NCFM DERIVATIVES PART 1

PRACTICE QUESTIONS
DERIVATIVES MARKET (DEALERS) MODULE

1.Swaps can be regarded as portfolios of ________. [ 1 Mark ]
(a) Future Contracts
(b) Option Contracts
(c) Call Options
(d) Forward Contracts
(e) I am not attempting the question

2.A stock is currently selling at Rs. 165. The put option at Rs. 163 strike price costs Rs.
3. What is the time value of the option? [ 1 Mark ]
(a) Rs. 3
(b) Rs. 2
(c) Rs. 1
(d) Rs. 1.50
(e) I am not attempting the question

3.LEAPS have a maturity of upto _________. [ 1 Mark ]
(a) one year
(b) three years
(c) ten years
(d) three months
(e) I am not attempting the question

4.What is the outstanding position on which initial margin will be levied if no proprietary
trading is done and the details of client trading are: one client buys 500 units @ 1260.
The second client buys 900 units @Rs.1255 and sells 1000 units @Rs.1260?[2 Marks ]
(a) 1900 units
(b) 2400 units
(c) 500 units
(d) 600 units
(e) I am not attempting the question

5.A payer swaption is an option to pay ______ and receive ______. [ 1 Mark ]
(a) floating, fixed
(b) interest, interest
(c) fixed, floating
(d) options, futures
(e) I am not attempting the question

6.Forward contracts are ________ contracts. [ 3 Marks ]
(a) Multilateral
(b) Tri -lateral
(c) Future
(d) Bilateral
(e) I am not attempting the question

7.You are the owner of a 5 million portfolio with a beta 1.0. You would like to insure
your portfolio against a fall in the index of magnitude higher than 10%. Spot Nifty
stands at 4000. Put options on the Nifty are available at three strike prices. Which
strike will give you the insurance you want? [ 2 Marks ]
(a) 3,870
(b) 3,840
(c) 3,600
(d) None of the above
(e) I am not attempting the question

8.A receiver swaption is an option to receive ______ and pay ______. [ 1 Mark ]
(a) fixed, floating
(b) floating, fixed
(c) interest, interest
(d) options, futures
(e) I am not attempting the question

9.The market impact cost on a trade of Rs. 4 million of the S&P CNX Nifty works out to
be about 0.06%. This means that if S&P CNX Nifty is at 4000, a sell order of that value
will go through at a price of Rs. _______. [ 1 Mark ]
(a) 3997.60
(b) 3996
(c) 3,999.50
(d) 3,995.50
(e) I am not attempting the q uestion

10.Ms. Shetty has sold 1000 calls on ABC Ltd. at a strike price of Rs. 885 for a premium
of Rs.27 per call on April 1. The closing price of equity shares of ABC Ltd. is Rs. 890 on
that day. If the call option is assigned against her on that day, what is her net
obligation on April 01? [ 2 Marks ]
(a) Pay-out of Rs.22,300
(b) Pay-in of Rs.22,000
(c) Pay-in of Rs.25,000
(d) Pay-out of Rs.22,000
(e) I am not attempting the question

11.BANK Nifty is a derivative contract on NSE ____________. True or False? [ 3 Marks ]
(a) True
(b) False
(c) I am not attempting the question

12.CNX IT is a derivatives contract on NSE. True or False? [ 3 Marks ]
(a) True
(b) False
(c) I am not attempting the question

13.Forward contracts on expira tion have to settled by __________. [ 3 Marks ]
(a) cash
(b) difference in price
(c) payment of margin
(d) delivery of the asset
(e) I am not attempting the question

14.On expiry the settlement price of a stock option contract is the _________.[ 2 Marks ]
(a) Closing futures price
(b) Closing stock price
(c) Closing options price
(d) None of the above
(e) I am not attempting the question

15.In an index fund, trading in the stocks comprising the fund, is required in response to
______. [ 1 Mark ]
(a) Favourable company specific news
(b) Poor company specific news
(c) Mergers
(d) Government policies
(e) I am not attempting the question

16.The market impact cost on a trade of Rs. 3 million of the S&P CNX Nifty works out to be about 0.04%. This means that if S&P CNX Nifty is at 4100, a sell order of that value will go through at a price of Rs. _______. [ 1 Mark ]
(a) 4098.35
(b) 4096
(c) 4093
(d) 4099.50
(e) I am not attempting the question

17.The following is an example of an order with time condition. [ 3 Marks ]
(a) Day order
(b) Stop Loss
(c) Limit
(d) All of the above
(e) I am not attempting the question

