Welcome to Pass4Sure Mock Test

1/15/2019 Welcome to Pass4Sure
Q 1.
A client can use cross margining across Cash and Derivatives segment - True or False ?
True
False
WRONG ANSWER
CORRET ANSWER:
True
Explanation:
A client can use the margin he has paid in any segment provided he has signed on the necessary declarations
in the account opening forms etc.
Q 2.
When a Client default in making payment in respect of Daily Settlement, the action taken is
__________.
the client is given 2 days to clear the payments
the contract is closed out
the broker pays the money and the client refunds to him in 7 working days
the client can give bank guarantee in 2 working days to avoid the contract being closed out.
CORRECT ANSWER
Q 3.
At the year-end, any balance in the "Deposit for Mark-to-Market Margin Account" should be shown
as a deposit under the head "Current Assets" - True or False ?
True
False
WRONG ANSWER
CORRET ANSWER:
True
Q 4.
Put option gives the buyer a right to _________ the underlying asset, .
Sell
Buy
Speculate
None of the above
WRONG ANSWER
CORRET ANSWER:
Sell
Explanation:
Option, which gives buyer a right to buy the underlying asset, is called Call option and the option which gives
buyer a right to sell the underlying asset, is called Put option.
Q 5.
If all things remain constant throughout the contract period, the option price will always _____ in
price by expiry.
Fall
Rise
Either Rise or Fall
None of the Above
file:///C:/Users/SARIPUTTA%20SARKAR/Desktop/NISM/PDF/mock%2012_files/mocktest_attempt.html 1/28
CORRECT ANSWER
Explanation:
Even if the price of the underlying remains constant, the option price will fall due to Time Decay.
This the advantage of Time Decay is used by the Option Sellers.
Q 6.
The Non Cash Component of Liquid Assets which are given as a form of margin can include Equity
Shares which are physical form - True or False ?
False
True
WRONG ANSWER
CORRET ANSWER:
False
Explanation:
Non Cash Component can include Equity Shares as per Capital Market Segment which are in demat form (and
not in physical form), as specified by clearing corporation from time to time deposited with approved
custodians
Q 7.
If the Initial Margin is changed then it will apply only to fresh contracts and not to previous
outstanding contracts - True or False ?
True
False
CORRECT ANSWER
Explanation:
Initial Margin, if changed, will apply to all outstanding contracts and not only to fresh contracts.
Q 8.
Impact cost is low when the liquidity in the system is poor
True
False
CORRECT ANSWER
Explanation:
Impact cost is said to be low when large orders can be executed without moving the prices in a big way.
So when volumes / liquidity will be high the impact cost will be low.
Q 9.
The advantage of time decay usually goes to __________.
Option Buyers
Option Sellers
Long Term Investors
Short Term Investors
WRONG ANSWER
CORRET ANSWER:
Option Sellers
Explanation:
If all things remain constant throughout the contract period, the option price will always fall in price by
expiry due to time decay.
Thus option sellers are at a fundamental advantage as compared to option buyers as there is an inherent
tendency in the price to go down.
Q 10.
Churning means _____________.
A specialized arbitrage between Futures and Options
Excessive unwarranted trading by brokers/agents for generating commissions
Delta Hedging using Rho and Theta
Specialized Portfolio Management
WRONG ANSWER
CORRET ANSWER:
Excessive unwarranted trading by brokers/agents for generating commissions
Explanation:
Churning refers to when securities professionals making unnecessary and excessive trades in customer accounts
for the sole purpose of generating commissions.
Q 11.
When different Clearing Members clear for client/entities in Cash and Derivatives segments they are
required to enter into necessary agreements for availing cross margining benefit - True or False ?
True
False
WRONG ANSWER
CORRET ANSWER:
True
Q 12.
To facilitate Foreign Institutional Investors, SEBI has allowed them to make weekly payments of
Mark to Market Margin due to their huge volumes of trading - True or False ?
True
False
CORRECT ANSWER
Explanation:
A SEBI registered FIIs and its sub-account are required to pay initial margins, exposure margins and mark to
market settlements in the derivatives market as required by any other investor ie. daily.
Q 13.
As a special provision for NRI’s , the Mark to Market Margin payable them can be done on a
consolidated weekly basis – True or False ?
False
True
WRONG ANSWER
CORRET ANSWER:
False
Explanation:
All types of investors have to make daily payments of Mark to Market margins
Q 14.
SEBI's centralized web based complaints redress system which provides online access 24 x 7 is
called ____________.
SERA
SEBI COMPSYS
SWCOMP
SCORES
WRONG ANSWER
CORRET ANSWER:
SCORES
Explanation:
SEBI Complaints Redress System - SCORES
Q 15.
STT is applicable on all _______ transactions for both futures and option contracts.
Buy
Sell
Both Buy and Sell
No STT on Futures Trading
WRONG ANSWER
CORRET ANSWER:
Sell
Explanation:
Securities Transaction Tax (STT) is paid only on the sale side of F&O transactions.
Q 16.
A Manager / Dealer in the Cash market with a registered Trading Member, can also become a
Manager / Dealer in the Derivatives segment without any additional formalities – True or False
True
False
CORRECT ANSWER
Explanation:
Apart from other formalities , he will also have to clear the Derivatives Exam.
Q 17.
As per the regulations, the minimum contract value of a futures contract shall not be less than Rs. 1
Lakh - True or False ?
True
False
CORRECT ANSWER
Explanation:
The minimum contract value shall not be less than Rs. 5 Lakhs.
Q 18.
Accounting for open options as on the balance sheet date is shown under the "Equity Index/Stock
