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Q 1.
Margins in 'Futures' trading are to be paid by _______.
Only the buyer
Only the seller
Both the buyer and the seller
The clearing corporation

WRONG ANSWER

CORRECT ANSWER:

Both the buyer and the seller

Explanation:

In futures both buyers and sellers pay the margin.

In Options only the seller pays the margin.

Q 2.
How can be risks be controlled in the derivatives segment by the stock exchange ?
By implementing a effective margin system
By having a well organized control systems and audit procedures
By periodic evaluation of member positions
All of the above

WRONG ANSWER

CORRECT ANSWER:

All of the above

Q 3.
What does Beta of 1 mean ?
It means that the expected percentage in stock price will be more than the percentage change in index
It means that the expected percentage in stock price will be twice the percentage change in index
It means that the expected percentage in stock price will be less than the percentage change in index
It means that the expected percentage in stock price will be equal to the percentage change in index

CORRECT ANSWER
Explanation:

Beta measures the sensitivity of a stock / portfolio vis-a-vis index. 

If Beta of a stock is 1, it means that a % change in the index will lead to equal % change in the stock price.

If Beta of a stock is 2, it means that a % change in the index will lead to double % change in the stock
price.

Q 4.
A person has buy position in a stock, how can he cover his long position in the stock ?
by Selling any security of equal quantity
by Selling any index stock of equal quantity
by Selling the same stock and same quantity
by Selling any ‘A’ group stock of equal quantity

WRONG ANSWER

CORRECT ANSWER:

by Selling the same stock and same quantity

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Explanation:

To square up / cover a long position, the same quantity of the same stock has to be sold.

Q 5.
'Netting' is the process by which a future contract is terminated by a transaction that is equal and
opposite to the original transaction - State True or False ?
True
False

CORRECT ANSWER
Explanation:

'OFF SETTING'  is the process by which a future contract is terminated by a transaction that is equal and
opposite to the original transaction.

Q 6.
The seller or writer of an option is required to pay initial margin for entering into the option contract.
Where is this shown in the balance sheet ?
Under Current Assets
Under Current Liabilities
Under Fixed Assets
Under Fixed Liabilities

WRONG ANSWER

CORRECT ANSWER:

Under Current Assets

Explanation:

The seller/ writer of the option is required to pay initial margin for entering into the option contract and its
should be debited to an appropriate account, say, "Equity Index/ Stock Option Margin Account". 

In the balance sheet, such account should be shown separately under the head "Current Assets".

Q 7.
Is it true that a buyer of a CALL OPTION cannot lose more than the option premium paid ?
True only for European options
True only for American options
True for all type of options
False for all type of options

WRONG ANSWER

CORRECT ANSWER:

True for all type of options

Explanation:

The maximum loss for buyer of any option is the premium paid.

Q 8.
Each investor who wishes to trade in the derivatives segment is required to satisfy minimum net
worth conditions - State True or False ?
True
False

Q 9.
The minimum Networth for clearing members of the derivatives clearing corporation/house shall be
_____ .
Rs. 1 crore

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Rs 5 crore
Rs 10 crore
None of the above

CORRECT ANSWER
Explanation:
The minimum Net-worth for clearing members of the derivatives clearing corporation/house shall be Rs.300
Lakhs (Rs 3 cr).
Q 10.
The trades done by dealers in their own account has to be totally segregated from the trades done in
their clients account - State True or False ?
True
False

WRONG ANSWER

CORRECT ANSWER:

True

Q 11.
Can a broker take any amount of exposure once he has satisfied the minimum net worth and
minimum deposit with the exchange in the form of liquid assets ?
Yes
No

CORRECT ANSWER
Explanation:

The amount of exposure depends on the value of the assets / liquid assets deposited with the exchange. More
the deposits - more the exposure he can get.

Q 12.
In the derivative segment, once initial margin requirement is fixed, it cannot be changed by the
exchange, during the lifetime of the futures contract - State True or False ?
True
False

CORRECT ANSWER
Explanation:

The initial margin is dependent on price movement of the underlying asset.

So the Initial Margin levels are dynamic and recalculated continuously based on volatility levels.

