MODEL TEST PAPER EQUITY DERIVATIVE MODEL PAPER (NISM-8)

AS Chakravarthy NCFM: Equity Derivatives Exam Model Paper (NISM-8)

AS Chakravarthy NCFM: Equity Derivatives (NISM-8) Exam Model Paper

Stock Market : AS Chakravarthy NISM NCFM Course in Hyderabad

AS Chakravarthy NCFM Academy Hyderabad, Ameerpet is Pioneer in Training NISM and NCFM Courses, like Capital Market Dealers Module, Equity Derivative Certification Examination (NISM-8), NSE Certification Courses and NISM Certification Courses. The Best Institute for Stock Market Training – NISM & NCFM Courses in Hyderabad.

Equity Derivative Certification Examination (NISM-VIII) Model Test Paper 

 

Q.1 Theta is also referred to as the _________ of the portfolio [1 Mark]

(a) time decay

(b) risk delay

(c) risk decay

(d) time delay

Q.2 All of the following are true regarding futures contracts except [1 Mark]

(a) they are regulated by RBI

(b) they require payment of a performance bond

(c) they are a legally enforceable promise

(d) they are market to market

Q.3 Clearing Members (CMs) and Trading Members (TMs) are required to collect upfront initial margins from all their Trading Members/Constituents. [1 Mark]

(a) FALSE

(b) TRUE

Q.4 All open positions in the index futures contracts are daily settled at the [1 Mark]

(a) mark-to-market settlement price

(b) net settlement price

(c) opening price

(d) closing price

Q.5. An American style call option contract on the Nifty index with a strike price of 3040 expiring on the 30th June 2008 is specified as “30 JUN 2008 3040 CA”. [1 Mark]

(a) FALSE

(b) TRUE

Q.6 Usually, open interest is maximum in the _______ contract. [1 Mark]

(a) more liquid contracts

(b) far month

(c) middle month

(d) near month

Q.7 An equity index comprises of ______. [1 Mark]

(a) basket of stocks

(b) basket of bonds and stocks

(c) basket of tradeable debentures

(d) None of the above

Q.8 Position limits have been specified by _______ at trading member, client, market and FII levels respectively. [1 Mark]

(a) Sub brokers

(b) Brokers

(c) SEBI

(d) RBI

Q.9 An order which is activated when a price crosses a limit is _________ in F&O segment of NSEIL. [1 Mark]

(a) stop loss order

(b) market order

(c) fill or kill order

(d) None of the above

Q.10 Which of the following is not a derivative transaction? [1 Mark]

(a) An investor buying index futures in the hope that the index will go up.

(b) A copper fabricator entering into futures contracts to buy his annual requirements of copper.

(c) A farmer selling his crop at a future date

(d) An exporter selling dollars in the spot market

Q.11 An investor is bearish about ABC Ltd. and sells ten one-month ABC Ltd. futures contracts at Rs.5,00,000. On the last Thursday of the month, ABC Ltd. closes at Rs.510. He makes a _________. (assume one lot = 100) [1 Mark]

(a) Profit of Rs. 10,000

(b) loss of Rs. 10,000

(c) loss of Rs. 5,100

(d) profit of Rs. 5,100

Q.12 The interest rates are usually quoted on :  [1 Mark]

(a) Per annum basis

(b) Per day basis

(c) Per week basis

(d) Per month basis

Q.13 After SPAN has scanned the 16 different scenarios of underlying market price and volatility changes, it selects the ________ loss from among these 16 observations  [1 Mark]

(a) largest

(b) 8th smallest

(c) smallest

(d) average

Q.14 Mr. Ram buys 100 calls on a stock with a strike of Rs.1,200. He pays a premium of Rs.50/call. A month later the stock trades in the market at Rs.1,300. Upon exercise, he will receive __________. [1 Mark]

(a) Rs.10,000

(b) Rs.1,200

(c) Rs.6,000

(d) Rs.1,150

Q.15 There are no Position Limits prescribed for Foreign Institutional Investors (FIIs) in the F&O Segment. [1 Mark]

