Q 1.

A client can use cross margining across Cash and Derivatives

segment - True or False ?
True
False

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.

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

Q 4. Put option gives the buyer a right to ______________ the underlying

asset, .
Sell
Buy
Speculate
None of the above

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

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

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

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

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

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

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/entiti.e.s in

Cash and Derivatives segments they are required to enter into
necessary agreements for availing cross margining benefit - True or
False ?
True
False

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

Explanation:
A SEBI registered FIIs and it’s 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 i.e. 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
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

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

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 formaliti.e.s — True or
False?
True
False
Explanation:
Apart from other formalities, he will also have to clear the
Derivative 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

Explanation:
The minimum contract value shall not be less than Rs. 2 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

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

Q 20. The option premium is decided by ____________

SEBI
Stock Exchanges
By buyers and sellers
By Stock Brokers
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

Explanation:
Professional clearing member clears the trades of his associate
Trading Member and institutional clients. I-le 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

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 it’s 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

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
Occasions when the 95% Value at Risk (VaR) limit has been violated
Occasions when the 99% Value at Risk (VaR) limit has been
violated

Q 25. As an option moves more In The Money, the absolute value of

Delta will _________
Increase
Decrease
Remain same
None of the above

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

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

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

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 it’s largest.

Q 29. Diversification is used to control Systematic Risks - True or

False ?
True
False

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

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

Explanation:
If the stock is very volatile it could result in looses to the trader in a
short period of time. So to safe gourd 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
Unlimited

Explanation:
When you sell a PUT option, you beli.e.ve 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.

Q 34. "Index futures is -

An OTC product
A Cash market security
A derivative product
An call or put option

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

Q 36. When you buy a put option on a stock you are owning, this
strategy is called ___________
Straddle
writing a covered call
calendar spread
protective put

Explanation:
Protective Put is 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

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 profit’s 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

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

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

parti.e.s is called futures contract - True or False ?
True
False

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

Q 42. A calendar spread will attract __________________ margin.

Zero
Higher
Lower
None of the above

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 i.e. 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

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

Explanation:
Bid price is the price buyer is willing to pay and Ask price is the
price seller is willing to sell.
For e If the share rice of Reliance Indust is Rs 950 -951 than the bid
•rice is Rs 950 and ask rice 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
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

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

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
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

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

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 profit’s are always on the
higher side compared to an unhedged position - State
True or False ?
True
False

Explanation:
Hedging controls your losses but also controls your profit’s. It does
not ensure higher profit’s.
An open position can give you more profit’s or more losses.

Q 52. **An index option like NIFTY OPTION is a ___________

Treasury instrument
Debt instrument
Derivative Product
Cash market product

Explanation:
Nifty options are derived from the NSE index i.e. Nifty and so it’s an
derivative product.

Q 53. What is a covered call ?

It’s a strategy to sell calls at various strike prices to profit from the
premium received
It’s used to generate extra income from existing holdings in the
cash market.
It’s a strategy of buying a call and sell it’s future for hedgeing
It’s done by buying a call and put of the same strike price.

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 benefit’s from the premium
received.

Q 54. Covered calls carry greater risk then Naked Calls — True or
False ?
True
False

Explanation:
In a naked call, the trader has to take a viewon 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 riski.e.r.

Q 55. A common individual investor cannot write an option.

True
False

Explanation:
Writing an option means selling an option. Any person can write an
option after he has fullfilled the necessary formaliti.e.s 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

Q 57. Of the below options, which is more difficult to manipulate ?

Individual Stocks
IT sector stocks
Stock Index
All of the above

Explanation:
A stock index contains a basket of high market cap stocks. So it’s
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

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

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 qualifi.e.d counterparti.e.s, who
are supposed to be capable enough to take care of themselves. True
or False?
False
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

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

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 parti.e.s 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 achi.e.ve 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 intermediari.e.s. 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

Explanation:
Tick size is the minimum move allowed in the price quotations. So a
5 poise 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
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
activiti.e.s, viz., Clearing, Settlement and Risk Management.

Q 65. **The networth of a trading member does not include —

Intangible Assets
Prepaid expenses
Bad Deliveri.e.s
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 deliveri.e.s
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

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 100 i.e. Immediate or Cancel 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 beli.e.ves 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

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

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
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

Explanation:
When the price increases the seller of the future contract will have
losses and these losses will ba 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

Explanation:
Derivatives were first invented as a Hedging tool so that people who
wanted to play safe can use them to transfer the risk by hedging.

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
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

Q 75. When trading in futures contract, the terms of the contract are
decided mutually by the trading parti.e.s.
False
True

Explanation:
The terms are mutually decided by the parti.e.s 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
a measure of the sensitivity of an option price to changes in market
volatility

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

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 deliveri.e.s
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

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 ( i.e. 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

Explanation:
A position in futures can be reversed by squaring up in the some
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 vi.e.w
Bearish vi.e.w
Mixed vi.e.w
Long term vi.e.w

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

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

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 strethened or
weakened from the time the hedge is implemented to the time when
the hedge is removed – i.e. the risk that the two future price 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

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
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

Explanation:
The minimum 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

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

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

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

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

Explanation:

Uniform settlement cycle across all exchanges is recommended but

the exchanges can fix their settlement cycle as per their wish and
what suit’s 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 profit’s. 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

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

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 i.e. expiry, the last traded price in
August futures is Rs 912 and the closing price in cash I 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
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

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.

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 profit’s.
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

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 uncertainiti.e.s
to make big profit’s

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

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 : R: 754 X 5 contract: 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 commoditiesof which it has stocks in it’s various godowns
None of the above

Q 100 Value-at-risk calculations are done on the basis of ________

best possible market conditions
ideal market conditions
volatility
90 % risk parameter

Q 1. On expiry, the Forward contracts are settled by___________

Difference in price
Cash
delivery of the asset
payment of margins

Q 2. On expiry, the settlement price for Wipro will be the______________

Last half hour weighted average price of Wipro Futures
Closing price of Wipro in the cash market
Opening price of Wipro in the cash market
The last traded price of Wipro in the cash market

Explanation:
The final settlement price is the closing price of the relevant
underlying security in the Capital Market segment on the last
trading day (expiry) of the futures contracts.
(The Daily Settlement price is the closing price of the futures
contract for the trading day)

Q 3. On the Balance Sheet date, the balance in the initial margin

equity index account should be shown separately under the
head_____________
Prepaid Expenses
Outstanding balance
current assets
current liabiliti.e.s

Q 4. Dividends which are _______________ of the market value of the

underlying stock would be deemed to be extra ordinary dividends.
below 10 %
above 10 %
below 20 %
above 20 %

Q 5. In futures trading, the profit’s are received and the losses are
paid ____________
on expiry i.e. last Thrusday of the month
on a weekly settlement basis
on a fortnightly settlement basis
on a daily settlement basis

Q 6. Even though there are no price bands applicable in derivatives

segment, to avoid erroneous order entry operating price ranges are
kept and the operating price range for index futures is _______________
5%
10%
15%
20%

Explanation:
Operating ranges and day minimum/maximum ranges are kept as
below:
• For Index Futures: at 10% of the base price
• For Futures on Individual Securities: at 10% of the base price
• For Index and Stock Options: A contract specific price range based
on it’s delta value is computed and updated on a daily basis.

Q 7. An investor has ICICI Bank shares in his portfolio. He wants to

protect against the downslide in this stock as he thinks the market
may go down. What should he do ?
Buy ICICI Put Option
Buy ICICI Call Option
Buy Nifty futures
Buy Bank Nifty

Q 8. In case of open position of any NRI exceeding the specified limit,

the penalty charged on the clearing member for each day of the
violation would be _______________ .
1 % of the value of quantity in violation per client or Rs 100000
per client which ever is lower
1 % of the value of quantity in violation per client or Rs 100000 per
client which ever is higher
2 % of the value of quantity in violation per client or Rs 200000 per
client which ever is lower
2 % of the value of quantity in violation per client or Rs 200000 per
client which ever is higher

Explanation:
In case of open position of any Client / NRI / sub-account of FII /
scheme of MF exceeding, the specified limit following penalty would
be charged on the clearing member for each day of violation: 1% of
the value of the quantity in violation (i.e., excess quantity over the
allowed quantity, valued at the closing price of the security in the
normal market of the Capital Market segment of the Exchange) per
client or Rs.1,00,000 per client, whichever is lower, subject to a
minimum penalty of Rs.5,000/- per violation / per client.

Q 9. 26th Jan is the last Thursday of the month which is a public

holiday. So the derivative contract for the Jan series will expire on
________________
25th Jan
26th Jan
27th Jan
31st Jan

Q 10. _______________ is at the lowest level of hi.e.rarchy of a trading

firm.
Speculator
Dealer
Branch Manager
Regional Manager
Q 11. You have purchased Jan call option at Rs 100 for a premium of
Rs 18. What will be your breakeven ?
Rs 100
Rs 82
Rs 118
Rs 18

Q 12. any member or client who increases his existing positions or

has created a new position in a F&O banned security, the
client/trading members will be subject to a penalty 1% of the value
of increased position subject to a minimum of Rs. _____________ and
maximum of Rs. ____________
5000 , 100000
5000. 50000
10000. 100000
10000. 25000

Q 13. The intrinsic value of a call option is ____________

the amount the option is OTM
the amount the option is ITM
the amount the option is ATM
None of the above

Q 14. The theoretical future price is considered for____________ is case

a futures contract is not traded during the day.
the opening price
the daily math to mark settlement price
premium settlement
last traded price

Q 15. Mr Suraj buys stock futures 1000 shares at Rs 260 and sells
800 the same day at Rs 263. The settlement price for the day was Rs
256. What will be his MTM profit / loss ?
Profit of Rs 2400
Profit of Rs 1600
Loss of Rs 800
Loss of Rs 2400

Explanation:
Mr Suraj buys 1000 at 260 and sell 800 at 263.
Here he makes a profit of Rs 3 X 800 shares = Rs 2400
For the balance open position of 200 shares, the settlement price is
256.
Here there is a MTM loss of Rs 4 ( 260 - 256 )
Rs 4 x 200 shares = Rs 800
So Net profit : 2400 – 800= Rs 1600

Q 16. Which of these PUT options are OTM - Out of the Money ?
Spot price 130 , Strike price 100
Spot price 100 , Strike price 100
Spot price 100 , Strike price 130
None of the above

Q 17. ABC stock is quoting at Rs 475 in the cash market. The call
option for 450 call is quoted at Rs 35. What is the intrinsic value of
this option ?
Rs 50
Rs 35
Rs 25
Rs 70

Explanation:
When the Strike Price is below the Spot Price, the Call Option is 'In
the Money' i.e. profitable.
Intrinsic Value for a such a Call Option = Spot Price - Strike Price
= 475 - 450 = Rs 25
The Option premium consists of two values : Intrinsic Value and
Time Value
In this example Rs 25 is the intrinsic value and Rs 10 is the Time
Value.

Q 18. On expiration, the time value of an option will be _____________

zero
1
10
100

Explanation:
Time value decreases with passage of time and is zero on expiration.

Q 19. The adjustment factor for a stock which issues a Bonus in the
ratio A : B is __________
(A+B)/B
(A - B)/ B
(A + B) x B
(A-B)XA

Explanation:
The adjustment factor for :
Bonus Ratio - A: B Adjustment factor: (A+B)/B
Stock Split’s and Consolidations Ratio - A: B Adjustment factor: A/B
Right Ratio - A: B and Issue price of rights is 5. Adjustment factor:
(P-E)/P Where P : Spot price on last cum date E = (P-S) * A / (A+B)

Q 20. The normal trading in the derivative banned scrip is resumed

after the open outstanding position comes down to _________________
or below of the market wide position limit.
90%
85%
80%
75%
Q 21. Buying calls at a strike of 5100 and selling calls at a strike of
5300 is an example of ______________ .
Calender Spread
Bull Spread
Bear Spread
Arbitrage Spread

Explanation:
A bull spread is created when the underlying viewon the market is
positive but the trader would also like to reduce his cost on position.
So he takes one long call position with lower strike and sells a call
option with higher strike.

Q 22. The payoff for a person who sells a future contract is simillar
to the payoff of a person who _______________ an asset.
Hedges
goes long in
shorts
speculates in

Q 23. An Option Contract which will not be exercised on the expiry

date is ______________
an Out of the Money option
an Deep in the Money option
an In the Money option
None of the above

Q 24. Spot Value of Nifty is 5880. An investor buys one month Nifty
5950 call option for a premium of Rs 12. This option is _____________ .
In the Money
At the Money
Out of the Money
The data is insuffici.e.nt
Q 25. A persons own a portfolio of Rs 5 lacs which has a beta of 1.
The current Nifty is 5000. He would like to protect his portfolio
against a fall of more than 10%. Put options are available at four
strike prices. Which strike price will give the required protection ?
5500
5000
4900
4500

Explanation:
When a holder of a portfolio buys a Put Option he is protecting
against a fall in the market because when the market falls the put
option preimum rises.
A 10% fall in 5000 Nifty means a fall till 4500.
So if he buys a 4500 put option, and if the nifty falls to 4500 - his
losses of more than 10% from the portfoilo devaluation will be
compensate by the profit’s of Put Option rise.
will be compensate by the profit’s of Put Option rise.

