares fall by Rs 20, he will make a loss of Rs 4000.
850 - 20 = 830. Therefore 830 will be his stoploss price and he will place a stoploss order at Rs
830.

Question 14. Mr. Ashu has bought 100 shares of ABC at Rs 980 per
share. He expects the price to go up but wants to protect himself if
price falls. He does not want to lose more than Rs. 1000 on this long
position in ABC. What should Mr. Ashu do?
A. Place a stop loss order for 100 shares of ABC at Rs 990 per share
B. Place a stop loss order for 100 shares of ABC at Rs 970 per share
C. Place limit buy order for 100 shares of ABC at Rs 990 per share
D. Place a limit sell order for 100 shares of ABC at Rs 970 per share

Explanation: Mr. Ashu will lose Rs 1000 if the ABC share will fall by Rs 10 as he has 100 shares
and a 10 rupee fall will lead to Rs 1000 loss.
He has bought at Rs 980. So, he will put the stop loss order at Rs 970 (980 - 10).

Question 15. _________ is allotted on client onboarding and serves as

an exclusive identification of the client.
A. PAN number
B. Unique client code
C. ISIN code
D. Demat account number

Question 16. A defaulting member's clients’ positions could be

transferred to ____________ by the Clearing Corporation.
A. Another solvent member
B. The Exchange
C. A suspense account
D. Error account
Question 17. Current Price of XYZ Stock is Rs 286. Rs. 260 strike call is
quoted at Rs 45. What is the Intrinsic Value?
A. 19
B. 26
C. 45
D. 0

Question 18. The margining system for index futures is based on

_______

A. Margin at risk
B. Price at risk
C. Volume at risk
D. Value at risk

Explanation: As per the recommendations of Dr. L.C. Gupta Committee - Margins should be
based on Value at Risk Methodology at 99% confidence.
Clearing corporation charges an upfront initial margin for all the open positions of a Clearing
Member. It specifies the initial margin requirements for each futures/ options contract on a
daily basis and also follows Value-At-Risk (VAR) based margining.

Question 19. You have bought a call option of XYZ stock of strike price
400 at a premium of Rs 30. The current spot/market price is Rs 410. At
what market price will this call breakeven?
A. 370
B. 400
C. 430
D. 440

Question 20. When establishing a relationship with a new client, the

trading member takes reasonable steps to assess the background,
genuineness, beneficial identify, financial soundness of such person
and his investment/trading objectives.
A. True
B. False
Question 21. SCORES is: __________.
A. Exchange’s Margin Reporting System
B. Collateral Reporting System of Clearing Corporation
C. SEBI’s web-based complaints redressal system
D. Customer Due Diligence and e-KYC system

Question 22. Value-at-risk provides the ______________.

A. Expected maximum loss, which may be incurred by a portfolio over a given period of
time and specified confidence level.
B. Value of securities which are very risky.
C. Value of speculative stocks.
D. Theoretical value of illiquid stocks in a portfolio.

Question 23. A trader Mr. Raj wants to sell 10 contracts of June series
at Rs.5200 and a trader Mr. Rahul wants to buy 5 contracts of July
series at Rs. 5250. Lot size is 50 for both these contracts. The Initial
Margin is fixed at 10%. They both have their accounts with the same
broker. How much Initial Margin is required to be collected from both
these investors by the broker?
A. Rs 2,60,000
B. Rs 1,31,250
C. Rs 3,91,250
D. Rs 1,28,750

Explanation: Payment of Initial Margin by a broker cannot be netted against two or more
clients. So, he will have to pay the margin for the open position of each of his clients.
So, margin payable for Mr. Raj is: 10 x 5200 x 50 at 10% = Rs 2,60,000
Margin payable for Mr. Rahul is : 5 x 5250 x 50 at 10% = Rs 1,31,250
Total = Rs 3,91,250.
Question 24. Mr Ranjan sold a ABC stock put contract of Rs 300 strike
price at Rs 28. What will be his profit / loss if he buys it back at Rs 13.
The lot size is 1000 shares.
A. 18000
B. -18000
C. 15000
D. -15000