(a) TRUE

(b) FALSE

Q.16 In the Black-Scholes Option Pricing Model, when S becomes very large a call option is almost certain to be exercised [1 Mark]

(a) FALSE

(b) TRUE

Q.17 Suppose Nifty options trade for 1, 2 and 3 months expiry with strike prices of 1850, 1860, 1870, 1880, 1890, 1900, 1910. How many different options contracts will be tradable? [1 Mark]

(a) 27

(b) 42

(c) 18

(d) 24

Q.18 Prior to Financial Year 2005 – 06, transaction in derivatives were considered as speculative transactions for the purpose of determination of tax liability under the Income-tax Act [1 Mark]

(a) TRUE

(b) FALSE

Q.19 ______ is allotted to the Custodial Participant (CP) by NSCCL. [1 Mark]

(a) A unique CP code

(b) An order identifier

(c) A PIN number

(d) A trade identifier

Q.20 An interest rate is 15% per annum when expressed with annual compounding. What is the equivalent rate with continuous compounding? [1 Mark]

(a) 14%

(b) 14.50%

(c) 13.98%

(d) 14.75%

Q.21 The favorable difference received by buyer/holder on the exercise/expiry date, between the final settlement price as and the strike price, will be recognized as ___________ [1 Mark]

(a) Income

(b) Expense

(c) Cannot say

(d) None

Q.22 The F&O segment of NSE provides trading facilities for the following derivative instruments, except [1 Mark]

(a) Individual warrant options

(b) Index based futures

(c) Index based options

(d) Individual stock options

Q.23 Derivative is defined under SC(R)A to include : A contract which derives its value from the prices, or index of prices, of underlying securities. [1 Mark]

(a) TRUE

(b) FALSE

Q.24 The risk management activities and confirmation of trades through the trading system of NSE is carried out by _______. [1 Mark]

(a) users

(b) trading members

(c) clearing members

(d) participants

Q.25 A dealer sold one January Nifty futures contract for Rs.250,000 on 15th January. Each Nifty futures contract is for delivery of 50 Nifties. On 25th January, the index closed at 5100. How much profit/loss did he make ? [1 Mark]

(a) Profit of Rs. 9000

(b) Loss of Rs. 8000

(c) Loss of Rs. 9500

(d) Loss of Rs. 5000

Q.26 Manoj owns five hundred shares of ABC Ltd. Around budget time, he gets uncomfortable with the price movements. Which of the following will give him the hedge he desires (assuming that one futures contract = 100 shares) ? [1 Mark]

(a) Buy 5 ABC Ltd.futures contracts

(b) Sell 5 ABC Ltd.futures contracts

(c) Sell 10 ABC Ltd.futures contracts

(d) Buy 10 ABC Ltd.futures contracts

Q.27 An investor is bearish about Tata Motors and sells ten one-month ABC Ltd. Futures contracts at Rs.6,06,000. On the last Thursday of the month, Tata Motors closes at Rs.600. He makes a _________. (assume one lot = 100) [1 Mark]

(a) Profit of Rs. 6,000

(b) Loss of Rs. 6,000

(c) Profit of Rs. 8,000

(d) Loss of Rs. 8,000

Q.28 The beta of Jet Airways is 1.3. A person has a long Jet Airways position of Rs. 200,000 coupled with a short Nifty position of Rs.100,000. Which of the following is TRUE? [1 Mark]

(a) He is bullish on Nifty and bearish on Jet Airways

(b) He has a partial hedge against fluctuations of Nifty

(c) He is bearish on Nifty as well as on Jet Airways

(d) He has a complete hedge against fluctuations of Nifty

Q.29 Suppose a stock option contract trades for 1, 2 and 3 months expiry with strike prices of 85, 90, 95, 100, 105, 110, 115. How many different options contracts will be tradable? [1 Mark]

(a) 18

(b) 32

(c) 21

(d) 42

Q.30 The bull spread can be created by only buying and selling [1 Mark]