Q 26. Value of taxable securities transaction relating to an "option in

securities" shall be the option premium, in case of sale of an option
in securities - True or False ?
True
False

Q 27. What is the outstanding future position on which initial

margin will be charged - Client A purchases 800 shares and Client B
purchases 200 shares and sells 1000 shares ?
NIL
800 shares
1000 shares
1600 shares

Explanation:
Client A net position = 800 shares Buy
Client B net position : 800 shares Sell ( 1000 - 200 )
Initial Margin is paid on total of all outstanding position i.e. 800 +
800 = 1600 shares.

Q 28. On exercise of an option the buyer / holder of an option will

recognise the option premium as ________________
Deffered Income
Income
Expense
None of the above

Q 29. An trader sells one ABC share future contract at Rs 542 and
buys back the same at Rs 491. What is his Profit / Loss? The market
lot is 500 shares.
- Rs 27.600
- Rs 25.500
Rs 27,600
Rs 25,500

Explanation:
The trader sells at Rs 542 (higher price) and buys back at Rs
491(lower price) - so there is a profit.
Rs 542 - Rs 491 = Rs 51
Rs 51 * 500 ( lot size ) = Rs 25,500

Q 30. In India, the first exchange traded financial derivative

commenced with the trading of ______________ .
interest rate futures
index options
index futures
stock option
Q 31. Nifty Put option of strike price 5000 is selling at a premium of
Rs 30. At what index level will it break even for the buyer of the
option ?
5000
4970
5030
5060

Explanation:
Buyer of a Nifty Put option expects the market to fall. He pays a
premium of Rs 30. So when the market will fall by 30 points, the
breakeven point will be reached.
So when the index fall to 4970 (5000 - 30) - it will be the breakeven
point.

Q 32. Margins can be deposited by Trading Members in the form of

_____________
Cash/Cheque only
Cash and Fixed Deposit’s only
Cash , Fixed Deposit’s, Approved securities and Bank Gaurantee
50% Cash and Balance in Approved Securities

Q 33. Delivery based settlement in single stock futures is provided

by _____________
BSE
NSE
OTCEI
None of the above

Explanation:
At present, derivative contracts on both individual stocks and on
stock indices are cash settled on NSE but on B5E, derivative
contracts on stock indices are cash settled while those on individual
stocks are delivery based.
Q 34. What will be the payoff if a stock future was bought at Rs 100
and sold at Rs 87 ? The lot size is 1000 shares.
NIL
+ 13000
- 13000
- 8700

Explanation:
There will be a negative pay off as there is loss.
Rs 100 - Rs 87 = Rs 13 x 1000 lot size = Loss of Rs 13000.

Q 35. In a STOP LOSS BUY order, the Limit Price is _______________ .

Greater than the trigger price
Greater than or equal to the trigger price
Less than the trigger price
Less than or equal to the trigger price

Explanation:
A STOP LOSS BUY order is put when a trader wants to cover his
short position.
For eg - A trader short sells a share at Rs 100 expecting it to fall. But
he will incurr losses if the price rises.
So to protect himself against high losses he will put a STOP LOSS
BUY order.
Lets assume Rs 5 is the loss he can bear. So the Stop loss order will
be
Buy at 105 (Limit Price) when the share reaches 104.50 (Trigger
Price). Trigger price can also be equal to Limit Price i.e. 105.
So the limit price is greater than or equal to trigger price.

Q 36. Time Spread is also known as Vertical Spread - True or False ?

True
False
Explanation:
Horizontal spread involves same strike, same type but different
expiry options. This is also known as time spread or calendar
spread.

Q 37. The parti.e.s for the Futures contract have the flexibility of
closing out the contract prior to the maturity by squaring off the
transactions in the market - True or False ?
True
False

Q 38. Time value of an option is the difference between

________________
it’s Strike price and premium
it’s strike price and spot price
it’s premium and spot price
it’s premium and intrinsic value

Q 39. Equity Index options are a form of _______________

Swapations
Options on Futures
Basket Options
Special Warrants

Q 40. Mr P is long in 4 Nifty contracts at Rs. 5945. Nifty future closes

at 5905. What is the mark to market for Mr P ? ( Nifty contract is of
50 )
NIL
8000
5000
-8000

Explanation:
Mr P is long in Nifty and price has fallen. So he will have to pay (-ve)
5945 - 5905 = -40
Qty : 4 lots X 50 : 200
M to M = -40 X 200 = -8000

Q 41. The relationship between _______________ and _____________ is

represented by Cost of Carry.
Spot price and Cash price
Spot price and Future Price
Spot price and Call Option price
Spot price and Put Option price

Explanation:
Cost of Carry is the relationship between futures prices and spot
prices. In equity derivatives, carrying cost is the interest paid to
finance the purchase less (minus) dividend earned if any For eg - If
the spot price of share is Rs 100 and the one month future is trading
at Rs 101, then Re 1 is the cost of carry.

Q 42. A bull spread can be created only by___________

Buying and selling Futures
Buying and selling Cash and Futures
Buying and selling Options
Buying and selling ETF's

Q 43. One of the eligibility criteria of a stock which can be traded in

the derivative segment is that it shall be chosen from amongst the
top 100 stock in terms of average daily market capitalization and
average daily traded value in the previous six months on a rolling
basis - True or False ?
True
False
Explanation:
It shall be chosen from amongst the top 500 stock in terms of
average daily market capitalization and average daily traded value
in the previous six months on a rolling basis

Q 44. The penalty levied for the 9th instance of margin / limit
violation in a month is _________________ .
0.07%a per day
0.07% per day + Rs.5,000/-
0.07% per day + Rs.20,000/- + Rs 10,000 as per days
None of the above

Explanation:
Penalty for margin / limit violation is levied on a monthly basis
based on slabs as mentioned below :
1st instance - 0.07% per day
2nd to 5th instance of disablement - 0.07% per day + Rs.5,000/- per
instance from 2nd to 5th instance
6th to 10th instance of disablement - 0.07% per day + Rs.20,000/-
( for 2nd to 5th instance) + Rs.10000/- per instance from 6th to
10th instance

Q 45. Potentially unlimited profit’s and limited losses is the risk

reward for ___________
Buyer of a futures contract
Buyer of a call option
Seller of a futures contract
Seller of a call option

Q 46. The main objectives of Trade Guarantee Fund is / are

_____________
To inculcate confidence in the minds of market participants
To protect the interest of the investors in securities
To guarantee settlement of bonafide transactions of the members of
the exchange
All of the above

Q 47. Initial Margin is monitored by _____________

The Exchange
Clearing Corporation
SEBI
The Trading Members

Q 48. The spot price of a stock is Rs 200. A trader buys the Rs 195
strike price call option by paying a premium of Rs 10. On expiry the
settlement price is Rs 220. What is the net profit for the trader ?
Rs 25
Rs 15
Rs 10
NIL

Explanation:
The Rs 195 strike price call option settlement price is Rs 220 - So
there is profit of Rs 25 ( 220 - 195 )
He has paid Rs 10 as premium, so his net profit will be Rs 15 ( 25 -
10 )

Q 49. Mr Mohit buy 3 Call options of strike price 200 when the spot
price was 190 at a premium of Rs 16. Will he have to pay STT ?
Yes
No

Explanation:
STT - Securities Transaction Tax is paid only by the seller in case of
derivative contracts.
Q 50. Long Strangle is a strategy with _________________
Limited Profit’s and limited lossses
Limited losses and unlimited profit’s
Limited Profit’s and unlimited lossses
UnLimited Profit’s and unlimited lossses

Explanation:
The long strangle involves buying both a call option and a put option
of the same underlying security. Like a straddle, the options expire
at the same time, but unlike a straddle, the options have different
strike prices.
A strangle can be less expensive than a straddle if the strike prices
are out-of-the-money

Q 51. A client Mr P has bought March series contract and another

client Mr Q has sold March series contract on Nifty futures. This has
been done through the same broker. Will this qualify as a calendar
spread ?
Yes
No

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.
The above example is not a Calendar spread because here we have
the same expiry i.e. March series. Also the spread has to be done by
the same client.

Q 52. For calculation of minimum net worth of members of

derivative exchange, the non allowable assets include -
unlisted securities
doubtful debts and advances
bad deliveries
all of the above

Q 53.To do arbitrage between over priced futures, we will have to

______________
Buy futures and sell cash
Buy futures and buy cash
Buy cash and sell futures
Sell futures and sell cash

Explanation:
For e.g. - If ABC stock is at Rs 100 in cash market and Rs 105 in one
month futures, then to profit from it and do the arbitrage we will
have to buy at 100 in cash and sell at 105 in futures.

Q 54. Any person or persons acting in concert who together own

____________ or more of the open interest shall be required to report
this fact to the exchange.
10%
12%
20%
15%

Q 55. The value of a call option decreases with a ___________ in spot

price.
increase
decrease
no change
either increase or decrease

Q 56. Counterparty risk is the risk arising due to a failure of a

political party of the central government - True or False ?
True
False
Explanation:
Counterparty risk is the risk arising due to the default by one of the
parti.e.s to the transaction / contract.

Q 57. The daily settlement of all open positions in futures contract is

called -
Mark to Market settlement (MTM)
Exercising of the futures contract
Interim Settlement
VaR settlement

Q 58. Nifty consists of securities having _______________ market

capitalisation stocks.
Large
Medium
Small
All of the above

Q 59. The open position of a Trading Member is arrived by

____________
Adding up all his propri.e.tary positions
Adding up all his clients net outstanding postions
Adding both - his propri.e.tary positions and all his clients net
outstanding postions
None of the above

Q 60. If a stock exchange introduces physical settlement in stock

derivatives in a phased manner, the same should be completed in
____________
three months
six months
nine months
one year
Explanation:
A Stock Exchange may introduce physical settlement in a phased
manner.
On introduction, however, physical settlement for all stock options
and/or all stock futures, as the case may be, must be completed
within a period of six months.

Q 61. Income or loss on derivative transactions which are carried

out in a "recognized stock exchange" _______________
is not taxed as speculative income or loss
loss can be set off against any other income during the year
can be carri.e.d forward to subsequent assessment years
all of the above

Q 62. A seller of an Option __________________

pays premium
gives delivery of underlying
receives premium
receives delivery of underlying

Q 63. A protective put payoff is similar to that of _____________

Short Futures
Long Call
Long Futures
Short Call

Explanation:
A protective put payoff is similar to that of long call and is called
synthetic long call position.

Q 64. In the F&O segment of N SE one can trade in the following

derivative instruments except __________________
index based futures
individual stock options
index based options
individual warrant options

Q 65. A spread that is designed to profit if the prices goes down is

called _______________
Hedge Spread
Arbitrage Spread
Bull Spread
Bear Spread

Q 66. Which of the following Act governs the trading of derivatives

in India ?
SEBI Act 1992
Capital Issue (Control) Act 1947
Securities Contract ( Regulation ) Act 1956
Compani.e.s Act

Q 67. When an trader buys a put option, he ________________

is neutral and wants less movement in market
he is bearish and wants the market to fall
he is bullish and want the a market to rise
he is neutral but will benefit from any large movement in the market

Q 68. Delta is _____________

speed with which an option moves with respect to price of the
underlying asset
the change in option price given a one-day decrease in time to
expiration
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
Q 69. The Final Settlement Price in Options is the Closing price of
such underlying security on the last trading day of the options
contract - True or False?
True
False

Q 70. Exercise settlement for options contract takes place at

_______________
closing price of the underlying
settlement price of the futures contract
closing price of the option contract
closing price for the month contract

Q 71. **Currently the future contracts are settled on _______________

basis.
T+0
T+1
T+2
T+5

Explanation:
The trades of futures market are settled on T+1 working day basis.
Brokers with a funds pay-in obligation are required to have clear
funds in their account on or before 10.30 a.m. on the settlement day.
The payout of funds is credited to the account of the members
thereafter.
The margins like Mark to Market have to be paid on the next day of
trade and every subsequent days if there is a debit.

Q 72. 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
Q 73. A derivative market would primarily have ____________
Speculators
Hedgers
Long term investors
Both 1 and 2

Explanation:
A derivative market has both speculators and hedgers. Long term
investors in vest in the cash market and take delivery of securities.

Q 74. An investor takes an short position on nifty by selling 10 lots

at 5500. When he squares up the position he finds that he has made
a profit of Rs 25000. The lot size of Nifty is 50. Which of the
following actions helped the investor this profit ?
buying 10 lots at 5475
selling 10 lots at 5550
selling 10 lots at 5450
buying 10 lots at 5450

Explanation:

Total Nifty bought = 10 lots x 50 each lot = 500

Total profit made = 25000
Profit made on each Nifty = 25000 / 500= Rs 50.
The investor has sold Nifty. He will make a profit of Rs 25000 when
fifty falls 50 points i.e. from 5500 to 5450.
So Rs 50 x 10 lots x 50 each lot = Rs 25000 profit.