18.What is the outstanding position on which initial margin will be levied if no proprietary trading is d one and the details of client trading are: one client buys 1000 units @ 1260. The second client buys 1000 units @Rs.1255 and sells 1000 units @Rs.1260.?
[ 2 Marks ]
(a) 2000 units
(b) 3000 units
(c) 1000 units
(d) 4000 units
(e) I am not attempting the question

19.The beta of TELCO is 0.8. A person has a long TELCO position of Rs. 800,000 coupled with a short Nifty position of Rs. 600,000. Which of the following is TRUE? [ 1 Mark ]
(a) He is bearish on Nifty as well as on TELCO
(b) He has a complete hedge against fluctuations of Nifty
(c) He has a partial hedge against fluctuations of Nifty
(d) He is bullish on Nifty as well as on TELCO
(e) I am not attempting the question

20.Reliance Industries Ltd. does not have a Beta value. True or False? [ 2 Marks ]
(a) True
(b) False
(c) I am not attempting the question

21.Nifty consists of securities having _____ market capitalization stocks. [ 1 Mark ]
(a) large
(b) small
(c) medium
(d) large and small
(e) I am not attempting the question

22.The beta of ICICI Bank is 1.5. A person has a long position of Rs. 400,000 of ICICI
Bank. Which of the following gives a complete hedge?. [ 1 Mark ]
(a) SELL Rs. 600,000 of Nifty futures
(b) SELL Rs. 650,000 of Nifty futures
(c) SELL Rs. 700,00 0 of Nifty futures
(d) None of the above
(e) I am not attempting the question

23.On 15th January, Raju bought a January Nifty futures contract which cost him
Rs.334,500. For this he had to pay an initial margin of Rs.31,520 to his broker. Each
Nifty futures contract is for delivery of 100 Nifties. On 25th January, the index closed
at 3360. How much profit/loss did he make? [ 2 Marks ]
(a) (- ) 1,200
(b) ( -) 1,500
(c) (+) 1,200
(d) (+) 1,500
(e) I am not attempting the question

24.Futures have a _______ payo ff. [ 2 Marks ]
(a) Non-linear
(b) Linear
(c) Vertical
(d) Horizontal
(e) I am not attempting the question

25.Mr. A buys a futures contract of M/s. XYZ Ltd. (Lot Size: 1000) expiring on Sep 29th for Rs. 300. The spot price of the share is Rs. 2 90. Does he have to pay securities
transaction tax? [ 1 Mark ]
(a) Yes, only if he buys more than 1 contract
(b) Yes
(c) No, only if he sells of the contract immediately
(d) No
(e) I am not attempting the question

26.Ms. Shetty has sold 5000 calls on ABC Ltd. at a strike price of Rs. 500 for a premium
of Rs.25 per call on April 1. The closing price of equity shares of ABC Ltd. is Rs. 505 on
that day. If the call option is assigned against her on that day, what is her net
obligation on April 01? [ 2 Marks ]
(a) Pay-out of Rs.1,22,300
(b) Pay-in of Rs.1,22,000
(c) Pay-in of Rs.1,25,000
(d) Pay-out of Rs.1,00,000
(e) I am not attempting the question

27.An index put option at a strike of Rs. 4200 is selling at a premium of Rs. 30. At what
index level will it break even for the buyer of the option? [ 1 Mark ]
(a) Rs. 4175
(b) Rs. 4176
(c) Rs. 4170
(d) Rs. 4162
(e) I am not attempting the question

28.Which of the following is the duty of the trading member? [ 3 Marks ]
(a) Giving tips to clients to buy and sell
(b) Funding losses of the clients
(c) Collection of adequate margins from the client
(d) All of the above
(e) I am not attempting the question

29.The only way an investor can manage risks in the un derlying cash market is by?
[ 1 Mark ]
(a) Hedging in the futures market
(b) Speculating in the futures market
(c) Speculating in the options market
(d) All of the above
(e) I am not attempting the question

30.Nifty is a ________ index [ 2 Marks ]
(a) well diversified
(b) poorly diversified
(c) balanced
(d) volatile
(e) I am not attempting the question



Answers :
1 (d) 21 (a)
2 (a) 22 (a)
3 (b) 23 (d)
4 (d) 24 (b)
5 (c) 25 (d)
6 (d) 26 (d)
7 (c) 27 (c)
8 (a) 28 (c)
9 (a) 29 (a)
10 (d) 30 (a)
11 (a)
12 (a)
13 (d)
14 (b)
15 (c)
16 (a)
17 (a)
18 (c)
19 (c)
20 (b)