Question 25. Dividends which are below _______ of the market value
of the underlying stock, would be deemed to be ordinary dividends.
A. 5%
B. 10%
C. 2%
D. 20%

Explanation: Dividends which are below 2% of the market value of the underlying stock,
would be deemed to be ordinary dividends and no adjustment

Question 26. The daily settlement of all open positions in a futures

contract is called ________
A. Exercising of the futures contract
B. Mark to Mark settlement
C. VaR settlement
D. None of the above

Question 27. If you sell a put option with strike of Rs 245 at a premium
of Rs.40, how much is the maximum gain that you may have on expiry
of this position?
A. 285
B. 40
C. 0
D. 205
Question 28. You have taken a short position of one contract in June
XYZ futures (contract multiplier 50) at a price of Rs. 3,400. When you
closed this position after a few days, you realized that you made a
profit of Rs. 10,000. Which of the following closing actions would have
enabled you to generate this profit? (You may ignore brokerage costs.)
A. Selling 1 June XYZ futures contract at 3600
B. Buying 1 June XYZ futures contract at 3600
C. Buying 1 June XYZ futures contract at 3200
D. Selling 1 June XYZ futures contract at 3200

Question 29. You sold a Put option on a share. The strike price of the
put was Rs 245 and you received a premium of Rs 49 from the option
buyer. Theoretically, what can be the maximum loss on this position?
A. 196
B. 206
C. 0
D. 49

Question 30. Mr A buys an August futures contract of ICICI Bank at Rs

500. On the last Thursday of the month i.e., expiry, the last traded price
in August futures is Rs 512 and the closing price in cash / spot market
is Rs 510. What is the profit / loss of Mr if his position is sq-up by the
exchange? Market lot of ICICI Bank is 250.
A. Rs 3000
B. Rs 2500
C. Rs -3000
D. Rs -2500

Explanation: As Mr A has not squared up his position, the exchange will do it and the same is
done at the CASH MARKET CLOSING PRICE.
So, Buying Price - Rs 500
Sq Up price - Rs 510
Profit of Rs 10 x 250 lot = Rs 2500
Question 31. Financial derivatives provide the facility for __________.
A. Trading
B. Hedging
C. Arbitraging
D. All of the above

Question 32. The buyer of an option cannot lose more than the option
premium paid.
A. True only for European options
B. True only for American options
C. True for all options
D. False for all options

Question 33. A calendar spread will attract _______ margin.

A. Zero
B. Higher
C. Lower
D. None of the above

Explanation: Calendar spread position is a combination of two positions in futures on the

same underlying - long on one maturity contract and short on a different maturity contract.
Calendar spreads carry only basis risk and no market risk i.e., no risk even if market rises or
falls by a big amount- hence lower margins are adequate.

Question 34. ________ measure of the sensitivity of an option price to

changes in market volatility.

A. Rho
B. Theta
C. Gamma
D. Vega
Question 35. _______ is a deal that produces profit by exploiting a
price difference in a product in two different markets.
A. Hedging
B. Trading
C. Speculation
D. Arbitrage

Explanation: Arbitrage means buying a security in one market while simultaneously selling
the same security in a different market, to benefit from price differential.

Question 36. Clients' positions cannot be netted off against each other
while calculating initial margin on the derivatives segment.
A. True
B. False

Question 37. What is done if a client defaults in making payments with

respect to his daily settlement?
A. The contract is transferred to a special 'Default Account'
B. The contract is closed out
C. The contract is transferred to another clients account who has sufficient funds
D. A weeks notice is given to that client

Question 38. An index option is a __________________.

