NISM SERIES VIII EQUITY DERIVATIVES CERTIFICATION

DEMO TEST

NISM SERIES VIII EQUITY DERIVATIVES CERTIFICATION

DEMO TEST

Question 1
(a)
(b)
(c)
(d)

Question 2
(a)
(b)
(c)
(d)

Correct Answer 1
Answer
Explanation

Correct Answer 2

If one makes does a calendar spread contract in index futures, then it attracts_________
Lower margin than sum of two independent legs of futures contract
No margin need to be paid for calendar spread positions
Higher margin than sum of two independent legs of futures contract
Same margin as sum of two independent legs of futures contract

An exchange traded option after maturity __________ .

Can be traded in the spot market
Can be traded for next 7 days
Cannot be traded
None of the above

Lower margin than sum of two independent legs of futures contract

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 postion.
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.

Cannot be traded

NISM SERIES VIII EQUITY DERIVATIVES CERTIFICATION

DEMO TEST

Question 3

(a)
(b)
(c)
(d)

Question 4
(a)
(b)
(c)
(d)

Correct Answer 3
Answer
Explanation

Correct Answer 4
Answer
Explanation

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 ?
Rs 2,60,000
Rs 1,31,250
Rs 3,91,250
Rs 1,28,750

The Spot Price of ABC Stock is Rs. 347. Rs. 325 strike call is quoted at Rs. 39. What is the
Intrinsic Value?
0
22
39
61

Rs 3,91,250
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.

22
When the Strike Price is below the Spot Price, the Call Option is 'In the Money' ie. profitable.
Intrinsic Value for a such a Call Option = Spot Price - Strike Price
= 347 - 325
= 22

NISM SERIES VIII EQUITY DERIVATIVES CERTIFICATION

DEMO TEST

Question 5
(a)
(b)
(c)
(d)

Question 6

(a)
(b)

Correct Answer 5
Answer
Explanation

Correct Answer 6
Answer
Explanation

Tick size depends on

The Delta of the security
Its fixed by the exchange
Volume in that security
The Interest rates

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 ?
TRUE
FALSE

Its fixed by the exchange

Tick size is the minimum move allowed in the price quotations. Exchanges decide the tick
sizes on traded contracts as part of contract specification. Tick size for Nifty futures is 5 paisa.

TRUE
Derivatives market and mainly the options market are difficult to understand
when compared to cash markets.

NISM SERIES VIII EQUITY DERIVATIVES CERTIFICATION

DEMO TEST

Question 7

(a)
(b)
(c)
(d)

Question 8
(a)
(b)
(c)
(d)

Correct Answer 7
Answer
Explanation

Correct Answer 8
Answer
Explanation

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?
Rs 3,48,075
Rs 4,05,000
Rs 5,87,500
Rs 7,53,075

When you buy a put option on a stock you are owning, this strategy is
called _____________ .
Straddle
writing a covered call
calender spread
protective put

Rs 7,53,075
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

protective put
Protective Put is a a 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.

NISM SERIES VIII EQUITY DERIVATIVES CERTIFICATION

DEMO TEST

Question 9

(a)
(b)

Question 10

(a)
(b)
(c)
(d)

Correct Answer 9
Answer
Explanation
Correct Answer 10
Answer
Explanation

OTC derivative market is less regulated market because these

transactions occur in private among qualified counterparties, who are
supposed to be capable enough to take care of themselves. True or False
FALSE
TRUE

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?
100
300
400
200

TRUE
In an OTC market, no exchange is involved.

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

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NISM SERIES VIII EQUITY DERIVATIVES CERTIFICATION

DEMO TEST