(a) basket option

(b) futures

(c) warrant

(d) options

Q.31 A stock broker means a member of_______. [1 Mark]

(a) SEBI

(b) any exchange

(c) a recognized stock exchange

(d) any stock exchange

Q.32 Ashish is bullish about HLL which trades in the spot market at Rs.210. He buys 10 three-month call option contracts on HLL with a strike of 230 at a premium of Rs.1.05 per call. Three months later, HLL closes at Rs. 250. Assuming 1 contract = 100 shares, his profit on the position is ____. [1 Mark]

(a) Rs.18,950

(b) Rs.19,500

(c) Rs.10,000

(d) Rs.20,000

Q.33 A January month Nifty Futures contract will expire on the last _____ of January [1 Mark]

(a) Monday

(b) Thursday

(c) Tuesday

(d) Wednesday

Q.34 Which of the following are the most liquid stocks? [1 Mark]

(a) All Infotech stocks

(b) Stocks listed/permitted to trade at the NSE

(c) Stocks in the Nifty Index

(d) Stocks in the CNX Nifty Junior Index

Q.35 In the books of the buyer/holder of the option, the premium paid would be ___________ to ‘Equity Index Option Premium Account’ or ‘Equity Stock Option Premium Account’, as the case may be. [1 Mark]

(a) Debited

(b) Credited

(c) Depends

(d) None

Q.36 Greek letter measures a dimension to_______________ in an option position.  [1 Mark]

(a) the risk

(b) the premium

(c) the relationship

(d) None

Q.37 An option which gives the holder the right to sell a stock at a specified price at some time in the future is called a ___________. [1 Mark]

(a) Naked option

(b) Call option

(c) Out-of-the-money option

(d) Put option

Q.38 Trading member Shantilal took proprietary purchase in a March 2000 contract. He bought 1500 units @Rs.1200 and sold 1400 units @ Rs. 1220. The end of day settlement price was Rs. 1221. What is the outstanding position on which initial margin will be calculated? [1 Mark]

(a) 300 units

(b) 200 units

(c) 100 units

(d) 500 units

Q.39 In which year, foreign currency futures based on new floating exchange rate system were introduced at the Chicago Mercantile Exchange [1 Mark]

(a) 1970

(b) 1975

(c) 1972

(d) 1974

Q.40 The units of price quotation and minimum price change are not standardized item in a Futures Contract. [1 Mark]

(a) TRUE

(b) FALSE

Q.41 With the introduction of derivatives the underlying cash market witnesses _______ [1 Mark]

(a) lower volumes

(b) sometimes higher, sometimes lower

(c) higher volumes

(d) volumes same as before

Q.42 Clearing members need not collect initial margins from the trading members [1 Mark]

(a) FALSE

(b) TRUE

Q.43 Which risk estimation methodology is used for measuring initial margins for futures/ options Market? [1 Mark]

(a) Value At Risk

(b) Law of probability

(c) Standard Deviation

(d) None of the above

Q.44 The value of a call option ___________ with a decrease in the spot price. [1 Mark]

(a) increases

(b) does not change

(c) decreases

(d) increases or decreases

Q.45 Any person or persons acting in concert who together own ______% or more of the open interest in index derivatives are required to disclose the same to the clearing corporation. [1 Mark]

(a) 35

(b) 15

(c) 5

(d) 1

Q.46 NSE trades Nifty, CNX IT, BANK Nifty, Nifty Midcap 50 and Mini Nifty futures contracts having all the expiry cycles, except. [1 Mark]

(a) Two-month expiry cycles

(b) Four month expiry cycles

(c) Three-month expiry cycles

(d) One-month expiry cycles

Q.47 An investor owns one thousand shares of Reliance. Around budget time, he gets uncomfortable with the price movements. One contract on Reliance is equivalent to 100 shares. Which of the following will give him the hedge he desires? [1 Mark]