A. Debt instrument
B. Derivative product
C. Cash market product
D. Money market instrument

Question 39. Clearing corporation on a derivatives exchange becomes

a legal counterparty to all trades and be responsible for guaranteeing
settlement for all open positions.
A. True
B. False
Question 40. Of the below mentioned options, which would attract
margins?
A. Buyer of PUT Option
B. Seller of CALL Option
C. Seller of PUT Option
D. Both 2 and 3

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

Question 41. An option with a delta of 0.5 will increase in value

approximately by how much, if the underlying share price increases by
Rs 2?
A. Rs 1
B. Rs 2
C. Rs 4
D. There would be no change

Question 42. Impact cost is low when the liquidity in the system is
poor.
A. True
B. False

Question 43. Put-call parity refers to the relationship between:

________.
A. futures and options on the same stock
B. call options on the same stock with the same maturity but different strike prices
C. put and call options on the same stock but different strike prices and different maturity
D. call and put options on the same stock with the same strike prices and same maturity
Question 44. ________ is a deal that produces profit by exploiting a
price difference in a product in two different markets.
A. Hedging
B. Trading
C. Speculation
D. Arbitrage

Explanation: Arbitrage means buying a security in one market while simultaneously selling
the same security in a different market, to benefit from price differential.

Question 45. Which of the following situations indicates a bullish trend

in the underlying?
A. a rising futures price along with falling open interest
B. a falling futures price along with rising open interest
C. a rising futures price along with rising open interest
D. a falling futures price along with falling open interest

Question 46. A calendar spread contract in index futures attracts

___________.
A. Same margin as sum of two independent legs of futures contract
B. Lower margin than sum of two independent legs of futures contract
C. Higher margin than sum of two independent legs of futures contract
D. No margin need to be paid for calendar spread positions

Question 47. A stock exchange has ONLINE SURVEILLANCE capability

to monitor the ________
A. Volumes
B. Prices
C. Positions
D. All of the above

Explanation: All modern stock exchanges have highly developed online surveillance systems
to monitor the volumes / position and prices of all listed products and also check any unusual
activity etc. in them.
Question 48. Which of these CALL options is Out of The Money (OTM)?
A. The spot price is Rs 350 and strike price is Rs 330
B. The spot price is Rs 350 and strike price is Rs 370
C. The spot price is Rs 350 and strike price is Rs 350
D. Depends on the Delta of the option

Question 49. If you have sold a XYZ futures contract (contract

multiplier 50) at 3100 and bought it back at 3300, what is your
gain/loss?
A. A loss of Rs. 10,000
B. A gain of Rs. 10,000
C. A loss of Rs. 5,000
D. A gain of Rs. 5,000

Question 50. A buyer of Call Option _________

A. Has the obligation to take delivery of asset
B. Has the obligation to give delivery of asset
C. Has the right to buy the underlying asset
D. Has the right to sell the underlying asset

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

Question 51. Client A has purchased 10 contracts of December series

and sold 7 contracts of January series of the NSE Nifty futures. How
many lots will get categorized as regular (non-spread) open positions?
A. 10
B. 7
C. 3
D. 17
Question 52. Mr. Sunil wishes to buy a futures contract of Tata Steel
shares. He should ________.
A. make payments for the full value of the contract
B. make the margin payments as calculated by the exchange
C. hedge his position in Tata Steel in the Options market
D. None of the above

Question 53. All the trades and open positions on a derivative

exchange are guaranteed by the Clearing Corporation and it becomes
a legal counterparty.
A. True
B. False

Explanation: Clearing Corporation or the Clearing House is responsible for clearing and
settlement of all trades executed on the F&O Segment of the Exchange.
Clearing Corporation acts as a legal counterparty to all trades on this segment and also
guarantees their financial settlement.
The Clearing and Settlement process comprises of three main activities, viz., Clearing,
Settlement and Risk Management.