Q 75. Of the below mentioned contracts, which are traded on

registered derivative exchanges in India?
Daily Options
Future Contracts
Forward Contracts
Swapations

Explanation:
From the above 4 options, we have only future contracts traded on
registered Indian stock exchanges.

Q 76. "A farmer agrees to sell 100 tonnes of sugarcane to a factory

after 2 month at a specific price. What is this type of contract known
as ?
Swapation
Future Contract
Forward Contract
None of the above

Explanation:
A contract which is between two or more persons as per their
agreed terms and in which no Stock Exchange or any other
Exchange is involved is a Forward contarct.

Q 77. "The market price of a share is Rs 120 and the 110 call is
quoted at Rs 24, what is the intrinsic value of this calloption ?
10
20
30
130

Explanation:
Option Premium consists of two variables - Intrinsic Value and Time
Value.
In the above case, the cash market price is 120 and the strike price is
Rs 110. So the Intrinsic value is Rs 10 ( 120 - 110). The balance of
option premium ( 24 - 10 ) i.e. Rs 14 is the time value.
Q 78. "Generally the Future prices converge to Spot prices on expiry
day - True or False?
False
True

Explanation:
Future Price essentially means Spot Price + Cost of Carry i.e. interest
cost etc.
On the expiry day i.e. the last day, the cost of interest etc. will be nil,
so the Future Price and Spot price should ideally be same.

Q 79. "A PUT option gives -

the option writer the obligation but not the right to sell the
underlying asset at a specified price.
the option writer the right but not the obligation to buy the
underlying asset at a specified price.
the option holder the right but not the obligation to buy the
underlying asset at a specified price.
the option holder the right but not the obligation to sell the
underlying asset at a specified price.

Explanation:
In an PUT option, the buyer of the put, has the right, but not an
obligation, to re-sell the asset at the strike price by the future date,
while the other party, the seller of the put, has the obligation to
repurchase the asset at the strike price if the buyer exercises the
option.

Q 80. What is the intrinsic value of a CALL option ?

The amount the option is At the Money
The amount the option is Out of the Money
The amount the option is In the Money
The amount the option is Over the Money
Q 81. Mr. Kailash has bought 200 shares of Reliance Industries at
Rs.850 per share. He expects the price to go up but wants to protect
himself if the price falls. He does not want to lose more than Rs.
4000 on this long position. What should the he do?
Place a limit buy order for 200 shares Rs.830 per share
Place a limit sell order for 200 shares Rs. 830 per share
Place a stop loss sell order for 200 shares Rs.830 per share
Place a limit buy order for 200 shares at Rs.870 per share

Explanation:
Mr. Kailash will make a loss if the price of Relaince Industri.e.s fall.
His loss bearing capacity is Rs 4000. Therefore 4000 /200 shares =
Rs 20.
So if the shares fall by Rs 20, he will make a loss of Rs 4000.
850 - 20 = 830. Therefore 830 will be his stoploss price and he will
place a stoploss order at Rs 830.

Q 82. All the trades and open positions on a derivative exchange are
guaranteed by the Clearing Corporation and it becomes a legal
counter party.
True
False

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
activiti.e.s, viz., Clearing, Settlement and Risk Management.

Q 83. ."What does Value-at-risk measures ?

value of a volatile portfolio
Risk level of a financial portfolio
Value of illiquid shares portfolio
Index PE value

Explanation:
Value at Risk calculates the expected maximum loss, which may be
incurred by a portfolio over a given period of time and specified
confidence level.

Q 84. 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

Explanation:

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

Q 85. **The speculators play an important role in the futures market

because -
They buy in one market and sell in another for arbitrage gains.
They transfer their risk to the hedgers
They add to the liquidity to the futures markets
They take delivery of the commodities at expiration
Explanation:
Speculators are typically risk-taking investors with expertise in the
market(s) in which they are trading.
Speculators take large risks, especially with respect to anticipating
future price movements, in the hope of making quick gains.
They trade quiet frequently and so add to the liquidity of the
markets.

Q 86. "Mark-to-Market margins are collected on a basis.

monthly
weekly
Bi weekly i.e. Mondays and Thrusdays
daily

Explanation:
In the futures market, profit’s and losses are settled on day-to-day
basis - called mark to market (MTM) settlement.
The exchange collects these margins (MTM margins) from the loss
making participants and pays to the gainers on day-to-day basis.

Q 87. Of the below mentioned options, in which option is the strike

price better than the market price and therefore it is profitable to
exercise the option ?
At-the-money option
Out-of-the money option
In the money option
None of the above

Explanation:
In an In The Money Option, the strike price is better than market
price. Such options have both Intrinsic Value and Time Value.

Q 88**Are Broker-Members allowed on the Clearing Council of the

Clearing Corporation of the derivatives segment ?
Yes
No

Explanation:
No, broker members are not allowed on the Clearing Council of the
Clearing Corporation of the derivatives segment.

Q 89. What does selling short a stock means ?

Seller owns the stock he is supposed to deliver
Seller has sufficient time to deliver the stock which he sold
Seller does not own the stock he is supposed to deliver
Seller has to deliver the stock within a short time

Q 90. One of the important duties of a trading member is to assess

the financial soundness, genuineness and background of a new
client - True or False ?
True
False

Q 91. Of the below options, when will the April index future contract
be introduced on NSE ?
On the 1st trading day after last Thursday in March
On the 1st trading day after last Friday in March
On the 1st trading day after last Thursday in January
On the 1st trading day after last Friday in January

Explanation:
There are always 3 contracts running. So for eg. we will have Jan-
Feb-Mar contracts trading in January.
When January contracts expire on last Thursday of January, on
Friday the April contracts will be introduced and so we will have
Feb-Mar-April contracts
Q 92 Beta a measure of systematic risk of a security that cannot be
avoided through diversification.
True
False

Q 93 A long position in a PUT option can be closed by taking a short

position in CALL option.
True
False

Explanation:
A long position in any option can be closed by selling that option and
not in any other way.
So a long position in a PUT option can be closed by selling that PUT
option.

Q 94. In India, the derivatives product can be traded by

Brokers of NSE / BSE
SEBI registered brokers
SEBI registered brokers for trading in derivatives
All of the above

Explanation:
Special permission has to be taken from SEBI for trading in
derivatives.

Q 95. "STT means —

Stock Trading Tax
Stock Transaction Tax
Securities Transaction Tax
Securities Trading Tax
Explanation:
Securities Transaction Tax (STT) is payable by the Trading Members
/ Brokers who collect the same from their clients.
The current rate of STT in derivatives section is :
a) On Sale of an Option - 0.017 % of the option premium
b) On sale of Futures - 0.017 % of the total contract value
c) When option is exercised - 0.125 % payable by purchaser.

Q 96. *'`You have bought a CALL of Ambuja Cements of Strike price

of Rs 200 of January. To close the position, you will Sell a CALL of
same strike price of January. True or False ?
False
True

Explanation:
When you buy a CALL option, it can only be squared up by selling
the same CALL option.

Q 97. Initial Margin is —

The margin which is paid when a trading member starts his
business
The Margin which is paid at the time of buying shares in the spot
market.
The margin which a trading member needs to pay when applying for
membership
The margin which is paid at the time of entering futures
contract

Explanation:
The amount one needs to deposit in the margin account at the time
entering a futures contract is known as the initial margin.
Q 98. "Mr. Banerjee sells a put option of a higher strike price and
buys a put option of a lower strike price, both on the same share and
same expiration. This strategy is called
Bearish Spread
Bullish Spread
Calendar Spread
Straddle

Explanation:
Bullish Spread using Puts - the call on the market is bullish, hence,
the trader would like to short a put option. If prices go up, trader
would end up with the premium on sold puts.
However, in case prices go down, the trader would be facing risk of
unlimited losses. In order to put a floor to his downside, he may buy
a put option with a lower strike. While this would reduce his overall
upfront premium, benefit would be the embedded insurance against
unlimited potential loss on short put. This is a net premium receipt
strategy.

Q 99. "Main objectives of Trade Guarantee Fund (TGF) are :

To protect the interest of the investors in securities.
To inculcate confidence in the minds of market participants.
To guarantee settlement of bonafide transactions of the members of
the exchange.
All of the above

Q 100 As per the rules, the minimum networth of clearing members

who handle and clears/settles only deals executed by no. him is
higher than those clearing members who handle institutional trades.
False
True
----------------------------------------------------------------------------------------
----------------------------------------
Q 1. very important for it’s use ____________
in portfolio management
as a benchmark of portfolio performance
as a barometer for market behavior
All of the above

Q 2. If a stock fails to meet the retention criteria for equity

derivatives trading for three months consecutively, existing
unexpired contracts may be permitted to trade till expiry and new
strikes may also be introduced in the existing contract months -
True or False ?
True
False

Explanation:
The criteria for retention of stock in equity derivatives segment are :
a) The stock's median quarter-sigma order size over last six months
shall not be less than Rs. 5 lakhs (Rupees Five Lakhs).
b) MWPL of the stock shall not be less than Rs. 200 crores (Rupees
Two Hundred crores).
c) The stock's average monthly turnover in derivatives segment
over last three months shall not be less than Rs. 100 crores

If a stock fails to meet these retention criteria for three months

consecutively, then no fresh month contract shall be issued on that
stock. However, the existing unexpired contracts may be permitted
to trade till expiry and new strikes may also be introduced in the
existing contract months. Further, once the stock is excluded from
the F&O list, it shall not be considered for re-inclusion for a period of
one year.

Q 3. The clearing member/trading member is required to disclose to

the clearing corporation details of any person(s) acting in concert
who together own % or more of the open interest of all futures
and options contracts on a particular underlying index on the stock
exchange.
12
15
17
20

Q 4. What penalty is levied for first instance margin / limit

violation ?
0.07% per day
0.07% per day + Rs.5,000/- per instance
0.07% per day + Rs.20,000/-
None of the above

Explanation:
Penalty are levied as under :
1st instance - 0.07% per day
2nd to 5th instance of disablement - 0.07% per day + Rs.5,000/- per
instance from 2nd to 5th instance
6th to 10th instance of disablement - 0.07% per day + Rs.20,000/-
( for 2nd to 5th instance) + Rs.10000/- per instance from 6th to
10th instance

Q 5. Which of the following factor(s) do not affect the value of an

option ?
The Open Interest
The Spot Price
The volatility in underlying instruments
The strike price

Q 6. You sold a Put option on a share. The strike price of the put was
Rs.245 and you received a premium of Rs.49 from the option buyer.
Theoretically, what can be the maximum loss on this position?
206
196
49
NIL

Explanation:
When you sell a Put option you beli.e.ve the share will go up. If the
share goes down you will make a loss.
Theoretically the share of 245 can fall to zero. So you can make a
loss of 245.
You have received a premium of 49.
So the maximum loss can be 245 - 49 = 196

Q 7. An Equity based Mutual Fund can sell Index Futures to hedge

it’s position - True or False ?
True
False

Q 8. Futures differs from forwards in the sense that ________________

settlement of contract takes place in the future
both parties are bound to give/take delivery
positions are marked-to-market everyday
contracts are custom designed

Q 9 Which of these PUTs are In the Money ?

Spot 300 ; Strike Price 300
Spot 300 ; Strike Price 280
Spot 300 ; Strike Price 320
None of the above

Explanation:
A Put option is In the Money when the Spot price is below the Strike
price.
A Call option is In the Money when the Spot price is above the Strike
price.
Q 10. In Indian context, derivative includes: A) A security derived
from a debt instrument, share, loan whether secured or unsecured,
risk instrument or contract for differences or any other form of
security; B) A contract which derives it’s value from the prices, or
index of prices, of underlying securities.
A
B
Both A and B
Neither A or B

Q 11. The beta of SBI is 0.9. If a trader has a buy position of Rs

3,00,000 of SBI, which of the following will give him a complete
hedge ?
Sell Nifty of 270000
Sell Nifty of 330000
Sell Nifty of 300000
Beta of below 1 cannot be hedged

Explanation:
SBI has a beta of 0.9 means that if Nifty falls by 100, the 513I will fall
by 90 i.e. 10% less.
So we need to hedge 10% less of NIfty, i.e. 10% of Rs 300000 =
30,000
So we need to sell 270000 of Nifty

Q 12. A stock broker applies for registration to SEBI _____________

directly on his own
through stock exchange(s) of which he or she is admitted as a
member
through Ministry of Finance
through association of members
Q 13. An investor has bought 100 SBI shares at Rs 2000. How will he
hedge it ? The Current market price of SBI is Rs 2000.
Buy SBI futures at Rs 1000
Buy SBI Call options of strike price 2000
Buy SBI Put options at strike price 2000
Sell SBI Put options at strike price 2000

Explanation:
Buying a Put options will help him hedge against a downfall in share
price by paying the premium.