(a) Buy 5 Reliance futures contracts

(b) Sell 10 Reliance futures contracts

(c) Sell 5 Reliance futures contracts

(d) Buy 10 Reliance futures contracts

Q.48 Spot Price = Rs. 100. Call Option Strike Price = Rs. 98. Premium = Rs. 4. An investor buys the Option contract. On Expiry of the Option the Spot price is Rs. 108. Net profit for the Buyer of the Option is ___. [1 Mark]

(a) Rs. 6

(b) Rs. 5

(c) Rs. 2

(d) Rs. 4

Q.49 In the NEAT F&O system, the hierarchy amongst users comprises of _______. [1 Mark]

(a) branch manager, dealer, corporate manager

(b) corporate manager, branch manager, dealer

(c) dealer, corporate manager, branch manager

(d) corporate manager, dealer, branch manager

Q.50 The open position for the proprietary trades will be on a _______ [1 Mark]

(a) net basis

(b) gross basis

Q.51 The minimum networth for clearing members of the derivatives clearing corporation/ house shall be __________ [1 Mark]

(a) Rs.300 Lakh

(b) Rs.250 Lakh

(c) Rs.500 Lakh

(d) None of the above

Q.52 The Black-Scholes option pricing model was developed in _____. [1 Mark]

(a) 1923

(b) 1973

(c) 1887

(d) 1987

Q.53 In the case of index futures contracts, the daily settlement price is the ______. [1 Mark]

(a) closing price of futures contract

(b) opening price of futures contract

(c) closing spot index value

(d) opening spot index value

Q.54 Premium Margin is levied at ________ level. [1 Mark]

(a) client

(b) clearing member

(c) broker

(d) trading member

Q.55 In the Black-Scholes Option Pricing Model, as S becomes very large, both N(d1) and N(d2) are both close to 1.0. [1 Mark]

(a) FALSE

(b) TRUE

Q.56 To operate in the derivative segment of NSE, the dealer/broker and sales persons are required to pass _________ examination. [1 Mark]

(a) Certified Financial Analyst

(b) MBA (Finance)

(c) NCFM

(d) Chartered Accountancy

Q.57 The NEAT F&O trading system ____________. [1 Mark]

(a) allows one to enter spread trades

(b) does not allow spread trades

(c) allows only a single order placement at a time

(d) None of the above

Q.58 Margins levied on a member in respect of options contracts are Initial Margin, Premium Margin and Assignment Margin [1 Mark]

(a) TRUE

(b) FALSE

Q.59 American option are frequently deduced from those of its European counterpart [1 Mark]

(a) FALSE

(b) TRUE

Q.60 Which of the following is closest to the forward price of a share price if Cash Price = Rs.750, Futures Contract Maturity = 1 year from date, Market Interest rate = 12% and dividend expected is 6%? [1 Mark]

(a) Rs. 795

(b) Rs. 705

(c) Rs. 845

(d) None of these

 

Q61.    You are a speculator. You predict the market will go up in the near future and want to take advantage of it. You would.  [1 Mark]

a) Buy Nifty futures

b) Sell securities in the cash market.

c) Sell Nifty futures

d) None of the above.

 

Q62. A bull spread is created by        [1 Mark]

a) Buying a call and a put

b) Buying two calls

c) Buying a call and selling a call

d) Selling two calls

 

Q63. Which of the below listed factors does not affect the price of an option on a stock? [1 Mark]

a) Stock price

b) Volatility

c) Dividend

d) Liquidity of stock in the underlying cash market

 

Q64. Trading member Shantilal took proprietary purchase in a March 2000 contract. He bought 1500 units @Rs.1200 and sold 1400 @ Rs. 1220. The end of day Settlement  price was Rs. 1221. What is the outstanding position on which initial margin will be calculated? [1 Mark]

a) 300 units

b) 200 units

c) 100 units

d)  500 units

Q65. Initial margin is collected to_______                                        [1 Mark]

a) make good losses on the outstanding position

b) make good daily losses

c) safeguard against potential losses on out standing positions

d) none of the above

 

Q66. The Neat F & O trading system ________                    [1 Mark]

a) Allows one to enter combination trades

b) does not allow combination trades

c) allows only a single order placement at a time

d) None of the above.