Option Premium Account" – True or False ?
True
False
CORRECT ANSWER
Q 19.
In the Arbitration procedure, the arbitrator conducts the arbitration proceeding and passes the
award normally within a period of _______months from the date of initial hearing.
one
two
three
four
WRONG ANSWER
CORRET ANSWER:
four
Q 20.
The option premium is decided by __________.
SEBI
Stock Exchanges
By buyers and sellers
By Stock Brokers
WRONG ANSWER
CORRET ANSWER:
By buyers and sellers
Explanation:
SEBI and Stock Exchanges decide the rules and provide the platform for trading.
The option prices are decided by the buyers and sellers based on the spot price, time value, volatility and
many other factors.
Q 21.
Equities can also be traded through Professional Clearing Members.
True
False
WRONG ANSWER
CORRET ANSWER:
False
Explanation:
Professional clearing member clears the trades of his associate Trading Member and institutional clients. He
need not be a member of an exchange.
Q 22.
**ETFs is basket of securities that trade like individual stock on an exchange- True or False ?
True
False
CORRECT ANSWER
Explanation:
Exchange Traded Funds (ETFs) is basket of securities that trade like individual stock on an exchange. They
have number of advantages over other mutual funds as they can be bought and sold on the exchange.
Since, ETFs are traded on exchanges intraday transaction is also possible.
Q 23.
**An option which would give a negative cash flow to its holder if it were exercised immediately is
know as _______ .
At the money option
In the money option
Out of the money option
None of the above
WRONG ANSWER
CORRET ANSWER:
Out of the money option
Explanation:
Out of the Money option is a loss making option and would give the holder a negative cash flow if it were
exercised immediately. A call option is said to be OTM, when spot price is lower than strike price. And a put
option is said to be OTM when spot price is higher than strike price.
For eg. If the spot price of a stock is Rs 100, then the Call Option of strike price of Rs 105 is Out of the
Money.
Q 24.
On what occasion form the below, the derivative segment of the stock market has to report to SEBI ?
Occasions when the 90% Value at Risk (VaR) limit has been violated
Occasions when the 96.5% Value at Risk (VaR) limit has been violated
WRONG ANSWER
CORRET ANSWER:
Q 25.
As an option moves more In The Money, the absolute value of Delta will ______.
Increase
Decrease
Remain same
None of the above
WRONG ANSWER
CORRET ANSWER:
Increase
Explanation:
Delta for call option buyer is positive. This means that the value of the contract increases as the share price
rises.
Q 26.
**Ms. Patil sold four futures contract of Bata India Ltd at Rs 820 (lot size 250 shares). What is her
profit or loss if she purchases back the contracts at Rs 806.
Rs 3500
Rs 9500
Rs 14000
Rs 16000
WRONG ANSWER
CORRET ANSWER:
Rs 14000
Explanation:
Ms. Patil sold Bata India shares at Rs 820 and bought back at Rs 806. So she made a profit of Rs 14 per
share.
Total quantity sold - 250 x 4 lots = 1000
So total profit is Rs 14 x 1000 = Rs 14000.
Q 27.
If the price of Infosys stock rises, the call option premium will also rise.
True
False
WRONG ANSWER
CORRET ANSWER:
True
Explanation:
A rise in spot prices will lead a rise in the intrinsic value and so the option premium will rise.
Q 28.
___________ measures change in delta with respect to change in price of the underlying asset.
Vega
Rho
Gamma
Theta
WRONG ANSWER
CORRET ANSWER:
Gamma
Explanation:
Gamma measures change in delta with respect to change in price of the underlying asset.
Gamma = Change in an option delta/ Unit change in price of underlying asset
Gamma signifies the speed with which an option will go either in-the-money or out-of-the-money due to a
change in price of the underlying asset.
When the option is deep in or out of the money, gamma is small. When the option is near or at the money,
gamma is at its largest.
Q 29.
Diversification is used to control Systematic Risks - True or False ?
True
False
CORRECT ANSWER
Explanation:
Systematic risks are risks which are associated with movement of entire market due to economic / political
and other factors. These cannot be controlled by diversifying ones portfolio as the entire portfolio will fall in
case of a negative news.
The Systematic risks can be controlled by hedging in the F&O section.
Q 30.
**Ms. Geeta goes long in a PUT option of a higher strike price and shorts another PUT option of a
lower strike price, of the same scrip and same expiry. This strategy is called _______ .
Bullish Spread
Bearish Spread
Calendar spread
Straddle
WRONG ANSWER
CORRET ANSWER:
Bearish Spread
Explanation:
Bearish Spread - The trader is bearish on the market and so goes long in one put option by paying a premium.
Further, to reduce her cost, she shorts another low strike put and receives a premium.
Q 31.
The initial margin in derivatives is fixed depending on the volatility of the stock. True / False ?
False
True
CORRECT ANSWER
Explanation:
If the stock is very volatile it could result in looses to the trader in a short period of time. So to safe gaurd
the trading member and the trader, higher initial margin are levied on volatile stocks.
Q 32.
**If you SELL a PUT option at premium of Rs 30 at the Strike Price of Rs 200, lot is of 400 shares,
then the maximum possible loss is ______
Rs 6000
Rs 68,000
Rs 80,000
Unlimted
WRONG ANSWER
CORRET ANSWER:
Rs 68,000
Explanation:
When you sell a PUT option, you believe the share will rise. In case it falls you make a loss and theoretically
the price can become zero.
So in the above example if the price falls from 200 to zero, you make a loss of Rs 200.