Q 14. **An trader purchases three contracts of Reliance Industries in

the futures market at Rs 900. On the expiry day, Reliance closes at
Rs 918. Lot size is 250 shares. What will the trader receive ?
He will receive 750 shares of Reliance Industries
He will receive nothing as he has not squared up his position
He will receive the difference between the purchase price and
closing/expiry price
None of the above

Explanation:
On the expiry day, if the client does not square up his position, then
it’s automatically squared up by the exchange by the closing price of
that underlying.
The closing price is the last half hour weighted average price of the
underlying on the expiry day.

Q 15. Irrespective of the type of option, the option value is directly

proportional to
Interest rate difference and strike price
Underlying asset price and strike price
Time to maturity and volatility
Volatility and strike price
Q 16. As per the rules of European Call Option, it gives the right but
not the obligation to buy from the seller an underlying at the
prevailing market price on or before the expiry - True or False ?
False
True

Explanation:
European Option is an an option that can only be exercised at the
end of it’s life, at it’s maturity / expiry and not before that. An
American option can be exercised any time.
A buyer of an European option that does not want to wait for
maturity to exercise it can sell the option to close the position.

Q 17. **If an investor buys a future contract but does not sell it till
expiry than what happens to that contract ?
The investor will receive the delivery of the underlying
The exchange will square up the position by the closing price
A new buy position will be automatically be created in the next
month
The client has to pay a stiff penalty

Explanation:
As per the rules in the Indian Stock markets, if the open position of a
trader is not squared up till maturity i.e. last Thrusday of the month,
then the position is automatically squared up by the exchange by the
closing price.
For example - Mr A bought one Ambuja Cement contract of 1000
shares at Rs 180 on 8th January. He does not sell it even by the last
day i.e. last Thrusday of January. If the closing price of Ambuja
Cement is Rs 184, his contract will be squared up at Rs 184 and Rs 4
x 1000 = Rs 4000 ( less brokerage etc. ) will be his profit. In case
Ambuja Cement closes below Rs 180, then he will incur a loss.
Q 18. What is the intrinsic value of a call option of SBI if the spot
price is 2000 and the strike price is 1950.
50
-50
2000
0

Explanation:
Intrinsic Value of an In the money call option is the Spot Price -
Strike Price.

Q 19. **Margins in futures trading are applicable to -

Only Institutional players.
Both the buyer and the seller
Only the buyer
Only the Seller

Explanation:
In a futures market margins are payable by both the parties.

Q 20. **Mr Manoj buys a put option on PQR stock for Rs 20 of strike
price Rs 130. If on the exercise day, the spot price of PQR is Rs 175,
Mr Manoj will choose ________________
Not to exercise the option
To exercise the option

Explanation:
Mr. Manoj bought a PUT option so he had a viewthat the stock will
fall. On the exercise day the stock has risen and so Mr. Manoj is in a
loss. So he will not exercise the option.

Q 21. The Clearing Corporation can transfer a defaulting members

client's position to
Liability a/c.
Another solvent member
Investor Protection Fund a/c.
The Stock Exchange

Explanation:
As per SERI rules, the Clearing Corporation can transfer client
positions from one broker member to another broker member in
the event of a default by the first broker member.

Q 22. 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

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

Q 23. "Mr. Deshmukh took a short position of one contract in May

Nifty futures (Contract multiplier50) at a price of Rs.5600. When he
closed this position after a few days, he realized that he has made a
profit of Rs.5000. Which of the following closing actions would have
enabled him to generate this profit ?
Selling 1 May Nifty futu es contract at 5700
Buying 1 May Nifty futu es contract at 5700
Selling 1 May Nifty futures contract at 5500

Explanation:
Mr beshmukh is short i.e. he has sold Nifty futures. He will make a
profit when Nifty falls. His profit is Rs 5000 and lot size is 50, so per
share he has to get Rs 100 to make a profit of Rs 5000 ( 50 x 100)
So when Nifty falls to 5500 and Mr beshmukh buys it to square up
his position, he will make a profit of It’s 5000.

Q 24. By using Financial derivatives one can engage in

Hedging
Arbitraging
Speculation
All of the above

Explanation:
Modern traders and investors also use financial derivatives for
Arbitrage and Speculation, apart from hedgeing.

Q 25. "If an trader does an calendar spread in index futures and the
near leg of the calendar spread expires, the Further
leg becomes a regular open position. True or False ?
True
False

Explanation:
Calendar spread means an options or futures spread established by
simultaneously entering a long and short position on the same
underlying asset but with different delivery months.
In the above question, let’s assume a trader has gone long in index
options in current month and short in index options in third month.
In case he does not close his position by the end of current month,
his current month option will expire and the third month option
contract will become an open position as there is no opposite option
contract in his account.
Q 26. "Mr. Nayar has purchased 8 contracts of March series and sold
6 contracts of April series of the NSE Nifty futures.
How many lots will get categorized as Regular (non-spread) open
positions?
14
8
2
6

Explanation:
Various future contract position in the same underlying ( even at
various expiry dates ) are netted off before arriving at open
postion. Here in this case it’s 8 - 6 = 2.
This is because a long and a short position in the same underlying
will have no risk (if one will make profit, the other will be in simillar
loss) and only the open position will have the risks and margins will
be collected from these open positions.

Q 27. If the price of a stock is volatile, then the option premium

would be relatively
Lower
Higher
No effect of volatility
zero

Explanation:
Higher volatility means higher risk and higher risk means one has to
pay a higher premium.

Q 28. The strategy in which an trader buys a call option of lower

strike price and sells another call option with a higher strike price of
the same share and same expiry date is called __________________
Butterfly spread
Bearish spread
Calendar spread
Bullish spread

Q 29. "The spot price of Grasim Industri.e.s Ltd share is Rs 2900, the
call option of Strike Price Rs 2800 is _____________
At the money
Out of the money
In the money
None of the above

Explanation:
In call options, when the Spot price is higher than Strike price - that
call option is In the Money.

Q 30. Of the below mentioned options, which would attract

margins ?
Buyer of PUT Option
Seller of CALL Option
Seller of PUT Option
Both 2 and 3

Explanation:
Buyers of Options pay the premium and that is the maximum loss
they can suffer - so they need not pay any margin.
A seller of options receives the premium but he can suffer infinte
losses - so margins are collected both from sellers of Call and Put
options

Q 1.The Option price is the ________________

price paid by the seller of option to the buyer of option
price paid by the buyer of option to the seller of option
the intrinsic value of the option
All of the above

Q 2. An investor is bearish about Yes Bank and sells ten one-month

Yes Bank futures contracts at Rs.3,03,000. On the last Thursday of
the month, Yes Bank closes at Rs.300. He makes a. (assume one lot =
100)

Profit of Rs.3000
Loss of Rs.3000
Profit of Rs.300
Loss of Rs.300

Explanation:
Sale of 10 lots of 100 shares at Rs 303000
i.e. each share at Rs 303
Closing price Rs 300
So It’s 3 per per share profit
Rs 3 x 10 lots x 100 lot size
= Rs 3000

Q 3. 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?
Buy 5 Reliance futures contracts
Buy 10 Reliance futures contracts
Sell 5 Reliance futures contracts
Sell 10 Reliance futures contracts

Q 4. A trader has bought 100 shares of XYZ at Rs.780 per share. He

expects the price to go up up but wants to protect himself if the
price falls. He does not want to lose more than Rs.1000 on this long
position in XYZ. What should the trader do?
Place a stop loss sell order for 100 shares of XYZ at Rs.770 per
share
Place a limit buy order for 100 shares of XYZ at Rs.770 per share
Place a stop loss buy order for 100 shares of XYZ at Rs.790 per share
Place a limit sell order for 100 shares of XYZ at Rs.770 per share

Explanation:
By placing a stop loss sale order, if the price falls to 770, his shares
will be automatically sold and the maximum loss he will suffer will
be Rs 10 x 100 shares i.e.Rs 1000.
Q 5. The initial margin amount is large enough to cover a one-day
loss that can be encountered on ______________ % of the days.
100
99
95
90

Q 6. On expiry, the settlement price of an index futures contract is

opening price of futures contract
closing index value
closing price of futures contract
opening index value

Explanation:
The Spot closing price of the index is the settlement price.

Q 7. Client KKK has purchased 10 contracts of December series and

sold 7 contracts of January series of the NSE Nifty futures. How
many lots will get categorized as regular (non-spread) open
positions?
3
5
11
15

Q 8. The trading memberlFlllmutual fund position limit’s in equity

index futures contracts is higher of Rs. ____________ Crores or 15% of
the total open interest in the market in equity index futures
contracts.
200
500
700
1000

Q 9. ____________ means the total number of equity futures contracts

that have not been offset and closed by an opposite position.
Open Position
Closed Position
Arbitrage Position
Squared off Position

Q 10. Index options on the S&P CNX Nifty can be exercised__________

any time upto maturity
on a date pre-specified by the trading member
upon maturity
any time on or before maturity

Q 11. In which option is the strike price not better than the market
price (i.e., price difference is not advantageous to the option holder)
and therefore it will lead to losses if the option is exercised ?
In The Money
Out of the Money
Deep In the Money
All of the above

Q 12. The value of a put option __________________ with an increase in

spot price.
increases
decreases
remains constant
either increases or decreases

Explanation:
When the spot prices rise, the premium of Put option falls.

Q 13. Which of the following are derivatives?

Options
Forwards
Futures
All of the above

Q 14. **The maximum profit for a seller of options contract is -

determined by the derivative exchange
depends on the strike price
Premium received
Unlimited

Explanation:
The maximum profit for the seller of an option is the premium he
receives. But the maximum losses can be unlimited.

Q 15. "If you are an exporter what would you do to safeguard

against dollar rate fluctuations ?
Buy Dollars
Sell Dollars
Sell Euro as it’s a stronger currency
None of the above

Explanation:
You will sell dollars which you are supposed to receive in the futures
market so that you are protected against any fluctuations.
Q 16. For calculation of minimum net worth of members of
derivative exchange, the non allowable assets include -
members card
pledged securities
doubtful debts and advances
all of the above

Explanation:
The minimum networth for clearing members of the derivatives
clearing corporation/house shall be Rs.300 Lakhs. The networth of
the member shall be computed as follows:
- Capital + Free reserves
- Less non-allowable assets viz.,
o Fixed assets
o Pledged securities
o Member's card
o Non-allowable securities
o Bad deliveries
o Doubtful debts and advances
o Prepaid expanses
o Intangible assets
o 30% marketable securities

Q 17. You have sold a PUT option of strike price 100 for a premium
of Rs 12. Theoretically what can be your maximum
loss ?
Unlimited
Rs 112
Rs 88
Rs 12

Explanation:
When you sell a put option you expect the price to rise.
If it falls you make a loss and theoretically the price can fall to zero.
In the above example the price can fall from 100 to zero, so the loss
can be Rs 100.
But you have received Rs 12 as premium, so the loss will be Rs 100 -
Rs 12 = Rs 88

Q 18. Which price is closest to the 3rd month future price of share if
the spot price is Rs 326 and the interest rate is 12% pa.
326
335.80
354.80
362.10

Explanation:
3 month future price means 3 months of interest cost has to be
added.
12% per year = 1% per month
So for 3 months it will be 3%
3% of Rs 326 = 9.78
Thus the 3 month future price will be 326 + 9.78 = 335.78 or 335.80

Q 19. Who can clear trades in index options?

All AMFI and IRDA members
Members of a stock exchange
Members and sub brokers of the stock exchange
Clearing members registered in the derivatives segment.

Q 20. If one 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

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.
When the market fluctuates, if there is a loss in the long position
then there will be an almost equal profit in short position.
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.

Q 21. You sold one Zee Ent Ltd. futures contract at Rs.260 and the lot
size is 1,000. What is your profit or loss, if you purchase the contract
back at Rs.251 ?
9000
-9000
7500
-7500

Explanation:
When you sell a stock future contract you make a profit if the share
falls. In this case Zee has fallen by Rs9 x 1000 = Profit of Rs 9000

Q 22. **Options which are traded on a recognised exchange i.e.

Exchange traded options are ____________
usually in-the-money options
usually out-of-the money options
Standardized options
Customized options

Explanation:
Exchange Traded Options are standardized as per the rules and
regulation of the exchanges. Only the price is variable. The lot size
quantity, time (maturity) etc. are all fixed by the exchanges.

Q 23. '‘*An in-the-money option is a option with

a negative intrinsic value
a positive intrinsic value
either negative or positive intrinsic value
zero time value

Explanation:
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.
For eg - Spot price of a stock is Rs 100. The Call option of strike price
Rs 95 is in the money and Rs 5 is the intrinsic value
Therefore, only in-the-money options have intrinsic value whereas
at-the-money and out-of-the-money options have zero intrinsic
value.