 

Q67. Daily Mark to Market settlement of futures takes place on _____ basis.          [1 Mark]

a) T+0

b) T+3

c) T+5

d) T+1

 

Q68. Immediate or cancel is an order which will automatically ____ in F & O segment of NSEIL.                                                                                                               [1 Mark]

a) Be matched because it being a preferential order

b) be cancelled if it is not matched

c) Get stored in the system for matching, immediately and in its entirely. If not executed immediately

d) cancel the unmatched portion of the Order quantity.

 

Q69.    Futures on individual stocks are allowed                                           [1 Mark]

a) On all stocks listed on the stock exchange

b) On few selected stocks only

c) On all stocks listed on all stock exchanges in India.

d) On all stocks where price is more than Rs. 100 per share.

 

Q70.    If  someone is ‘bearish’ in the market ?                                                          [1 Mark]

a) He expects the market to rise.

b) He expects the market to fall.

c) He expects the market to move sideways.

d) He expects the market to close.

 

Q71. The value of derivative instrument                                                                    [1 Mark]

a) Is fixed

b) Is reset at fixed internals

c) Depends on the value of an underlying asset.

d) None of the above.

 

Q72.  Futures contracts can be reversed with any member of the derivatives segment of the exchange.                             [1 Mark]

a) True

b) Cannot be reversed

c) Cannot be reversed for the next one month.

d) False

 

Q73. A call option at a strike of Rs. 176 is selling at a premium of Rs.18,. At what price will it break even for the buyer of the option?. [1 Mark]

a) 196

b) 187

c) 204

d) 194

 

Q74. At the point of entering into the future contract                         [1 Mark]

a) Both the buyer and the seller pay initial margin to the exchange

b) The buyer alone pays initial margin to the exchange.

c) The seller alone pays initial margin to the exchange.

d) No margin is playable to the exchange by the buyer of the seller.

 

Q75. If you have bought a futures contract and the price drops, you will be making a profit. [1 Mark]

a) True

b) False

 

Q76. If the price of the underlying asset rises sharply after the initiation of a futures contract [1 Mark]

a) The long position becomes profitable

b) The long position becomes unprofitable

c) The short position becomes profitable

d) None of the above.

 

Q77. You can buy stock futures in India regardless of whether you own the shares or not. [1 Mark]

a) True

b) False

 

Q78. A fund manager is bullish on the market. What should be his course of action? [1 Mark]

a) Buy the index future

b) Sell the index future

c) Sell his entire portfolio

d) None of the above.

 

Q79. In case of futures, the initial margin is paid only by the seller and not the buyer. [1 Mark]

a) True

b) False

c) True only in Mumbai

d) True only in Delhi.

 

Q80.  A derivative exchange faces                                                                 [1 Mark]

a) Legal risk

b) Operational risk

c) Liquidity risk.

d) All of the above.

 

Q81. The securities which are not delivered in the clearing house during pay-in, are purchased by the clearing house from the market. The process is known as                     [1 Mark]

a) Close-out

b) Penalty

c) Auction

d) Upla badla

 

Q82. If the annual risk-free rate is 10% then the ‘r’ used in the Black-Scholes formula should be                                                                                                         [1 Mark]

a) 0. 095

b) 0.12

c) 12

d) none of the above

 

 

Q83. A stock option is an example of a                                                                      [1 Mark]

a) Commodity

b) Derivative Instrument

c) Money market instrument

d) Foreign Exchange contract

 

Q84. Intrinsic value of an option cannot be negative.            [1 Mark]

a) True

b) False

c) True only in Mumbai

d) True only in Delhi

 

Q85. Market makers add                                                                                            [1 Mark]

a) Speculation to the market.

b) Liquidity to the market.

c) Fluctuation to the market.

d) Nothing to the market.