Question 54. In which option is the strike price better than the market
price (i.e., price difference is advantageous to the option holder) and
therefore it is profitable to exercise the option?
A. Out of the money option
B. In the money option
C. At the money option
D. Higher the money option

Question 55. A long position in a CALL option can be closed by taking a

short position in PUT option.
A. False
B. True

Explanation: A long position in any option can be closed by selling that option and not in any
other way.
So, a long position in a CALL option can be closed by selling that CALL option.
Question 56. A member has two clients Rohit and Mohit. Rohit has
purchased 100 contracts and Mohit has sold 300 contracts in March
Tata Steel futures series. What is the outstanding liability (open
Position) of the member towards Clearing Corporation in number of
contracts?
A. 100
B. 300
C. 400
D. 200

Explanation: For a member i.e., Stock Broker, the liability will be the sum of all the contracts
of all his clients. The contracts cannot be netted in between two clients. So, in this case the
sum of contracts is 100 + 300 = 400 contracts.

Question 57. Which of the following is closest to the forward price of a

share, if Cash Price = Rs.750, Forward Contract Maturity = 6 months
from date, Market Interest rate = 12%?
A. 772.5
B. 795
C. 840
D. 940.8

Question 58. Under the Anti-Money Laundering (AML) and Combating

of Financial Terrorism (CFT) regulations, suspicious transactions must
be reported to ___________.
A. Securities and Exchange Board of India
B. Central Vigilance Commission
C. Reserve Bank of India
D. Financial Intelligence Unit – India

Question 59. An in-the-money option is _____________.

A. An option with a negative intrinsic value
B. An option which cannot be profitably exercised by the holder immediately
C. An option with a positive intrinsic value
D. An option with zero time value
Question 60. The Spot price i.e., the market price of a share is Rs 200
and the interest rate is 12% pa. Which of the below price is closest to
3 months future maturity?
A. 206
B. 200
C. 203
D. 224

Explanation: Price of a future contract is generally the spot price plus interest for the time
period.
Yearly Interest Rate is 12%. Full year's interest = 12% of 200 i.e., Rs 24 (200 x 12 / 100)
So, for 3 months the cost of interest is Rs 6. (24/12 x 3)
Therefore the 3-month future contract will have a price of appx. Rs 206. (200 + 6)

Question 61. The purchase of a share in one market and the

simultaneous sale in a different market to benefit from price
differentials is known as ____________.
A. Mortgage
B. Arbitrage
C. Hedging
D. Speculation

Question 62. Which of the following options on ABC Ltd stock with a
strike price of Rs.500 has the highest time value?
A. Option expiring in a week
B. Option expiring in one month
C. Option expiring in two months
D. Option expiring in three months

Question 63. Value-at-risk measures ___________.

A. Value of proprietary portfolio
B. Risk level of a financial portfolio
C. Net-worth of an investor
D. Credit rating of an investor
Question 64. What role do speculators play in the futures market?
A. They take delivery of the commodities at expiration
B. They produce the commodities traded at futures exchanges
C. They add to the liquidity in the futures markets
D. They transfer their risk to the hedgers

Question 65. Mr R wants to sell 17 contracts of January series at

Rs.4550 and Mr S wants to sell 20 contracts of February series at Rs.
4500. Lot size is 50. The Initial Margin is fixed at 9%. How much Initial
Margin is required to be collected from both these investors by the
broker?
A. Rs 3,48,075
B. Rs 4,05,000
C. Rs 5,87,500
D. Rs 7,53,075

Explanation: The Broker has to collect-

From Mr. R: 17 x 4550 x 50 x 9% = Rs 3,48,075
From Mr. S: 20 x 4500 x 50 x 9% = Rs 4,05,000
Therefore, the total margin to be collected is 348075 + 405000 = Rs 7,53,075

Question 66. Selling short a stock means ___________.

A. Seller does not own the stock he is supposed to deliver
B. Seller has to deliver the stock within a short time
C. Seller owns the stock he is supposed to deliver
D. Seller has more than a year's time to deliver the stock which he sold

Question 67. Initial margin is calculated based on ______

A. Average price movement in the last 5 working days
B. Value-At-Risk (VAR) based margining
C. fixed at 25% for most of the scrips and 35% for volatile scrips
D. As per The Black & Scholes Model

Explanation: Initial margin requirements are based on 99% value at risk over a one daytime
horizon.
Question 68. If an investor buys a call option with lower strike price
and sells another call option with higher strike price, both on the same
underlying share and same expiration date, the strategy is called
___________.
A. Bullish spread
B. Bearish spread
C. Butterfly spread
D. Calendar spread

Question 69. All the orders entered on the Trading System of a

Derivative Exchange are at Prices exclusive of brokerage. True or False?
A. False
B. True

Explanation: The prices are exclusive i.e., without any brokerage. Brokerage is added later
and is reflected in the contract note.