Q 24.**Impact cost is low when the liquidity in the system is poor -

True or False ?
True
False

Explanation:
Impact cost basically means what additionally a trader must pay
because of the order size i.e. due to price increase if there it is a big
buy order and price decrease if there is a big sell order.
If the scrip is very liquid i.e. there are huge buyers and sellers, the
impact cost will be very low.
So in the above question, the impact cost will be high if the liquidity
is poor in the system.
Q 25. "If you have sold a ITC futures contract (contract multiplier
500) at 300 and bought it back at 328, what is your
gain/loss?
A gain of RS. 6,800
A loss of Rs. 6,800
A loss of Rs. 14,000
A gain of Rs. 14,000

Explanation:
You had sold ITC believing that it will fall down, but it has risen - so
there will be a loss.
300 - 328 = -28 Loss
-28 x 500 shares = - Rs 14000

Q 26. Value-at-risk is calculated ___________

for a specific time frame
at a specific confidence level
only when stocks are very volatile
Both 1 and 2

Explanation:
The clearing corporation computes and collects the Initial margins
which are based on 99% value at risk over a one day time horizon.

Q 27. Who monitors the collection of Initial margin ?

The Stock Exchange
The Clearing Corporation
NSDL or CDSL
SEBI

Q 28. **If you are a buyer of put option, it will give you the right to
sell how much of the underlying to the writer of the option?
The specified quantity or less than the specified quantity
The specified quantity or more than the specified quantity
Only the specified quantity (lot size of the option contract)
Any quantity

Explanation:
Only the quantity of the lot size as determined by the stock
exchange.

Q 29. "In the Option segment, if you sell a CALL at a premium of Rs

45 at the Strike Price of Rs 400, lot is of 200 shares, then the
maximum possible Profit is
Rs 9000
Rs 18000
Rs 80000
Unlimited

Explanation:
In the Options market, the maximum profit a seller of an option can
make is the premium he receives.
In the above case the premium received is Rs 45 x 200 shares = Rs
9000.

Q 30. The settlement in futures contract happen only in ____________

Cash
Physical Delivery
Cash or Delivery as per the choice of buyer
None of the above

Explanation:
There is no delivery involved in Futures and Options. The profit or
loss is settled by cash i.e. Debit - Credit payments.

Q 1. The NEAT F&O trading system _____________

does not allow combination trades
allows only a single order placement at a time
allows one to enter combination trades
none of the above

Q 2. For FlI’s, the short position In Index derivatives should not

exceed the long positions in delivery holdings - True or False?
True
False

Q 3. The buyer of an option cannot lose more than the option

premium paid.
True only for American options
True only for European options
True for all options
False for all options

Explanation:
A buyer of an option cannot lose more than the option premium
paid in all types of options.

Q 4. The payoff for a trader who sells a future contract is similar to

the payoff for a trader who __________ an asset.
goes long
shorts
hedges
does arbitrage in

Q 5. A writer of a call option is a person who _____________

Has the obligation to buy the underlying asset
Has the obligation to sell the underlying asset
Has the right to buy the underlying asset
Has the right to sell the underlying asset

Explanation:
A call option the seller/ writer will deliver equity shares for which
the call option was entered into.

Q 6. Options which can be exercised only on the expiration date are

_________ options.
American Options
Indian Options
European Options
Commodity Options

Q 7. Short straddle is created by shorting a call and a put option of

same strike and same expiry - True or False?
True
False

Explanation:
In a short straddle the trader's view is that the price of underlying
would not move much or remain stable. So, he sells a call and a put
so that he can profit from the premiums.
(A long straddle position is created by buying a call and a put
option)

Q 8 To take a selling position in a Stock Futures contract, a trader

should___________
have the underlying stock in his demat account
pay only the margin amount as specified by the exchange
pay the full value of future contract
None of the above

Q 9. Seller of a put option expects ___________

Dec rease in the price of underlying asset
Increase in the price of underlying asset
No change in the price of underlying asset
Both (2) and (3)
Explanation:
When you sell a put option you expect the price to rise. Even if the
price remains stable, you earn the option premium.

Q 10. You have taken a short position of one contract in June XYZ
futures (contract multiplier50) at a price of Rs. 3,400. When you
closed this position after a few days, you realized that you made a
profit of Rs. 10,000. Which of the following closing actions would
have enabled you to generate this profit? (You may ignore
brokerage costs.)
Selling 1 June XYZ futures contract at 3600
Selling 1 June XYZ futures contract at 3200
Buying 1 June XYZ futures contract at 3200
Buying 1 June XYZ futures contract at 3600

Explanation:
One makes a profit in short positions when the prices go down.
Here the profit made is Rs 10,000
Divide by Lot size i.e. 50 = Rs 200 per unit
Sold at 3400, so buying back at 3200 (3400 - 200 ) will give a profit
of Rs 10,000

Q 11. A stock is currently selling at Rs. 90. The put option to sell the
stock at Rs. 95 costs Rs. 12. What is the time value of the option?
Rs 7
Rs 12
Rs 19
Rs 90

Explanation:
Option premium consists of two components - intrinsic value and
time value.
Here the intrinsic value is Rs 5 (95 -90 )
So the balance amount of option premium Rs 12 - Rs 5 = Rs 7 is the
time value.

Q 12. What role do speculators play in the futures market?

They take delivery of the commoditiesat expiration
They transfer their risk to the hedgers
They add to the liquidity in the futures markets
All of the above

Q 13. The beta of SBI is 1.4. A trader has a long position in SBI of Rs
400000 and a short position in Nifty of Rs 410000.Which of the
following is true ?
He is bullish on Nifty as well as on SBI
He is bearish on Nifty as well as on SBI
He has a complete hedge against the fluctuation of Nifty
He has a partial hedge against the fluctuation of Nifty

Explanation:
Bata is a measure of a stock's volatility in relation to the market. By
definition, the market has a beta of 1.0, and individual stocks are
ranked according to how much they deviate from the market. stocks
are ranked according to how much they deviate from the market.
Here SBI has a volatility of 1.4, which means SBI will move 40%
more than Nifty movement.
The trader is long in SBI by Rs 400000 and short in Nifty by 410000.
To get a complete hedge, he should go short in Nifty for Rs 560000
(400000 x 40% = 160000 i.e. 400000 + 160000 = Rs 560000.)
So he is not completely hedged with a short position in Nifty of just
Rs 410000.

Q 14. **The main intention behind buying a PUT option is to benefit

when the market / script _____________
rises
falls
sees no major price change
none of the above

Explanation:
The buyer of a PUT option has a bearish view and expects the
market / scrip to fall.

Q 15. **The index futures position are mark to marketed on a daily

basis - True or False ?
True
False

Explanation:
All futures positions - for both Index and Stocks are marked to
market every trading day.

Q 16. **The beta of a stock is 0.7 and you have a buy position of Rs
3,00,000 in it. Which of the below options will give you a complete
hedge ?
Sell Rs 2,10,000 Nifty
Buy Rs 2,10,000 Nifty
Buy Rs 3,00,00 Nifty
Sell Rs 3,00,000 Nifty

Explanation:
To get a complete hedge against your buy position , you will have to
sell Nifty.
0.7 x Rs 3,00,000 = Rs 2,10,000.

Q 17. What is the intrinsic value of a call option if the spot price is Rs
300 and the strike price is Rs 250 ?
zero
50
650
None of the above

Explanation:
Intrinsic Value of an In the money call option is the Spot Price -
Strike Price.

Q 18. For which type of options is it profitable to exercise the

options ?
In the Money
At the Money
Out of the Money
None of the above

Explanation:
IN THE MONEY - 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. In the money means that your stock option is worth money
and you can turn around and sell or exercise it.
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 (i.e. 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 19. Losses due to Operational risks include losses due to ___________

State Government policies
Income tax regulations
Inadequate disaster planning
Excessive management control
Explanation:
An operational risk is defined as a risk incurred by an organisation's
internal activities. So losses due to fraud, inadequate
documentation, inadequate disaster management, improper
execution are all Operational risks. Documentation, inadequate
disaster management, improper execution is all Operational risks.

Q 20. 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?
both these investors by the broker?
Rs 3,48,075
Rs 4,05,000
Rs 5,87,500
Rs 7,53,075

Explanation:
The Broker has to collect -
From Mr. R : 17 x 4550 x 50 x 9% = Rs 3,48,075
From Mr. $ : 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

Q 21. The Spot price i.e. the market price of a share is Rs 200 and the
interest rate is 12%. Which of the below price is closest to 3
months future maturity?
206
200
203
224

Explanation:
Yearly Interest Rate is 12%. Full year's interest = 12% of 200 i.e. Rs
24
So for 3 months the cost of interest is Rs 6.
Therefore the 3 month future contract will have an price of approx.
Rs 206.

Q 22. **If a person buys a share in one market and the

simultaneously sells in a different market to benefit from
differentials is known as ___________
Log trading
Arbitrage
Speculation
Jobbing

Explanation:
Arbitrage means the simultaneous purchase and sale of an asset in
order to profit from a difference in the price.
It is a trade that profit’s by exploiting price differences of identical
or similar financial instruments, on different markets.
For example- If Reliance is quoted on NSE at Rs 900 and on BSE
there is a buyer at Rs 903, then the arbitrageur will buy on NSE and
sell on BSE and Rs 3 (less brokerage etc.) will be is profit.
Arbitrage exists as a result of market inefficiencies; it provides a
mechanism to ensure prices do not deviate substantially from fair
value for long periods of time.

Q 23. **Can clients position be netted off against each other while
calculating initial Margin on the derivatives segment.
No
Yes

Explanation:
Each clients open position is taken separately for calculating the
initial margin. Positions of two or more clients cannot be netted off
against each other for calculation of initial margin.
For e.g. - If Mr A has bought 10 contracts of Nifty and Mr B has sold 4
contracts of Nifty, then the broker has to pay the initial margin on 14
contracts and not 6 contracts.

Q 24. Trade Guarantee Fund (TGF) is maintained for -

Protecting the interests of investors
inculcating confidence in the minds of investors and brokers
Guaranteeing the settlement of trades
All of the above

Q 25. **In an equity scheme, the Mutual Fund can hedge it’s equity
exposure by selling stock index futures - True or False?
True
False

Explanation:
As per the recommendations of L.C. Gupta committee, mutual funds
are allowed to hedge it’s equity exposure in derivatives segment -
subject to terms and conditions.

Q 26. All the orders entered on the Trading System of a Derivative

Exchange are at Prices exclusive of brokerage. True or False ?
False
True

Explanation:
The prices are exclusive i.e. without any brokerage. Brokerage is
added later and is reflected in the contract note.
Q 27. Ms. Rita sold a put option of strike price Rs. 90 and she
received a premium of Rs. 6 from the option buyer. Theoretically,
what can be the maximum loss on this trade ?
90
84
96
0

Explanation:
Theoretically a share can fall to Rs 0. So the maximum loss can be Rs
90. But Ms. Rita has received Rs 6 as option premium so her
maximum loss will be Rs 90 - Rs 6 = Rs 84.
so her maximum loss will be Rs 90 - Rs 6 = Rs 84.

Q 28. If the liquid assets maintained by clearing member Mr. Ram

are higher than that clearing member Mr. Shyam, which of the below
options is/are true ?
There is no need to maintain liquid assets
Both Mr. Ram and Mr. Shyam have the same level of exposure
Mr Ram has a higher exposure level than Mr. Shyam
Mr Shyam has a higher exposure level than Mr. Ram

Q 29. **An exchange traded option after maturity ________________

Can be traded after 2 days i.e. after pay in / pay out.
Can be traded in the spot market
Cannot be traded
None of the above

Explanation:
An exchange traded option can only be traded till the last date of
expiry i.e. it’s maturity. After that it will not be available for trading.
For eg - If 27th June is the last Thrusday of the month i.e. the
maturity, all options of June month will cease to exist as soon as the
market closes on 27th June.
Q 30. **You have bought a CALL of SBI of Strike price of Rs 200 of
January. To close the position, you will buy a PUT of same strike
price of January. True or False ?
True
False

Explanation:
When you buy a CALL option, to close this position you will have to
sell a CALL option of same strike price and expiry.

Q 1. Which of the below options is the best way to manage risk in the
underlying cash market ?
by speculating in the futures market
by hedging in the futures market
by playing in the options market
None of the above

Q 2. A put option gives the buyer a right to sell how much of the
underlying to the writer of the option?
Only the specified quantity (lot size of the option contract)
The specified quantity or less than the specified quantity
The specified quantity or more than the specified quantity
Any quantity

Q 3. The intrinsic value of a CALL option of Reliance of strike price

910 and spot price 919 is
10
19
9
29

Explanation:
Intrinsic Value f or a Call Option is the difference between Spot Price
and Strike Price .