You have received a premium of Rs 30. So the loss will be Rs 200 - Rs 30 = Rs 170
Rs 170 x 400 (lot size) = 68000
Q 33.
Margins are collected on a ___________
3 hour basis
Daily basis
T+2, so on a two day basis
Weekly basis, Monday to Friday.
CORRECT ANSWER
Q 34.
Index futures is –
An OTC product
A Cash market security
A derivative product
An call or put option
WRONG ANSWER
CORRET ANSWER:
A derivative product
Explanation:
The future price of an index is derived from the spot / cash price. So Index Future is a derivative product.
Q 35.
**NSE Nifty consists of ____ stocks.
25
30
50
60
WRONG ANSWER
CORRET ANSWER:
50
Q 36.
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
WRONG ANSWER
CORRET ANSWER:
protective put
Explanation:
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.
Q 37.
A trader buys a call and a put option of same strike price and same expiry. This is called as
_________ .
Butterfly
Short Straddle
Long Straddle
Calendar Spread
WRONG ANSWER
CORRET ANSWER:
Long Straddle
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 eg- 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.
Q 38.
Vega is ________ .
the change in option price given a one percentage point change in the risk-free interest rate
a measure of the sensitivity of an option price to changes in market volatility
the change in option price given a one-day decrease in time to expiration
speed with which an option moves with respect to price of the underlying asset
WRONG ANSWER
CORRET ANSWER:
Q 39.
If a trader buys a put option with a higher strike price and sells a put option with a lower strike price,
both of the same underlying then this strategy is called ________ .
Bullish Spread
Bearish Spread
Straddle
Butterfly spread
WRONG ANSWER
CORRET ANSWER:
Bearish Spread
Explanation:
Bearish Vertical Spread using puts - The trader is bearish on the market and so goes long in one put option
by paying a premium. Further, to reduce his cost, he shorts another low strike put and receives a premium.
Q 40.
**A derivative contract made directly over telephone by two parties is called futures contract - True
or False ?
True
False
CORRECT ANSWER
Explanation:
Such contracts are called Forward or OTC contracts.
Q 41.
**Important element (s) of risk management is (are) :
Monitoring capital adequacy requirements of members
Regular evaluation of trading members positions
Collection of Margins
All of the above
WRONG ANSWER
CORRET ANSWER:
All of the above
Q 42.
A calendar spread will attract __________ margin.
Zero
Higher
Lower
None of the above
WRONG ANSWER
CORRET ANSWER:
Lower
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 ie. no risk even if market rises or falls by a big
amount - hence lower margins are adequate.
Q 43.
Risk which are Non Systematic can be reduced by diversifying ones portfolio.
True
False
WRONG ANSWER
CORRET ANSWER:
True
Explanation:
Specific risk or unsystematic risk is the component of price risk that is unique to particular events of the
company and/or industry. This risk is inseparable from investing in the securities. This risk could be reduced
to a certain extent by diversifying the portfolio.
Q 44.
**Ask price is the price at which –
Buyer is willing to buy
Seller is willing to sell
Arbitrageur is willing to negotiate
Hedger is willing to buy
WRONG ANSWER
CORRET ANSWER:
Seller is willing to sell
Explanation:
Bid price is the price buyer is willing to pay and Ask price is the price seller is willing to sell.
For eg. If the share price of Reliance Industry is Rs. 950 -951, then the bid price is Rs 950 and ask price is
Rs 951.
Q 45.
With a fall in interest rates, the premium on CALL Options will _______.
Rise
Fall
No Effect
None of the above
WRONG ANSWER
CORRET ANSWER:
Fall
Explanation:
When the interest rates falls, the cost of carry also falls, thus reducing the premium on call options.
On the other hand, the premium on put options will rise with a fall in interest rates.
Q 46.
When an stock which is part of the index has a stock split, it does not have an impact on the index.
True
False
WRONG ANSWER
CORRET ANSWER:
True
Explanation:
Stock Split has an effect on Options, Strike Price etc. but has no impact on the index as such.
Q 47.
A Call Option is said to be OUT OF THE MONEY, ________.
when spot / market price is higher than strike price
when spot / market price is lower than strike price
when spot / market price is equal to strike price
strike price is zero
WRONG ANSWER
CORRET ANSWER:
when spot / market price is lower than strike price
Explanation:
A call option is said to be OTM, when spot price is lower than strike price - For eg - Market Price of XYZ
stock is 200 and the trader has a bought a call option of strike price 220, so he is in a loss.
A put option is said to be OTM when spot price is higher than strike price.
Q 48.
If a company declares a dividend, what will be the effect on the pricing of call options ?
Call option price will rise
Call option price will fall
No effect on option pricing
None of the above
WRONG ANSWER
CORRET ANSWER:
Call option price will fall
Explanation:
Dividend are receivable only for shares which are bought in the cash market. No dividend is receivable on F&O
positions.
So when the stock becomes ex-divdend in cash market, the price generally falls to the extent of dividend
paid. This fall will be reflected in the Call option premium in advance. So when a dividend is declared, the Call
option premium falls and Put option premium rises.
Q 49.
You have a short position in LPQ Stock futures at Rs 350 (one lot size is 500 shares) and you have
made a profit of Rs 28000. To do this you will have to :
Sell one lot ar Rs 406
Sell one lot at Rs 294
Buy one lot at 406
Buy one lot at Rs 294
WRONG ANSWER
CORRET ANSWER:
Buy one lot at Rs 294
Explanation:
Profit = Rs 28000 , Lot size = 500 , So per share profit = 28000/500 = Rs 56
Since he has a short position, he will be in a profit if the share falls and he buys at a lower price.
So the price has to fall by Rs 56 from Rs 350 = Rs 294
Q 50.
In case of futures, the initial margin is paid only by the sellers.
True
False
CORRECT ANSWER
Explanation:
In case of futures, the initial margin is paid by both buyers and sellers.
In case of Options, the initial margin is paid only by the sellers.
Q 51.
Hedging would ensure that your profits are always on the higher side compared to an unhedged
position - State True or False ?
True
False
CORRECT ANSWER
Explanation:
Hedging controls your losses but also controls your profits. It does not ensure higher profits.
An open position can give you more profits or more losses.
Q 52.
An equity index option like NIFTY OPTION is a___________.
Treasury instrument
Debt instrument
Derivative Product
Cash market product
CORRECT ANSWER
Explanation:
Nifty options are derived from the NSE index ie. Nifty and so its an derivative product.
Q 53.
What is a covered call ?
Its a strategy to sell calls at various strike prices to profit from the premium received
Its used to generate extra income from existing holdings in the cash market.
Its a strategy of buying a call and sell its future for hedgeing
Its done by buying a call and put of the same strike price.
WRONG ANSWER
CORRET ANSWER:
Its used to generate extra income from existing holdings in the cash market.
Explanation:
If an investor has bought shares and intends to hold them for some time, then he would like to earn some
income on that asset, without selling it, thereby reducing his cost of acquisition.
So he sells a call option of that stock and benefits from the premium received.
Q 54.
Covered calls carry greater risk then Naked Calls – True or False ?
True
False
WRONG ANSWER
CORRET ANSWER:
False
Explanation:
In a naked call, the trader has to take a view on the market and accordingly go long or short.
The covered call strategy is used to generate extra income from existing holdings in the cash market.
Therefore, the naked call strategy is much riskier.
Q 55.
A common individual investor cannot write an option.
True
False
CORRECT ANSWER
Explanation:
Writing an option means selling an option. Any person can write an option after he has fullfilled the necessary
formalities like client registration, margin payments etc.
Q 56.
In futures contract, the clearing house / clearing corporation practically becomes the counter party
for all transactions - State True or False ?
True
False
WRONG ANSWER
CORRET ANSWER:
True
Q 57.
Of the below options, which is more difficult to manipulate ?
Individual Stocks
IT sector stocks
Stock Index
All of the above
CORRECT ANSWER
Explanation:
A stock index contains a basket of high market cap stocks. So its very difficult to manipulate it when
compared to individual stocks.
Q 58.
**The option seller has an obligation and since his losses can be unlimited, he can be a potential
risk for the stability of the system. Therefore he has to pay _________.
Extra Premium
Special Loss Charges
Margins
All of the above
WRONG ANSWER
CORRET ANSWER:
Margins
Explanation:
The buyer of an option pays the premium upfront and that's his maximum loss - so there is no margin
collected from him.
On the other hand, the seller of an option can have huge / unlimited losses which can cause risk to the
markets stability - so margins are collected from him.
Q 59.
**The Derivative markets mostly comprises of –
Long term investors
Hedgers
Speculators
Both 2 and 3
WRONG ANSWER
CORRET ANSWER:
Both 2 and 3
Explanation:
Long term investors buy stocks in Cash market for delivery. Hedgers and Speculators are active in the
derivative markets.
Q 60.
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
WRONG ANSWER
CORRET ANSWER:
True
Explanation:
In an OTC market, no exchange is involved.
Q 61.
An trader buys a June XYZ stock futures contract at Rs 242. After a few days the price of XYZ
futures was Rs 269. What will be your profit / loss if you square up your postion ? ( The market lot of
XYZ share is 1000 )
-20000
-27000
20000
27000
WRONG ANSWER
CORRET ANSWER:
27000
Explanation:
Purchase Price - Rs 242
Sale Price - Rs 269
So profit of Rs 27 x 1000 lot = Rs 27000.
Q 62.
**An Over the Counter Option is –
A private contract
Standardized
Governed by the rules of stock exchange
All of the above
WRONG ANSWER
CORRET ANSWER:
A private contract
Explanation:
Options traded on the over-the-counter market, where participants can choose the characteristics of the
options traded. This trading is between two private parties and no exchange is involved. The flexibility of
these options is attractive to many. With OTC options, both hedgers and speculators can benefit from
avoiding the restrictions that normal standardized exchanges place on options. The flexibility allows
participants to achieve their desired position more precisely and cost effectively.
OTC market is not a physical market place but a collection of broker-dealers scattered across the country.
Trading is done through negotiated bidding process over a network of telephone or electronic media that link
thousands of intermediaries. OTC derivative markets have witnessed a substantial growth over the past few
years, very much contributed by the recent developments in information technology. The OTC derivative
markets have banks, financial institutions and sophisticated market participants like hedge funds, corporations
and high net-worth individuals.
Q 63.
If the tick size of a scrip is 5 paise and the spot price of that scrip is Rs. 70, what will be the next
upward tick ?
69.95
70.005
70.05
70.50
WRONG ANSWER
CORRET ANSWER:
70.05