Q 13.
If on the auction day, there are no sellers for a particular short delivery, what will the Clearing
Corporation do regarding the outstanding transaction ?
The transaction is cancelled
One more auction is held the next day
The transaction is annulled
The transaction is closed out

WRONG ANSWER

CORRECT ANSWER:

The transaction is closed out

Explanation:

If no shares are received in an auction, the transaction is closed out at a particular price.

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The Close out will be at the highest price prevailing in the exchange from the day of trading till the auction
day or 20% above the official closing price on the auction day, whichever is higher.

Q 14.
The book networth criterion for Professional Clearing Members is the same as that for Trading cum
Clearing members - State True or False ?
True
False

CORRECT ANSWER
Explanation:

The networth criterion for Professional Clearing Members is higher than that for Trading cum Clearing
members.

Q 15.
Mr P and Mr Q are clearing members of a stock exchange . Both of them have maintained Rs 7
crores of liquid assets consisting of equity shares and other assets. Both have the same exposure
limits on day one. Based on this, which of the following statements is true ?
The minimum exposure possible for the two brokers may change from time to time based on the changes
in those asset valuations, even if they do not withdraw the assets deposited
The minimum exposure possible for the two brokers will remain same for ever, even if they withdraw the
asset deposited subsequently
The minimum exposure possible for the two brokers will remain the same forever as long as they do not
withdraw the assets deposited
None of the above

WRONG ANSWER

CORRECT ANSWER:

The minimum exposure possible for the two brokers may change from time to time based on the changes in
those asset valuations, even if they do not withdraw the assets deposited

Explanation:

The exposure depends on the value of assets deposited. Although both P and Q have deposited assets worth
Rs.7 crores, the assets could be different (equity shares of different companies) and the value of these will
become higher or lower as time passes. So the exposure limits will also change accordingly.

Q 16.
The option premium is affected by the difference in the exercise price and the spot price - State True
or False ?
True
False

WRONG ANSWER

CORRECT ANSWER:

True

Explanation:

The price difference between exercise price ( strike price ) and the spot price (market price) is always
reflected in the option premium pricing.

Generally as the gap increases, the premium increases and vice versa.

For eg - If the spot price of a share is Rs 100 and the strike price is Rs 90, than the call option preimum
will be Rs 10 (100 - 90) plus premium for time to expiry, volatility etc. If the spot price rises to Rs 110,
than the call option premium will generally rise to Rs 20 (110-90) plus premium for time to expiry, volatility
etc

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Q 17. In derivative exchanges, the exposure amount possible for each member broker is linked to the
amount of deposits / margins kept by the member with the clearing house - True or False ?
True
False

CORRECT ANSWER
Explanation:

Higher the deposits / margins kept, more will be the exposure amount available to the member brokers.

Q 18.
Foreign Exchange can be a part of liquid assets to be maintained by Clearing Members with the
clearing corporation - State True or False ?
True
False

WRONG ANSWER

CORRECT ANSWER:

False

Explanation:

Liquid assets can comprise of Cash, Bank Guarantees, Govt. Securities etc. but not foreign exchange.

Q 19.
In respect of Margin account - What will be done if the prices of future contract increases ?
The margin account of the seller of futures will be debited for the notional gain
The margin account of the buyer of futures will be credited for the notional gain
Both 1 and 2
Neither 1 nor 2

WRONG ANSWER

CORRECT ANSWER:

The margin account of the buyer of futures will be credited for the notional gain

Explanation:

Only the buyer of futures will have a notional gain and so his margin account will be credited by the notional
gain amount.

The seller of futures will have a notional loss if the price rises.

Q 20.
A person who provides two way quotes for various stocks is known as _____ .
Arbitrageur
Speculator
Hedger
Market Maker

WRONG ANSWER

CORRECT ANSWER:

Market Maker

Explanation:

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A market maker or liquidity provider is a company or an individual that quotes both a buy and a sell price in a
financial instrument hoping to make a profit on the bid-offer spread.