Q 4.The regulatory framework for derivatives markets in India have

been developed by ________________
LC Gupta committee
JR Verma committee
Rangrajam Committee
PL Mehta Committee

Q 5. ________________ spread involves same strike, same type but

different expiry options.
Vertical
Diagonal
Horizontal
Parbolical

Explanation:
The reasoning behind horizontal spreads is that these two options
would have different time values and the difference between the
time values of these two options would shrink or widen.
This is essentially a play on premium difference between two
options prices squeezing or widening

Q 6. NISM stands for ____________

National Institution of Security Market
National Institute of Stock Markets
National Institute of Securities Markets
National Integrated Stock Market

Q 7. The Client level position limit’s in derivative trading should not

exceed 5% of the free float market capitalization or 10% of the open
interest in all derivative contracts in the same underlying stock
whichever is higher - True or False?
True
False

Explanation:
The Client level position limit’s in derivative trading should not
exceed 1% of the free float market capitalization or 5% of the open
interest in all derivative contracts in the same underlying stock
whichever is higher

Q 8. ___________ to be paid on assigned positions of Clearing Members

towards final exercise settlement obligations for option contracts on
individual securities, till such obligations are fulfilled.
Mark to Market Margin
Initial Margin
Assigned Initial Margin
Assigned Margin

Q 9. In the books of the buyer of the option, the premium paid would
be
Credited
Debited
No entry is passed
None of the above

Explanation:
The buyer/ holder of the option is required to pay the premium. In
the books of the buyer/ holder, such premium should be debited to
an appropriate account.
In the books of the seller/ writer such premium received should be
credited to an appropriate account.

Q 10. When the client level/NRI/sub-account of HI/scheme of

mutual fund violation is on account of open position exceeding
_____________ of the open interest, a penalty of __________ per
instance would be levied to the clearing member.
3%. Rs 3000
5% . Rs 5000
15%, Rs 10,000
10%, Rs 10,000

Q 11. To be eligible for options trading, the market wide position

limit (MWPL) in the stock shall not be less than ___________
Rs 200 cr
Rs 300 cr
Rs 500 cr
Rs 600 cr

Q 12. Margins in 'Futures' trading are to be paid by ___________

Only the buyer
Only the seller
Both the buyer and the seller
The clearing corporation

Explanation:
In future both buyers and sellers pay the margin .
In Options only the seller pays the margin.

Q 13. NSCCL's on-line position monitoring system monitors open

position of ____________ on a real time basis.
dealer only
trading member only
clearing member only
clearing member and trading member

Q 14. As per SEBIrules,a Derivative Exchange should have a

minimum of ______________ members.
25
50
100
200

Q 15. Daily Mark to Market settlement of futures takes place on

basis.
T+ 1
T+ 2
T+ 3
T+ 5

Q 16. **The maximum profit a buyer of call option can make is -

Rs 1 lac per lot
Difference between Spot price and Strike price
Unlimited
Depends on the market volatility

Explanation:

When a person buys a call option, he is bullish on that security.

Theoretically the security can rise to an unlimited level so the
profit’s to the buyer of an call option can be unlimited.

Q 17. **The daily settlement of open futures contract is called -

Final Settlement
VaR settlement
Mark to Market settlement (MTM)
Interim Settlement
Explanation:
In futures market, the contracts have maturity of several months, so
to gourd against any substantial loss, the profit’s and losses are
settled on day-to-day basis - called mark to market (MTM)
settlement.
The exchange collects these margins (MTM margins) from the loss
making traders and pays to the gainers on day-to-day basis.

Q 18. 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

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 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 Ices.
25 Lacs x 1.20 = Rs 30 lacs. Therefore to get a complete hedge for
this portfolio, Nifty worth Rs 30 Iacs have to be sold.

Q 19. Who finalises the lot size and the margins in the derivative
segment ?
SEBI
The Stock Exchanges
The Clearing Members ie. Stock Brokers
CDSL or NSDL

Q 20. Which of the below options will lead to - Limited Profit’s but
potentially Unlimited Losses.
Buyer of a futures contract
Seller of a future contract
Buyer of an option contract
Seller of an option contract

Q 21. When a person buys an option -

he pays premium
he receives premium
he receives mark to market margin
he has to deliver the stock

Q 22. Who is responsible for paying the margins in case of futures

contract ?
The Seller of the contract
The Buyer of the contract
Both Buyer and Seller of the contract
No margin is paid in futures contract

Q 23. "Mr P has bought 10 lots of August Nifty and Mr. Q has sold 6
lots of August Nifty. For paying the initial margin, their positions can
be netted by the clearing member and pay margin only on 4 lots -
True or False ?
True
False

Explanation:
The clearing member ie. the broker has to pay margins on all open
position of all his clients. Positions of two clients cannot be netted
against each other.
In the above case, the clearing member has to pay margin for 10 + 6
= 16 lots and not 4 lots.
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

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 ba 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

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

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 it’s option is 0.5, then by how much will the option price rise ?
No change in option price
Rs 10
Rs 2
Rs 1

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

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

Explanation:
A penalty or suspension of registration of a stock - broker under the
SERI (Stock Broker & Sub - Broker) Regulations, 1992 can be
ordered if:
• The stock broker violates the provisions of the Act
• The stock broker does not follow the code of conduct
• The stock broker fails to resolve the complaints of the investors
• The stock broker indulges in manipulating, or price rigging or
cornering of the market
• The stock broker's financial position deteriorates substantially
• The stock broker fails to pay fees
• The stock broker violates the conditions of registration
• The stock broker is suspended by the stock exchange
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

Explanation:
Clearing member is required to provide liquid assets which
adequately cover various margins and liquid networth
requirements.
He may deposit liquid assets in the form of cash, bank guarantees,
fixed deposit receipts, approved securities and any other form of
collateral as may be prescribed from time to time. The total liquid
assets comprise of at least 50% of the cash component and the rest
is non cash component.

1. Cash Component:
• Cash
• Bank fixed deposit’s (FDRs) issued by approved banks and
deposited with approved custodians or Clearing Corporation.
• Bank Guarantees (BGs) in favour of clearing corporation from
approved banks in the specified format.
• Unit’s of money market mutual fund and Gilt funds where
applicable haircut is 10%.
• Government Securities and T-Bills

2. Non Cash Component:

• Liquid (Group I) Equity Shares as per Capital Market Segment
which are in demat form, as specified by clearing corporation from
time to time deposited with approved custodians.
• Mutual fund unit’s other than those listed under cash component
decided by clearing corporation from time to time deposited with
approved custodians.
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

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.

Q 1. Securities Transaction Tax is levied on _________________

Purchase of Equity Shares
Sale of Derivatives
Purchase of Derivatives
Only 1 and 2

Q 2. The maximum brokerage chargeable by a trading member in

relation to trades effected in the contracts admitted to
dealing on the F&O segment of NSEIL is fixed at of the contract
value, exclusive of statutory levi.e.s.
1%
2%
2.5%
3%

Q 3. FII Long positions in Index Derivatives should not exceed the

Fll's holding of
stock futures and options
Stock futures
cash, govt securities, t bills etc
cash

Q 4. It is easy to manipulate the Stock Index when compared to

individual stocks - True or False ?
True
False

Explanation:
Stock Index like Nifty and Sensex consists of a basket of stocks and
so it’s very difficult to manipulate the index.

Q 5. The market wide position limit for single stock futures and
stock option contracts shall be linked to the free float market
capitalization and shall be equal to ____________ of the number of
shares held by non-promoters in the relevant underlying security.
10%
20%
30%
40%
Q 6. In which options is the strike price better than the market price
and therefore it’s profitable to exercise the option ?
At the money option
In the money option
Out of the money option
Profitable money option
Explanation:
An In the Money option would give holder a positive cash flow, if it
were exercised immediately.
A call option is said to be ITM, when spot price is higher than strike
price. And, a put option is said to be ITM when spot price is lower
than strike price.

Q 7. A member has two clients M1 and M2. M1 has purchased 1000

contracts and M2 has sold 500 contracts in August XYZ futures
series. What is the outstanding liability (open position) of the
member towards Clearing Corporation in number of contracts?
500
1500
1000
2500
Explanation:
Open positions of all clients are combined. They cannot be netted
off.

Q 8. ________________ is the second derivative option with regard to

price of the underlying asset.
Delta
Gamma
Theta
Vega
Explanation:
Gamma measures change in delta with respect to change in price of
the underlying asset. This is called a second derivative option with
regard to price of the underlying asset.

Q 9. Which of the following is not the duty of the trading member ?

Execution of Client Broker Agreement
Filling of 'Know Your Client' form
Bringing risk factors to the knowledge of client
Assisting the client to arrange for margins
Q 10. The market wide limit of open position of futures and options
contracts on a particular underlying stock should not be ___________
10% of free float holding
20% of free float holding
25% of free float holding
30% free float holding

Explanation:

The market wide position limit for single stock futures and stock
option contracts is linked to the free float market capitalization and
is equal to 20% of the number of shares held by non-promoters in
the relevant underlying security (i.e. free-float holding).
This limit would be applicable on aggregate open positions in all
futures and all option contracts on a particular underlying stock.

Q 12. Mr Dev bought a April Nifty future contract on 10th April

which cost him Rs 562000. The initial margin he had to pay was Rs
55400. On 23rd April he sold the Nifty future at 5710. How much
profit or loss did he make ? ( Nifty lot 100 )
Loss of Rs 46400
Profit of 10300
Profit of Rs 9000
Profit of Rs 7800

Explanation:
He bought one Nifty lot at Rs 562000.
So the Nifty price was 562000 / 100 = 5620
He sold at 5710
So the profit is 5710 - 5620 x 100 = Rs 9000
(The initial margin will be refunded)

Q 13. Vertical Spread is also known as Calender Spread - True or

False ?
True
False

Explanation:
Horizontal spread involves same strike, same type but different
expiry options. This is also known as time spread or calendar
spread.

Q 14. Arbitrage is a ____________

Strategy used by Mutual Funds only
High Risk Strategy
Risk Free Strategy
strategy for bearish markets

Explanation:
Arbitrage is done by buying in one market and simultaneously
selling the same in another market and making profit’s from the
differences in prices. So it’s a risk free strategy.

Q 15. Limitations of forward market is / are __________

Illiquidity
Counterparty Risk
Lack of centralisation of trading
All of the above

Q 16. You have bought shares of Ranbaxy of Rs 1 lakh. The beta of

Ranbaxy is 1.3. In order to hedge your risk you have shorted nifty of
Rs 1.50 lakhs. Which of the below is true ?
You are Under Hedged
You are Over Hedged
You are perfectly hedged
Data is insuffici.e.nt
Q 17. Which exchange first started trading in financial futures ?
Chicago Board Option Exchange
Chicago Mercantile Exchange
Chicago Board of Trade
London International Finance Futures and Options Exchange

Q 18. "Mr Rohit has bought 8 lots of contracts of June BSE Sensex
futures and sold 6 lots of contracts of July BSE sensex futures. What
is his regular - non spread open position?
14 lots
2 lots
8 lots
6 lots

Explanation:
Mr Rohit has bought and sold the same underlying i.e. BSE Sensex
futures. So his risk is limited to the net position which will be his
open position.
Here he has bought 8 lots and sold 6 lots, so his open position is 2
lots.

Q 19. What is the difference between Spot Price and Future Price
known as ?
Impact cost
Basis
Rho
Swap

Q 20. **Mr. Ganesh thinks that the markets will go down, so he sell
10 lots of index futures at 3500. His predictions come true and the
index falls and Mr. Ganesh buys back the futures contract at 3410.
What is the profit Mr. Ganesh has made if one lot of index is of 50.
35000
45000
55000
65000

Explanation:
Mr Ganesh had sold at Rs 3500 and bought back at Rs 3410. So he
made a profit of Rs 90.
Total Quantity sold = 10 lots x 50 (lot size) = 500
Total Profit = Rs 90 x 500 = Rs 45,000

Q 21. An investor purchased one lot of Nifty futures at 6000. The

closing price of Nifty on that day was 5967. The margin on Nifty is
10%. What will be the effective margin left in this contract ? Nifty lot
is of 50.
30000
28350
29835
25000
Explanation:
The Margin payable on buying the Nifty contract is Rs 6000 x 50 x
10% is Rs. 30,000
Since the Nifty closed lower, the Mark to Market loss will be debited
M to M loss : 6000 - 5967 : Rs 33 x 50 (lot size) = Rs. 1650
Rs 30,000 -Rs 1650: RS 28350 is the effective margin left in this
contract.

Q 22. **Mr Shetty purchased a future contract of SBI at Rs 2000 on

10 September. That day the spot price was 1985. On the expiry day,
SBI closed at Rs 2033. What will be the approximate spot price ?
2000
1985
2033
More details are required
Explanation:
On the expiry day, the spot price and future price tend to converge
and become the same. This is mainly because there is no time value
left and there is no cost of carry (interest).
In the above example the future price of SBI on expiry day is Rs
2033, so the approximate spot will be also Rs 2033.

Q 23. You buy a PUT option of strike price 400 when the spot price is
Rs 380. This option is In the Money - True or False?
True
False

Q 24. What is time value of an option ?

It’s the general bank interest rate
It’s the volatility of the underlying asset
It’s the difference between the intrinsic value and the premium
It’s the time left for the option to expiry

Q 25. **Cost of carry model means price of futures is equal to

_____________
Spot price + Cost of Carry
Spot Price
Cost of Carry
Spot price — Cost of Carry

Explanation:
Cost of Carry is the relationship between futures prices and spot
prices. For stock derivatives, carrying cost is the interest paid to
finance the purchase.
For example, assume the share of XYZ Ltd is trading at Rs. 200 in the
cash market. A person wishes to buy the share, but does not have
money. In that case he would have to borrow Rs. 200 at the rate of,
say, 12% per annum. So 1% i.e. Rs 2 (1% of Rs 200) is the per month
interest cost. and this Rs 2 is the cost of carry.
The future price (ideally) at the begining of month will be Spot Price
• Cost of Carry i.e. Rs 200 + Rs 2 = Rs 202.