 

Q86. With decrease in strike price, the premium on Call decreases.              [1 Mark]

a) True

b) False

c) True only in USA

d) True only

 

Q87.    Time value and intrinsic value together comprise option premium.                [1 Mark]

a) True

b) False

 

Q88.  The buyer of an option can lose not more than the option premium paid        [1 Mark]

a) True

b) False

c) True only in USA

d) True only in Japan

 

Q89. The bid is the price at which market maker is prepared.                                    [1 Mark]

a) To buy.

b) To sell

c) To remain idle

d) None of the above.

 

Q90. A stock broker means a member of ____________                                          [1 Mark]

a) SEBI

b) Any exchange

c) Any stock exchange

d) A recognized stock exchange

 

Q91. An investor is bearish about ABC Ltd. and sells ten one-month ABC Ltd. Futures contracts at Rs.5,00,000. On the last Thursday of the month, ABC Ltd. closes at Rs.510. He makes a _________. (assume one lot = 100)                          [1 Mark]

a) Profit of Rs. 10,000

b) loss of Rs. 10,000

c) loss of Rs. 5,100

d) profit of Rs. 5,100

 

Q92.  Mark-to-market margins will be collected on a :                                              [1 Mark]

a) Weekly basis

b) Every 2 days

c) Every 3 days

d) Daily basis

 

Q93. Who will be eligible for clearing trades in stock futures?                                  [1 Mark]

a) All Indian citizens

b) All members of the BSE

c) Only members who are registered with the derivatives segments as Clearing Members

d) all of the above.

 

Q94. The daily settlement price for Index futures shall be decided by                     [1 Mark]

a) SEBI

b) the Reserve Bank of India.

c) The clearing corporation / house

d) none of the above.

 

Q95. Initial margin of the previous day must be paid                                                [1 Mark]

a) By the end of the day.

b) Before beginning of the next trading day.

c) During banking hours next day.

d) None of the above.

 

Q96. Initial margin is set up taking into account the volatility of the underlying market. Generally higher the volatility, higher is the initial margin.                                                 [1 Mark]

a) True

b) False

 

Q97. Value-at-risk is calculated on the basis of                                                         [1 Mark]

a) Historical Volatility

b) Perfect market prices.

c) Equilibrium market prices.

d) None of the above.

 

Q98. The value of an option ______ with increase in volatility                                 [1 Mark]

a) decreases

b) increases

c) does not change

d) increases or decreases

 

Q99. The beta of A.S.STEELS is 1.3. A person has a long A.S.STEELS position of Rs. 200,000 coupled with a short Nifty position of Rs.100,000. Which of the following is TRUE?  [1 Mark]

(a) He is bullish on Nifty and bearish on A.S.STEELS

(b)He has a partial hedge against fluctuations of Nifty

(c) He is bearish on Nifty as well as on A.S.STEELS

(d) He has a complete hedge against fluctuations of Nifty

 

Q100. Who are the participants in the derivatives market?                                        [1 Mark]

a) Hedgers

b) Speculators

c) Arbitrageurs

d) All of the above

 

 

Question No. Answers

1 A 21 A 41 C 61 A 81 C
2 A 22 A 42 A 62 C 82 A
3 B 23 A 43 A 63 D 83 B
4 A 24 C 44 C 64 C 84 A
5 B 25 D 45 B 65 C 85 B
6 D 26 B 46 B 66 A 86 B
7 A 27 A 47 B 67 D 87 A
8 C 28 B 48 A 68 D 88 A
9 A 29 D 49 B 69 B 89 A
10 D 30 D 50 A 70 B 90 D
11 B 31 C 51 A 71 C 91 B
12 A 32 A 52 B 72 A 92 D
13 A 33 B 53 A 73 D 93 C
14 A 34 C 54 A 74 A 94 C
15 B 35 A 55 B 75 B 95 B
16 B 36 A 56 C 76 A 96 A
17 B 37 D 57 A 77 A 97 A
18 A 38 C 58 A 78 A 98 B
19 A 39 C 59 B 79 B 99 B
20 C 40 B 60 A 80 D 100 D

 

Source: www.nseindia.com

 

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