Explanation:
Tick size is the minimum move allowed in the price quotations. So a 5 paise tick size will lead to a upward tick
of .05.
Q 64.
**Clearing Corporation acts as a legal counterparty to all trades on F&O segment and also
guarantees their financial settlement. True / False.
True
False
CORRECT ANSWER
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.
Q 65.
**The networth of a trading member does not include –
Intangible Assets
Prepaid expenses
Bad Deliveries
All of the above
WRONG ANSWER
CORRET ANSWER:
All of the above
Explanation:
As per the L.C.Gupta committee report the networth of the member shall be computed as follows:
Capital + Free reserves - Less non-allowable assets which are :
o Fixed assets
o Pledged securities
o Member’s card
o Non-allowable securities (unlisted securities)
o Bad deliveries
o Doubtful debts and advances
o Prepaid expenses
o Intangible assets
o 30% marketable securities
Q 66.
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
WRONG ANSWER
CORRET ANSWER:
Rs 3,91,250
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.
Q 67.
Mr A had bought 300 shares of XYZ and wants to protect himself if the price falls. Which of the
below options will be preferred by him.
Place a limit sell order
Place a limit buy order
Place a limit stop loss order
Place an IOC ie. Immediate or Cancel order
WRONG ANSWER
CORRET ANSWER:
Place a limit stop loss order
Explanation:
The facility of STOP LOSS helps the user to determine what is the maximum loss he can make on a trade.
Accordingly a STOP LOSS order is entered in the sysytem. This order is only released if the trigger price is
reached.
For eg- If one has bought a share at Rs 300 and his stop loss price is Rs 280 and trigger price is Rs 281,
then the order will be released in the system when the price falls to 281 and the shares will be sold till Rs
280.
Q 68.
A risky trader / speculator believes that the future price of ABC company will fall and being a smart
trader he will ________________ .
buy ABC futures now and sell them later when it falls
wait till the price of ABC futures and cash market price become same
sell ABC futures now and buy them later when the price falls
will do nothing as he had suffered a loss in his previous trade
WRONG ANSWER
CORRET ANSWER:
sell ABC futures now and buy them later when the price falls
Q 69.
**The spot price of LKK share is Rs 300, the put option of Strike Price Rs 280 is _____ .
In the money
Out of the money
At the money
None of the above
WRONG ANSWER
CORRET ANSWER:
Out of the money
Explanation:
Out of the Money Option - A call option with a strike price that is higher than the market price of the
underlying asset, or a put option with a strike price that is lower than the market price of the underlying
asset. An out of the money option has no intrinsic value, but only possesses time value.
As in the above example, LKK is trading at Rs 300. For such a stock, call options with strike prices above Rs
300 would be out of the money calls, while put options with strike prices below Rs 300 would be out of the
money puts. Out of the money options are significantly cheaper than in the money or at the money options.
Q 70.
The Brokers of an exchange can be a part of the Governing Board of the derivatives segment.
False
True
WRONG ANSWER
CORRET ANSWER:
False
Explanation:
As per the L.C.Gupta Committee recommendations - No broker members should be allowed to sit on the
Governing Board of the Clearing Corporation.
Q 71.
If price of a futures contract increases, the margin account of the seller of this futures contract is
debited for the loss.
True
False
CORRECT ANSWER
Explanation:
When the price increases the seller of the future contract will have losses and these losses will be debited on
a daily basis to the margin account of the seller.
Q 72.
**Derivatives market helps in transfer of various risks from those who are exposed to risk but have
low risk appetite to participants with high risk appetite. True or False ?
False
True
CORRECT ANSWER
Explanation:
Derivatives were first invented as a Hedgeing tool so that people who wanted to play safe can use them to
transfer the risk by hedgeing.
Q 73.
A clearing member is required to bring in Interest free security deposit (IFSD) of Rs. ___ Lakhs and
Collateral security deposit (CSD) of Rs. ____ Lakhs per trading member he undertakes to clear and
settle.
2,8
5, 10
7, 12
1, 5
WRONG ANSWER
CORRET ANSWER:
2,8
Q 74.
**The minimum Networth requirement for a trading member of Capital Market Segment and F&O
segment is –
Rs 50 lakhs
Rs 100 lakhs
Rs 250 lakhs
Rs 500 lakhs
WRONG ANSWER
CORRET ANSWER:
Rs 100 lakhs
Q 75.
When trading in futures contract, the terms of the contract are decided mutually by the trading
parties.
False
True
WRONG ANSWER
CORRET ANSWER:
False
Explanation:
The terms are mutually decided by the parties in FORWARD contract.
In future contracts the terms are standardised by the exchange.
Q 76.
**Rho is ______ .
is the change in option price given a one percentage point change in the risk-free interest rate
the change in option price given a one-day decrease in time to expiration
speed with which an option moves with respect to price of the underlying asset
WRONG ANSWER
CORRET ANSWER:
is the change in option price given a one percentage point change in the risk-free interest rate
Explanation:
Please memorise : Rho = change in INTEREST rate.
Q 77.
The trading members are required to maintain a net worth of minimum Rs 4 crores.
True
False
CORRECT ANSWER
Explanation:
The minimum networth for Trading / Clearing members of the derivatives clearing corporation/house shall be
Rs.300 Lakhs (Rs 3 crores). The networth of the member shall be computed as follows:
- Capital + Free reserves