Question 70. Which is the ratio of change in option premium for the
unit change in interest rates?
A. Vega
B. Rho
C. Theta
D. Gamma

Question 71. On the Clearing Council of the Clearing Corporation of the

derivatives segment, broker-members are allowed.
A. True
B. False

Question 72. In the KYC process, Politically Exposed Persons are

termed as:
A. Clients of Special Categories
B. High Networth Clients
C. Institutional Clients
D. High Risk Clients
Question 73. If the price of a stock is volatile, then the option premium
would be relatively _______
A. Lower
B. Higher
C. No effect of volatility
D. Zero

Explanation: Higher volatility means higher risk and higher risk means one has to pay a higher
premium.

Question 74. Exchange traded options are _______________.

A. Standardised options
B. Always in-the-money options
C. Customised options
D. Always out-of-the money options

Question 75. Cost of carry model states that ______________.

A. Price of Futures = Spot + Cost of Carry
B. Price of Futures = Spot - Cost of Carry
C. Price of Futures = Spot Price
D. Price of Futures = Cost of Carry

Question 76. If the liquid assets maintained by clearing member Mr.

Ram are higher than that clearing member Mr. Shyam, which of the
below options is/are true?
A. There is no need to maintain liquid assets
B. Both Mr. Ram and Mr. Shyam have the same level of exposure
C. Mr Ram has a higher exposure level than Mr. Shyam
D. Mr Shyam has a higher exposure level than Mr. Ram

Explanation: As per the rules of SEBI and Stock Exchanges, the notional value of gross open
positions at any point in time in the case of all Futures and Options shall not exceed a
particular percentage of the liquid net worth of a member.
So, a member (Mr Ram) who keeps higher liquid assets as security and margin with the stock
exchanges will get higher exposure limits.
Question 77. Operational risks include losses due to ____________.
A. Inadequate disaster planning
B. Too much of management control
C. Income tax regulations
D. Government policies

Question 78. Margins in 'Futures' trading are to be paid by _______.

A. Only the buyer
B. Only the seller
C. Both the buyer and the seller
D. The clearing corporation

Question 79. A put option gives the buyer a right to sell how much of
the underlying to the writer of the option?
A. Any quantity
B. Only the specified quantity (lot size of the option contract)
C. The specified quantity or less than the specified quantity
D. The specified quantity or more than the specified quantity

Question 80. Fixed deposits and Bank guarantees are NOT permitted
to be offered by Clearing Members to the Clearing Corporation as part
of liquid assets - State whether True or False.
A. True
B. False

Explanation: Clearing member is required to provide liquid assets which adequately cover
various margins and liquid Net-worth requirements. He may deposit liquid assets in the form
of cash, bank guarantees, fixed deposit receipts, approved securities and any other form of
collateral as may be prescribed from time to time.
Question 81. Three Call series of XYZ stock - January, February and
March are quoted. Which will have the lowest Option Premium (same
strikes)?
A. January
B. February
C. March
D. All will be equal

Question 82. In the case of Foreign Portfolio Investors (FPIs), the gains
or losses arising from derivatives transactions on a recognized stock
exchange are taxable as _________
A. Long-term capital gains
B. Short term capital gain
C. Speculative gains
D. Income from other Sources

Question 83. Mark-to-market margins are collected ___________.

A. On a weekly basis
B. Every 2 days
C. Every 3 days
D. On a daily basis

Question 84. Initial margin collection is monitored by the _________.