Q 21.
Derivatives brokers/ dealers are expected to know their clients and to exercise care to ensure that
the derivative product being sold by them to a particular client is suitable to his understanding and
financial capabilities - State True or False ?
True
False

WRONG ANSWER

CORRECT ANSWER:

True

Explanation:
Derivatives brokers/ dealers should avoid recommending opening futures/ options transaction unless they have
a reasonable basis for believing that the customer has such knowledge and financial experience that he or she
is capable of evaluating, and financially able to bear, the risks of the transaction.
Q 22.
The Time value of an option is the portion of option premium that is linked to the amount of time left
till expiry of the option contract and also due to the fact that the underlying components that
determine the value of option may change during that time - State True or False ?
True
False

WRONG ANSWER

CORRECT ANSWER:

True

Explanation:
Time value of the option depends upon how much time is remaining for the option to expire.

If all other factors affecting an option’s price remain same, the time value portion of an option’s premium will
decrease with the passage of time. This is also known as time decay.
Q 23.
A portfolio of Rs 25 lacs has a beta of 1.20. A complete hedge is obtained by ______ .
by selling Nifty futures of Rs 25 lacs
by selling Nifty futures of Rs 28 lacs
by selling Nifty futures of Rs 30 lacs
by buying Nifty futures of Rs 28 lacs

WRONG ANSWER

CORRECT ANSWER:

by selling Nifty futures of Rs 30 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.

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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.

Q 24.
**Mr Gautam has sold a put option with strike of Rs.650 at a premium of Rs.60. What is the maximum
gain per share that he may have on expiry of this positon?
650
590
60
0

WRONG ANSWER

CORRECT ANSWER:

60

Explanation:

The maximum a seller of an option (either CALL or PUT) can gain is the premium he receives. In this case Mr.
Gautam is receiving Rs 60 per share as premium and that can be his maximum profit.

Q 25.
When the price of a futures contract goes down, the margin account of the buyer of this futures
contract is debited for the loss - True or False ?
False
True

WRONG ANSWER

CORRECT ANSWER:

True

Q 26.
Three Call series of same strike price of State Bank of India stock-June, July and August are quoted.
Which will have the lowest option premium ?
Same premium for all
June
July
August

WRONG ANSWER

CORRECT ANSWER:

June

Explanation:

The series closest to current date will have the lowest premium due to low time value of money ( so lower
interest costs ).

Q 27.
**If the share price of XYZ share increases by Rs 2 and the delta of its option is 0.5, then by how
much will the option price rise ?
No change in option price
Rs 10
Rs 2
Rs 1

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WRONG ANSWER

CORRECT ANSWER:

Rs 1

Explanation:

Delta measures the sensitivity of the option value to a given small change in the price of the underlying asset.

In this case the price has moved by Rs 2 and the delta is 0.5,

So Option Price will move by Rs 2 x 0.5 = Rs 1

Q 28.
**As per SEBI rules , a stock broker can be suspended from the derivatives segment if _________ .
he violates the conditions of registration
he is suspended by the stock exchange
he fails to pay fees
Any of above

Q 29.
The liquid asset which are to be maintained by clearing members with clearing corporation can
include gold and silver jewellery after applying standard 20% haircut.
True
False

Q 30.
**Mr Prashant has bought one lot of ABC futures for Rs 75 (lot size 2000) expecting that this share
will go up. But he also wants to protect himself against any loss of more than Rs 3000. What should
he do ?
Put a stop loss sell order at Rs 74
Put a stop loss sell order at Rs 73.5
Place a buy order for 2000 shares of ABC at Rs.76.50 per
None of the above

WRONG ANSWER

CORRECT ANSWER:

Put a stop loss sell order at Rs 73.5

Explanation:

Mr. Prashant has bought one lot ie. 2000 shares and does not want to have a loss of more than Rs 3000. So
3000 / 2000 = Rs 1.50. So per share he should not lose more than Rs 1.50.

His buying price is Rs 75. So 75 - 1.50 = 73.50 will be his stop loss price price.

When the share falls to Rs 73.50 , he will stand to lose Rs 3000. 

Question no. 8, 28, 29 have not been answered, do you still wish to submit?

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