- Less non-allowable assets which are :
o Fixed assets
o Pledged securities
o Member’s card
o Non-allowable securities (unlisted securities)
o Bad deliveries
o Doubtful debts and advances
o Prepaid expenses
o Intangible assets
o 30% marketable securities
Q 78.
**A call option is said to be ____________, when spot price is higher than strike price.
At the money
Out of the money
In the money
Europeon
WRONG ANSWER
CORRET ANSWER:
In the money
Explanation:
A call option with a strike price that is lower than the market price of the underlying asset, or a put option with a
strike price that is higher than the market price of the underlying asset.
For example, consider a stock that is trading at Rs 100. For such a stock, call options with strike prices below Rs 100
would be In the money calls ( ie Rs 80, Rs 90 calls) while put options with strike prices above Rs 100 (Rs 110 , Rs 120
calls etc.)would be In the money puts.
For easy understanding, those calls or puts which are profitable are In the Money.
Q 79.
**A long position in a January future contract can be reversed by a short position in that stock
futures of February month – True / False ?
False
True
WRONG ANSWER
CORRET ANSWER:
False
Explanation:
A position in futures can be reversed by squaring up in the same month and not in a different month. So in
the above case the position can be reveresed by selling the stock future in January month.
Q 80.
When a person sells a put option, he has an –
Bullish view
Bearish view
Mixed view
Long term view
WRONG ANSWER
CORRET ANSWER:
Bullish view
Q 81.
You have sold a put option of a strike price of Rs 370 for Rs 38. What is the maximum gain you can
have on expiry of this position ?
Unlimited
Rs 370
Rs 38
Rs 332
WRONG ANSWER
CORRET ANSWER:
Rs 38
Explanation:
The maximum gain for a seller of PUT option is the premium he recives. In this case he has sold the put
option at Rs 38 and received this premium, so that is his maximum gain.
Q 82.
Calendar spreads carry only ________ risk.
speculative
market
basis
interest
WRONG ANSWER
CORRET ANSWER:
basis
Explanation:
Basis means the difference between Spot Price and Future Price or difference between two future price of
the same underlying.
Basis risk is the chance that the basis will have strengthened or weakened from the time the hedge is
implemented to the time when the hedge is removed - ie. the risk that the two future prices will not
fluctuate identically.
Q 83.
You have sold a CALL option on a stock at Rs. 16 per call with strike price of Rs. 170. If on exercise
date, stock price is Rs. 196, ignoring transaction cost, you will choose _______ .
to exercise the option
not to exercise the option
may or may not exercise the option depending on the company's background
none of the above
WRONG ANSWER
CORRET ANSWER:
not to exercise the option
Explanation:
You have sold a CALL which means you expect the stock to fall. On the exercise day the stock has risen
which means there is a loss and so you will not exercise the option.
Q 84.
Non Systematic risks can be reduced by diversifying one’s portfolio – True or False ?
True
False
WRONG ANSWER
CORRET ANSWER:
True
Explanation:
Specific risk or unsystematic risk is the component of price risk that is unique to particular events of the
company and/or industry.
This risk is inseparable from investing in the securities. This risk could be reduced to a certain extent by
diversifying the portfolio.
Q 85.
**In the Option segment, if you buy a CALL at a premium of Rs 35 at the Strike Price of Rs 400, lot is
of 200 shares, then the maximum possible loss is ______
Unlimited
Rs 400
Rs 7000
Rs 73000
WRONG ANSWER
CORRET ANSWER:
Rs 7000
Explanation:
The maimum loss for a buyer of an option is the premium they pay.
In the above case the premium paid is Rs 35 x 200 shares = Rs 7000.
Q 86.
Longer the time to expiry/maturity of a call option, higher will be the time value.
False
True
WRONG ANSWER
CORRET ANSWER:
True
Q 87.
**Mr. Shah purchased two futures contract of Ambuja Cements Ltd at Rs. 180 (lot size 2000 shares).
What will be his profit or loss if he sells them at Rs 187.
Rs 14000
Rs 28000
Rs 20000
Rs 27500
WRONG ANSWER
CORRET ANSWER:
Rs 28000
Explanation:
Mr Shah bought at Rs 180 and sold at Rs 187, so he made a profit of Rs 7.
Lot size is Rs 2000 and he has purchased 2 lots, so 4000 shares x Rs 7 profit = Rs 28,000
Q 88.
The Ask price is always greater than the Bid price.
False
True
CORRECT ANSWER
Explanation:
Bid - Ask : The bid price is the buyers price and Ask is the sellers price. So the sellers price is always
higher than the buyers price.
Q 89.
**An Out of the Money option will have :
More than 1 intrinsic value
Zero intrinsic value
Negative intrinsic value
None of the above
WRONG ANSWER
CORRET ANSWER:
Zero intrinsic value
Explanation:
Intrinsic value in options is the in-the-money portion of the option's premium. For example, If a call options
strike price is Rs15 and the underlying stock's market price is at Rs 25, then the intrinsic value of the call
option is Rs 10.
Option premium consists of two components - intrinsic value and time value. 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. Therefore, only in-the-money options have
intrinsic value whereas at-the-money and out-of-the-money options have zero intrinsic value. The intrinsic
value of an option can never be negative.
Q 90.