A. RBI
B. Clearing Corporation
C. SEBI
D. Margin Office

Question 85. The main objective of Trade Guarantee Fund (TGF) at the
exchanges is ___________
A. To guarantee settlement of bonafide transactions of the members of the exchange
B. To inculcate confidence in the minds of market participants
C. To protect the interest of the investors in securities
D. All of the above
Question 86. Who is eligible for clearing trades in index options?
A. All Indian citizens
B. All members of the stock exchange
C. All national level distributors
D. Only members, who are registered with the Derivatives Segment as Clearing
Members

Question 87. Which of the following measures was introduced by SEBI

to prevent brokers from allowing excessive intraday leverage to their
clients?
A. Cross margin
B. SPAN margin
C. Peak margin
D. Exposure margin

Question 88. Profits from derivatives transactions for Indian investors

are taxed as: __________.
A. Speculative income under the head ‘profits and gains of business or profession’
B. Short term capital gains under the head ‘capital gains’
C. Non-speculative income under the head ‘income from other sources’
D. Non-speculative income under the head ‘profits and gains of business or profession’

Question 89. If the lot size of Reliance Industries future contract is 500
shares, what will be the lot size of its Option contract?
A. 500
B. 250
C. 100
D. 1000

Explanation: The lot size of a Futures Contract and Options Contract are always the same.

Question 90. When compared to cash market, there are more chances
that an investor does not properly understand the risks involved in the
derivatives market. True or False?
A. True
B. False
Explanation: Derivatives market and mainly the options market are difficult to understand
when compared to cash markets.

Question 91. When you buy a put option on a stock you are owning,
this strategy is called ________
A. Straddle
B. writing a covered call
C. calendar spread
D. protective put

Explanation: Protective Put is a calendar risk-management strategy that investors can use to
guard against the loss of unrealized gains.
The put option acts like an insurance policy - it costs money, which reduces the investor's
potential gains from owning the security, but it also reduces his risk of losing money if the
security declines in value.

Question 92. The intrinsic value is the difference between Market Price
and Strike Price of the option and it can never be negative.
A. True
B. False

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

Question 93. A trader sells a lower strike price CALL option and buys a
higher strike price CALL option, both of the same scrip and same expiry
date. This strategy is called _______
A. Bearish Spread
B. Bullish Spread
C. Long term Investment
D. Butterfly

Explanation: A bear call spread is a limited profit, limited risk option strategy that can be used
when the options trader is moderately bearish on the underlying security.
It is entered by buying call options of a certain strike price and selling the same number of call
options of lower strike price (in the money) on the same underlying security with the same
expiration month.

Question 94. When the near leg of the calendar spread transaction on
index futures expires, the farther leg becomes a regular open position.
A. True
B. False

Question 95. The type of volatility which is derived from the option
price and indicates the volatility expected over the life of the option is
termed as ____________.
A. implied volatility
B. historical volatility
C. expected volatility
D. forecast volatility

Question 96. Higher the price volatility of the underlying stock of the
put option, ___________.
A. Higher would be the premium
B. Lower would be the premium
C. Nil (zero) would be the premium
D. Volatility does not effect put value

Question 97. A European call option gives the buyer the right but not
the obligation to buy from the seller an underlying at the prevailing
market price "on or before" the expiry date.
A. True
B. False
Question 98. Trader A wants to sell 20 contracts of August series at Rs
4500 and Trader B wants to sell 17 contracts of September series at Rs
4550. Lot size is 50 for both these contracts. The Initial Margin is fixed
at 6%. How much Initial Margin is required to be collected from both
these investors (sum of initial margins of A and B) by the broker?
A. 2,70,000
B. 5,02,050
C. 2,32,050
D. 4,10,000

Question 99. You sold one XYZ Stock Futures contract at Rs. 278 and
the lot size is 1,200. What is your profit (+) or loss (-), if you purchase
the contract back at Rs. 265?
A. 16,600
B. 15,600
C. -15,600
D. -16,600

Question 100. If price of a futures contract decreases, the margin

account of the buyer of this futures contract is debited for the loss.
A. True
B. False