Q 26. "A person has bought an option so cannot lose more than the
option premium paid.
False for all types of options
True only for American options
True only for European options
True for all types of options

Explanation:
A buyer of an OPTION pays the premium and that is the maximum
loss and it’s true for all types of options.
(On the other hand a seller of an option receives the premium and
that’s his maximum profit. The loss can be unlimited)

Q 27. An option buyer pays the option premium to the option seller.
True
False

Q 28. **Option Premium consists of two components —

Intrinsic value and time value
Sum of Call and Put premium
Premium value and time value
Intrinsic value and premium

Explanation:
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.
For eg - If the spot price is Rs 200, and the call option premium of a
Rs 195 strike price is Rs 25, then Rs 5 is the intrinsic value ( 200 -
195 ) and balance Rs 20 is time value.

Q 29. A trader beli.e.ves that the future price of PQR company will
rise and being a smart trader he will _______________
sell PQR futures now and buy them later when the price rises
buy PQR futures now and sell them later when it rises
wait till the price of PQR futures and cash market price become
same
wait till the prices drop to the lowest level

Q 30. "Mr. Singh purchases a call option on a stock at Rs. 10 per call
with strike price of Rs. 140. If on exercise date, stock price is Rs.
168 , ignoring transaction cost, Mr. Singh will choose ______________
To exercise the option
Not to exercise the option
May or may not depending on the balance he has in his bank account
May or may not depending on the recommendation of experts

Explanation:
Mr Singh has purchased a CALL and on the expiry day he is in a
profitable position as the price of the stock has risen and the spot
price is above the strike price. So he will exercise his option. spot
price is above the strike price. So he will exercise his option.

Q 1. Which of the following statements is TRUE with respect to time

value of options ?
Only an In the Money Option has time value
Only Call options have time value
The time value of the option is the sum of it’s intrinsic value and
premium
The longer the time to expiration; greater is the option time
value

Explanation:
The longer the time to expiration, greater is the option time value.
So 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.
Q 2. Hedging is __________
long security, long futures
long security, short futures
short security, long futures
short security, short futures

Explanation:
When a owner of a security fears a fall in the value due to some
event ( eg - budget ) he will sell the equivalent futures as a hedging
tool.

Q 3. The Lot size of Options are ________________

Same as that of Futures
Double that of futures as only the premium is payable / received
Very different from futures
Half of Futures

Q 4. Which of the following is the duty of the trading member?

Sending the periodical statement of accounts to clients
Maintaining unique client codes
Ensuring timely pay-in and pay-out of funds
All of the above

Q 5. Which of the following cannot be an underlying for a Financial

Derivative contract ?
Foreign Exchange
Interest Rate
Commodities
Equity Index

Q 6. VaR methodology seeks to measure the amount of value that a

portfolio may stand to lose within a certain horizon time period due
to potential changes in ___________
underlying stock volatility
underlying exposures
underlying index volatility
underlying asset spot price

Q 7. A stock broker is allowed to buy, sell or deal in securities

____________
on submission of document with stock exchange for admission
only on being admitted as a member of a stock exchange
on submission of document with SEBI for registration
only on having a certificate of registration granted by SEBI

Q 8. Which of the following statement is true?

NSE does not allow basket trading in it's F&O Segment.
F&O Segment has a Basket trading facility.
Basket trading has been discontinued in the F&O Segment.
Basket trading is illegal in India.

Q 9. The value of a call option __________________ with a decrease in

spot price.
increases
decreases
remains constant
either increases or decreases depending on Nifty movements
Explanation:
The premium decreases as the intrinsic value decreases.

Q 10. On the derivative exchanges, all the orders entered on the

Trading System are at prices inclusive of brokerage.
True
False

Explanation:
The orders entered in the trading system does not include any
brokerage. Brokerage is added when the Contract Notes are made.

Q 11. You have bought a portfolio of securities on the exchange. To

eliminate the risk arising out of market, you should _______________
buy index futures
sell index futures
buy stock futures
sell stock futures

Explanation:
Selling index futures as per the beta of the portfolio is a good
hedging strategy.

Q 12. Nifty future is trading at 4850. An investor buys a 4900

current month call at 100. What should be the closing price of Nifty
above which the investor starts to make profit’s?
4850
4900
5000
5100

✓ CORRECT ANSWER
Q 13. Clearing Corporation on a derivative exchange becomes a legal
counterparty to all trades and is responsible for guaranteeing
settlement for all open positions - True or False ?
True
False

Q 14. Three Call series of ABC stock - February, March and April are
quoted. Which will have the highest Option Premium (same
strikes)?
March
February
April
All will be almost equal

Explanation:
April - as the time value will be the highest ( so the interest cost will
be higher ).
Q 15. To safeguard against potential losses on outstanding positions,
___________ is collected.
Assignment Margin
Initial Margin
Premium Margin
None of the above

Q 16. A scrip will be banned in the derivatives market if the open

interest ___________
exceeds 85% of the market wide position limit’s
exceeds 90% of the market wide position limit’s
exceeds 95% of the market wide position limit’s
exceeds 97% of the market wide position limit’s
Explanation:
At end of the day the exchange tests whether the market wide open
interest for any scrip exceeds 95% of the market wide position limit
for that scrip.
In case it does so, the exchange takes note of open position of all
client/TMs as at end of that day for that scrip and from next day
onwards they can trade only to decrease their positions through
offsetting positions.

Q 17. In case a Future Contract is not traded in a day, which of the

following prices is reckoned for daily mark to market settlement?
Closing price of the underlying
Theoretical price
Closing price of the last traded day
Closing price of the futures contract

Explanation:
In case a futures contract is not traded on a day, or not traded
during the last half hour, a 'theoretical settlement price' is computed
as per the following formula:
F = Se⌃rt

where -
r - Cost of financing (using continuously compounded interest rate)
t - Time till expiration in years
e - 2.71828

Q 18. **The Indian derivatives market has 6 underlying futures

contract available at a given time - True or False ?
False
True

Explanation:
The Indian derivatives market has 3 and not 6, underlying futures
contract available at a given time.

Q 19. "Forward Contracts are those contracts which can be

customised as per the requirements of the concerned parties - True
or False ?
False
True

Explanation:
Forward contracts are as per the choice of the transacting parties
where as the future contracts, the parameters quantity, expiry date
etc. are customised by the exchanges.

Q 20. "Ms. Gayatri buys a call option of strike price Rs. 300 when the
spot price is Rs 337. What is the intrinsic value of this call option?
-37
37
zero
637

Explanation:
The option premium of any security consist of two variables i.e. the
intrinsic value and time value.
For example if the spot price is Rs 100 and the call option price of a
Rs 95 strike price option is Rs 12, then Rs 5 (100 - 95) is the
intrinsic value and the balance Rs 7 ( 12 - 5 ) is the time value.
In the above question, the intrinsic value is 337 - 300 = Rs 37.

Q 21. If the lot size of Reliance Industries future contract is 250

shares, what will be the lot size of its Option contract ?
125
250
300
500

Explanation:
The lot size of a Futures Contract and Options Contract are always
the same.

Q 22. The daily settlement of all open positions in futures contract is

called -
Exercising of the futures contract
Mark to Mark settlement
VaR settlement
None of the above
Explanation:
In futures market, the contracts have maturity of several months. So
to safe gourd against substantial rise /fall in the prices, profits and
losses are settled on day-to-day basis - called mark to market
settlement.
The exchange collects these margins from the loss making traders
and pays to the gainers on day-to-day basis.

Q 23. Which of these CALL options are Out of The Money (OTM) ?
The spot price is Rs 350 and strike price is Rs 330
The spot price is Rs 350 and strike price is Rs 370
The spot price is Rs 350 and strike price is Rs 350
Depends on the Delta of the option

Explanation:
A call option is out of the money when the strike price is higher than
the spot/cash price of the underlying.

Q 24. **Mr. Sunil wishes to buy a futures contract of Tata Steel

shares. He should ____________
make payments for the full value of the contract
make the margin payments as calculated by the exchange
hedge his position in Tata Steel in the Options market
None of the above

Explanation:
To buy a futures contract, one does not have to make full payment
but only the margin payment as per the percentage decided by the
stock exchange.

Q 25. You have bought a call option of XYZ stock of strike price 400
at a premium of Rs 30. The current spot / market price is Rs 410. At
what market price will this call break even ?
370
400
430
440

Explanation:
For a Call Option, Strike price + Premium paid will be the breakeven
price.

Q 26. What is done if a client defaults in making payments in respect

to his daily settlement ?
The contract is transferred to a special 'Default Account'
The contract is closed out
The contract is transferred to another clients account who has
suffici.e.nt funds
A weeks notice is given to that client

Q 27. ____________ measure of the sensitivity of an option price to

changes in market volatility.
Rho
Theta
Gamma
Vega

Explanation:
Vega represents the amount of price changes in an option in
reaction to a 1% change in the volatility of the underlying asset.
Volatility measures the amount and speed at which price moves up
and down, and is often based on changes in recent, historical prices
in a trading instrument. Vega changes when there are large price
movements (increased volatility) in the underlying asset, and falls as
the option approaches expiration.
Vega = Change in an option premium/ Change in volatility

Q 28. Mr Ranjan sold a ABC stock put contract of Rs 300 strike price
at Rs 28. What will be his profit loss if he buys it back at Rs 13. The
lot size is 1000 shares.
18000
-18000
15000
-15000

Explanation:
Mr Ranjan sold at Rs 28 and bought back at Rs 13, so his net profit is
Rs 15 ( 28 - 13 )
The lot size is 1000, so his total profit is Rs 15 x 1000 = Rs 15000.

Q 29. You own a portfolio of various stock for long term but
currently you are unsure of the market. The best possible action to
safe guard your investments is :
Buy more stocks
Sell the Stocks
Sell Index Futures as a hedge
None of the above
Q 30. The system in which trading is done through various
computers which are attached to a central computer is called Online
trading.
Flase
True

Q 1. Long Straddle is a strategy of ___________

Unlimited profit’s and limited losses
Unlimited profit’s and unlimited losses
Limited profit’s and limited losses
Limited profit’s and unlimited losses

Explanation:
A long straddle position is created by buying a call and a put option
of same strike and same expiry.
His maximum loss will be equal to the sum of these two premiums
paid.
Any significant move in either direction will result in handsome
profits.

Q 2. Nifty is currently at 4900. An investor feels Nifty will not rise

beyond 5000 in the next three months. He sells two Nifty calls of
strike price 4900 at Rs 100 per lot. Because of positive indicators
Nifty rises to 4950 on expiry day. What is his profit/loss ? (1 lot = 50
shares)
Profit of Rs 5000
Loss of Rs 5000
Profit of Rs 10000
Loss of Rs 10000

Explanation:
The investor sells 2 Nifty calls at Rs 100.
So he revives premium of Rs 100 x 2 lots x 50 (lot size) = Rs 10,000
He had a negative outlook on Nifty but Nifty rose, so he will incur a
loss.
4900 - 4950 = Rs 50 Loss
Rs. 50 x 2 Lots x 50 (lot size) = Rs 5000
So Net he is in a profit : 10,000 - 5000 = Rs 5000

Q 3. Intrinsic value of an OUT OF MONEY option is _____________

zero
1
-1
none of the above
Q 4. A penalty or suspension of registration of a stock broker from
derivatives exchange/segment under SEBI (Stock Broker and Sub-
broker) Regulations, 1992 can take place if _________________
The stock broker violates the conditions of registration
The stock broker fails to pay fees
The stock broker is suspended by the stock exchange
In any of the above situations
Q 5. An 'authorised person' in the Futures & Options segment is
___________
a person authorised by the exchange as an approved user of a
trading member
any person who is acting in any capacity on behalf of the trading
member or a participant for any activity relating to the
trades done and executed
an approved user of a participant
all of the above

Q 6. A butterfly spread is an extension of ______________ strategy.

Covered call
Long straddle
Short straddle
Long Strangle
 Explanation:
The downside in short straddle is unlimited if market moves
significantly in either direction.
So to put a limit to this downside, along with short straddle, trader
buys one out of the money call and one out of the money put. This
strategy is called "Butterfly Spread".

Q 7. In the derivatives segment , Clients' positions cannot be netted

off against each other while calculating initial margin - True or
False ?
False
True

Q 8. After SPAN has scanned the 16 different scenarios of underlying

market price and volatility changes, it selects the loss.
Average Loss
Smallest Loss
Largest Loss
Medium Loss

Q 9. If you sell a put option with strike of Rs. 375 at a premium of

Rs.50, how much is the maximum gain that you may have on expiry
of this position?
Unlimited
Rs 50
Rs 325
None of the above

Explanation:
Seller of an option - be it Call or Put receives the premium and that
shall be his maximum profit.
Q 10. ______________________ being anticipated profit should be
ignored and no credit for the same should be taken in the profit and
loss account.
Credit balance in the "Mark-to-Market Margin Account"
Debit balance in the "Mark-to-Market Margin Account"
Debit balance in the Intial Margin A/c
Credit balance in the Intial Margin A/c

Explanation:
As per the rules of Accounting for open interests as on the balance
sheet date :
Net amount received (represented by credit balance in the "Mark-
to-Market Margin Account") being anticipated profit should be
ignored and no credit for the same should be taken in the profit and
loss account.