**It is recommended but not compulsory that all Stock Exchanges of India have a uniform settlement
cycle. True or False ?
False
True
CORRECT ANSWER
Explanation:
Uniform settlement cycle across all exchanges is recommended but the exchanges can fix their settlement
cycle as per their wish and what suits them best.
Q 91.
A wheat exporter has entered into a contract to supply wheat after two months. He will be buying
that wheat soon. But he is afraid that a sudden rise in wheat prices may erode his profits. What
should he do ?
He should sell wheat futures
He should buy wheat futures
He should visit the farmers to see the possibility of wheat prices increasing or decreasing
He can import wheat and export them at a later date
CORRECT ANSWER
Explanation:
By buying wheat futures he has locked in his buying price.
When he wishes to take actually export he can sell in the futures maket and buy in the spot market as the
prices will be almost same.
Q 92.
The minimum price movement in a scrip is called BASIS.
True
False
WRONG ANSWER
CORRET ANSWER:
False
Explanation:
The minimum price movement in a scrip is called TICK. It is minimum move allowed in the price quotations.
Exchanges decide the tick sizes on traded contracts as part of contract specification.
The difference between the spot price and the futures price is called basis.
Q 93.
Mr A buys a August futures contract of ICICI Bank at Rs 900. On the last Thursday of the month ie.
expiry, the last traded price in August futures is Rs 912 and the closing price in cash / spot market is
Rs 910. What is the profit / loss of Mr A if his position is sq-up by the exchange. Market lot of ICICI
Bank is 250.
Rs 3000
Rs 2500
Rs -3000
Rs -2500
WRONG ANSWER
CORRET ANSWER:
Rs 2500
Explanation:
As Mr A has not squared up his position, the exchane will do it and the same is done at the CASH MARKET
CLOSING PRICE.
So Buying Price - Rs 900
Sq Up price - Rs 910
Profit of Rs 10 x 250 lot = Rs 2500
Q 94.
_________ is the change in option price given a one percentage point change in the risk-free interest
rate.
Delta
Rho
Vega
Gamma
WRONG ANSWER
CORRET ANSWER:
Rho
Explanation:
The rate at which the price of a derivative changes relative to a change in the rate of interest. Rho measures
the sensitivity of an option or options portfolio to a change in interest rate.
For example, if an option has a rho of 10.36 then for every percentage-point increase in interest rates, the
value of the option increases 10.36%.
Rho = Change in an option premium/ Change in cost of funding the underlying
Q 95.
**In India the future contracts are available for –
All scrips listed on NSE
A few selected stocks
All scrips above the price of Rs 100
All stocks with a market cap of Rs 300 crore or more.
WRONG ANSWER
CORRET ANSWER:
A few selected stocks
Explanation:
Selection of scripts which can be traded in F&O is as per certain guidelines and so only a selected few scripts
which qualify can be traded on the futures market.
Q 96.
A cotton exporter has entered into a contract to supply cotton after three months. He will be buying
that cotton soon. But he is afraid that a sudden rise in cotton prices may erode his profits. What
should he do ?
He can import cotton and export them at a later date
He should cancel the contract as cotton prices are very volatile
He should buy cotton futures
He should sell cotton futures
WRONG ANSWER
CORRET ANSWER:
He should buy cotton futures
Explanation:
By buying cotton futures he has locked in his buying price.
When he wishes to take actually export he can sell in the futures maket and buy in the spot market as the
prices will be almost same.
Q 97.
What is the main reason for which hedgers enter the futures market ?
to profit from price fluctuations
to make long term investments
to protect against any price uncertainities
to make big profits
CORRECT ANSWER
Explanation:
Hedgeing means making an investment to reduce the risk of adverse price movements in an asset. Normally, a
hedge consists of taking an offsetting position in a related security, such as a futures contract.
An example of a hedge would be if you owned a stock, then sold a futures contract stating that you will sell
your stock at a set price, therefore avoiding market fluctuations.
Investors use this strategy when they are unsure of what the market will do.
Q 98.
An Investor Mr Shah wants to buy 8 contracts of January series at Rs 740 and an investor Mr Patel
wants to sell 5 contracts of February series at Rs 754. Initial Margin is fixed at 6%. How much initial
margin has to be collected from them ? Market lot is 250.
Rs 56,550
Rs 88,800
Rs 1,45,350
Rs 1,87,600
CORRECT ANSWER
Explanation:
Margin to be collected from Mr Shah : Rs 740 X 8 contracts X 250 (Market lot) at 6%
= Rs 1480000 x 6% = Rs 88,800
Margin to be collected from Mr Patel : Rs 754 X 5 contracts X 250 (Market lot) at 6%
= Rs 942500 x 6% = Rs 56,550
So the total margin : 88,800 + 56,550 = Rs 145350
Q 99.
A commodity future exchange _____________ .
trades in cash and future commodities
trades only in future of commodities
trades in commodities of which it has stocks in its various godowns
None of the above
WRONG ANSWER
CORRET ANSWER:
trades only in future of commodities
Q
100. Value-at-risk calculations are done on the basis of __________ .
best possible market conditions
ideal market conditions
volatility
90 % risk parameter
WRONG ANSWER
CORRET ANSWER:
volatility
Out of 100 questions 27 correct and 73 wrong.

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This the advantage of Time Decay is used by the Option Sellers.

SEBI Complaints Redress System - SCORES

Since, ETFs are traded on exchanges intraday transaction is also possible.

Total quantity sold - 250 x 4 lots = 1000

So total profit is Rs 14 x 1000 = Rs 14000.

Gamma = Change in an option delta/ Unit change in price of underlying asset

The Systematic risks can be controlled by hedging in the F&O section.

Rs 170 x 400 (lot size) = 68000

Such contracts are called Forward or OTC contracts.

Profit = Rs 28000 , Lot size = 500 , So per share profit = 28000/500 = Rs 56

So the price has to fall by Rs 56 from Rs 350 = Rs 294

In case of Options, the initial margin is paid only by the sellers.

An open position can give you more profits or more losses.

Therefore, the naked call strategy is much riskier.

In an OTC market, no exchange is involved.

Purchase Price - Rs 242

Sale Price - Rs 269

So profit of Rs 27 x 1000 lot = Rs 27000.

Capital + Free reserves - Less non-allowable assets which are :

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

The terms are mutually decided by the parties in FORWARD contract.

In future contracts the terms are standardised by the exchange.

Please memorise : Rho = change in INTEREST rate.

- Capital + Free reserves

In the above case the premium paid is Rs 35 x 200 shares = Rs 7000.

Mr Shah bought at Rs 180 and sold at Rs 187, so he made a profit of Rs 7.

By buying wheat futures he has locked in his buying price.

So Buying Price - Rs 900

Profit of Rs 10 x 250 lot = Rs 2500

Rho = Change in an option premium/ Change in cost of funding the underlying

By buying cotton futures he has locked in his buying price.

Margin to be collected from Mr Shah : Rs 740 X 8 contracts X 250 (Market lot) at 6%

Margin to be collected from Mr Patel : Rs 754 X 5 contracts X 250 (Market lot) at 6%

So the total margin : 88,800 + 56,550 = Rs 145350

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