Q 11.Which statement is false with respect to Futures market ?

There is daily settlement
There are standardised contract terms
No margin payment is required
Traded on organised echanges

Q 12. ___________________ of the option is the one who by paying the

option premium buys the right but not the obligation to exercise his
option on the seller.
Buyer
Seller
Buyer or Seller
None of the above

Q 13. Intrinsic value of an Out of the Money option is ______________

1
-1
zero
None of the above

Explanation:
An Out of the Money option has no intrinsic value and it cannot be
negative.

Q 14. Around 60% of the trading volume on the American Stock

Exchange is from
Index Futures
Index Funds
ETFs
Index Options

Explanation:
ETF - Exchange Traded Funds

Q 15. Spot value of Reliance Industry share is Rs 800 and an investor

buys one month Reliance call option of strike price 820 at a
premium of Rs 3. The option is 820 at a premium of Rs 3. The option
is _______________
In the Money
At the Money
Out of the Money
Deep In the Money

Explanation:
When the Strike price of a call option is higher than the Spot price,
it’s Out of the Money. There is no intrinsic value but only time
value.

Q 16. As per the recommendations of the L.C.Gupta Committee,

CROSS MARGINING (which takes into account the combined
position in the cash and derivative market) is currently not
permitted.
False
True

Explanation:
As per the major recommendations of the L.C.Gupta Committee -
Cross margining (linking overall cash and derivative positions for
margining) is not permitted.

Q 17. **An option with zero intrinsic value is called ___________

OTM - Out of The Money option
ATM - At The Money option
ITM - In The Money option
Expiry day options

Explanation:
At the Money option means a situation where an option's strike
price is identical to the price of the underlying security. Both call
and put options will be simultaneously "at the money."
For example, if ABC stock is trading at 100, then the ABC 100 call
option is at the money and so is the ABC 100 put option. An at-the-
money option has no intrinsic value, but may still have time value.

Q 18. **______________ measures the sensitivity of the option value to a

given small change in the price of the underlying asset.
Delta
Theta
Rho
Vega

Explanation:
The most important of the 'Greeks' is the option's is "Delta". This
measures the sensitivity of the option value to a given small change
in the price of the underlying asset. It may also be seen as the speed
with which an option moves with respect to price of the underlying
asset. Delta : Change in option premium/ Unit change in price of the
underlying asset. Delta for call option buyer is positive. This means
that the value of the contract increases as the share price rises. For
example, with respect to call options, a delta of 0.6 means that for
every Rs.1 the underlying stock increases, the call option will
increase by Rs 0.60
Put option deltas, on the other hand, will be negative, because as the
underlying security increases, the value of the option will decrease.
So a put option with a delta of -0.6 will decrease by Rs.0.60 for every
Rs 1 the underlying increases in price.
The knowledge of delta is of vital importance for option traders
because this parameter is heavily used in margining and risk
management strategies.

Q 19. A stock exchange has ON LINE SURVEILLANCE capability to

monitor the __________
Volumes
Prices
Positions
All of the above

Q 20. Theta is ____________

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.

Q 21. The basic test of whether a trade done in the future market is
for hedging or speculation is centered on the premise that there
already exists a related commercial position which is exposed to the
risk due to price fluctuations.
True
False

Explanation:
Hedging basically 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.

Q 22. The options which are traded on a exchange are standardised.

True
False

Explanation:
Exchange traded options are standardised as per the rules of the
exchange in terms of time, duration, quantity etc.
Forward options are customised as per the agreement betwwen the
trading parties.

Q 23. You are long in ICICI Bank Ltd futures at price Rs 200. The
prices rises to Rs 220 next day. The Mark to Market margin will be
credited to your account. True or False ?
False
True

Q 24. The networth of clearing members does not include -

Bad Deliveries
Doubtful Debts
Unlisted Securities
All of the Above

Explanation:
The minimum networth for clearing members of the derivatives
clearing corporation/house shall be Rs.300 Lakhs. 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 25. **The Option which gives its holder a positive cash flow is
called a __________
At the money option
Out of the money option
In the money option
Delta

Explanation:
An 'In the money' (ITM) option gives the holder a positive cash flow,
if it were exercised immediately.
A call option is said to be ITM, when spot price is higher than strike
price. And, a put option is said to be ITM when spot price is lower
than strike price.

Q 26. In case of CALL OPTION, it gives the buyer the right to

_______________
buy the underlying at market price
buy the underlying at set price
sell the underlying at market price
sell the underlying at set price

Explanation:
A call option is a financial instrument that gives the buyer the right,
but not an obligation, to buy a set quantity of a security at a set
strike price at some time on or before expiration.
In easy terms - whatever may be the market price, the buyer will get
the security at the set price or strike price as he has paid a premium
for it.

Q 27. **You have bought a CALL of Reliance of Strike price of Rs 900

of January. To close the position, you will SELL a PUT of same strike
price of January. True or False ?
False
True

Explanation:
If you have bought a CALL option, then to close the position you will
have to sell a CALL option Rs 900 strike price.

Q 28. Tick size depends on —

The Delta of the security
It’s fixed by the exchange
Volume in that security
The Interest rates
Explanation:
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.
Q 29. The Strangle strategy is similar to straddle strategy in outlook
but different in ______________
implementation
aggression
cost
All of the above

Explanation:
Long Strangle As in case of straddle, the outlook here (for the long
strangle position) is that the market will move substantially in
either direction, but while in straddle, both options have same strike
price, in case of a strangle, the strikes are different. Also, both the
options (call and put) in this case are out-of-the-money and hence
the premium paid is low.

Q 30. If you are a seller of put option, you expect ______________

No change in the price
Increase in the price
Decrease in the price
Both 1 and 2

Explanation:
When you sell a put option you expect the price to rise. Even if the
price remains stable, you earn the option premium.

Q 1. _________________ is not an application of indices.

Venture capital funds
Index Funds
Index Derivatives
Exchange Traded Funds

Explanation:
Traditionally, indices were used as a measure to understand the
overall direction of stock market. However, few applications on
index have emerged in the investment fi.e.ld such as Index Funds,
Index Derivatives, Exchange Traded Funds etc.

Q 2. The features of Futures are quiet similar to ____________

Options
Swaps
Debentures
Forwards

Explanation:
A futures contract is similar to a forward, except that the deal is
made through an organized and regulated exchange rather than
being negotiated directly between two parties.
We may say that futures are exchange traded forward contracts.

Q 3. The Bye Laws of an Indian Stock Exchange are to be approved

by____________
Finance Ministry
RBI
Clearing Corporation
SEBI
Q 4. On exercise of the option, the seller/writer will pay the adverse
difference, between the final settlement price as on the exercise/
expiry date and the strike price. Such payment will be recognised as
a __________________
Profit
Loss
Debt
None of the above

Q 5. Are Treasury Bills included in the list of permitted liquid assets

which can be offered to Clearing Corporation by the Clearing
Members ?
Yes
No

Explanation:
Liquid Assets can ba in the form of Cash, Cash Equivalents
(Government Securities, Fixed Deposit’s, Treasury Bills, Bank
Guarantees, and Investment Grade Debt Securities) and Equity
Securities.

Q 6. Cross margining between cash and derivative segments of an

exchange helps reduce the overall margin level applicable to
investors and traders - State True or False ?
True
False

Explanation:
Cross margining is available across Cash and Derivatives segment.
If an trader has credit balance in his trading account in the cash
segment, he can use it to margin his derivative trading, thus
reducing his overall margin level.
Q 7. The Clearing Corporation can transfer client positions from one
broker member to another broker member in the
event of a default by the first broker member. No SEBI approval is
required for this action - State True or False ?
True
False

Explanation:
The Stock Exchange / Clearing Corporation has to send a report to
SERI stating the defaults by broker-members.

Q 8. A short position in futures contract can be reversed only with

the same counter party to whom the contract was originally sold -
State True or False ?
True
False

Explanation:
A long or short futures contract is executed on an exchange and the
buyers and sellers are unknown to each other. These
trades can be reversed by executing a suitable trade on the
exchange.

Q 9. The price at which the market maker is ready to buy is known

as BID price - State True or False ?
True
False
Explanation:
Bid price is the price buyer / market maker is willing to pay and ask
price is the price seller is willing to sell.
For eg - If the price of Reliance Industries Ltd as seen on the trading
screen is Rs 1000 - 1001, this means Rs 1000 is the bid price and Rs
1001 is the ask price.
Q 10. High level of initial margins deter brokers and clients from
trading in the derivatives market - State True or False ?
True
False

Explanation:
Risk involved in trading in derivatives are higher as compared to
spot market due to bigger trading lot sizes.
Margin levels in derivatives are kept at a higher level so that brokers
and clients who do not have adequate finances , do not trade in this
market as they do not have the risk bearing financial capacity.

Q 11. Among the given options, which one can be the main driver of
the movement of stock index ?
Inflation
Price movement in shares
Interest Rates
Currency Rates
Q 12. If a Day Order is not executed during the day, it will
______________
get cancelled automatically once the trading time for the day is
over
get executed the next day if it’s in the price range
get executed in the special auction market
None of the above

Explanation: A day order is an order which is valid for a single day

on which it is entered.
If the order is not executed during the day, the trading system
cancels the order automatically at the end of the day.
Q 13. The Intrinsic value of an In the Money option is the difference
between the Market Price and the Exercise price - State True or
False ?
True
False
Explanation:
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.
For call option which is in-the-money, intrinsic value is the excess of
spot price over the exercise price.
For put option which is in-the-money, intrinsic value is the excess of
exercise price over the spot price.
Q 14. Outsiders i.e. Non Broker members are allowed to be
appointed on the Governing Board of the Clearing
Corporation of the Derivatives segment - State True or False?
True
False
Explanation:
As per Or. L. C. Gupta Committee recommendations:
- A separate Governing Board should be constituted for the Clearing
Corporation of the Derivatives segment.
- No broker members should be allowed to sit on the Governing
Board of the Clearing Corporation.

Q 15. The losses for a seller of a Call options are

Limited
Unlimited

Explanation:
The seller of a call option believes that prices will go down.
The losses begin when the prices rise and theoretically prices can
rise to unlimited levels, so the losses can be unlimited.
Q 16. A Professional Clearing Member can act only for Institutional
clients - State True or False ?
True
False

Professional clearing member clears the trades of his associate

Trading Member and institutional clients.

Q 17. A writer of a naked PUT option is

Bullish and pays the premium
Bullish and receives the premium
Bearish and receives the premium
Bearish and pays the premium

Explanation:
A writer ie. the seller of a PUT is bullish or neutral and receives
premium
A writer ie. the seller of a CALL is bearish or neutral and receives
premium
In options, a writer always receives the premium and the buyer
always pays the premium.

Q 18. The quality of the underlying asset is standardized by the in

case of futures contract.
RBI
SEBI
Exchange
The buyer and seller

Explanation:
Exchange traded futures and options are always standardized as per
the rules of the exchange in terms of quality, time, duration,
quantity, etc.
Q 19. Strike price is the price per share for which the underlying
security may be purchased or sold by the option holder
- State True or False ?
True
False

Q 20. The ratio of change in delta for a unit change in the price of
underlying is called
Vega
Theta
Alpha
Gamma

Explanation:
Gamma measures change in delta with respect to change in price of
the underlying asset.

Q 21. What happens when the price of the underlying rises after a
future contract is initiated ?
Price changes in the underlying will not affect the price of futures
The short position will become profitable
The long position will become profitable
The long position will become unprofitable

Explanation:
A long future position become profitable when the price of the
underlying rises as a rise in the underlying price will result in
the price of futures also rising.

Q 22. When the price of a future contract rises, the margin account
of the buyer is credited for the gain
of the seller is debited for the loss
Both 1 and 2
None of the above

Explanation:

Q 22. When the price of a future contract rises, the margin account
of the buyer is credited for the gain
of the seller is debited for the loss
Both 1 and 2
None of the above

Explanation:
In futures, the account of buyers and sellers are debited or credited
daily as per their notional prof it or losses by the Mark
to Market margin.

Q 23. When a new client opens a trading account with a trading

member, which of the following documents have to be compulsorily
given to him ?
SEBI rules regarding trading in stock markets
Risk disclosure documents
All the rules of the Stock Exchange
All of the above

Explanation:
The broker is required to get a Risk Disclosure Document
compulsorily signed by the client, at the time of client registration.
This document informs clients about the kind of risks that
derivatives can involve for the client.
Q 24. A trader sells a PUT option of strike Rs 100 on ABC stock for a
premium of Rs 25. On expiry day, the ABC stock closed at Rs 50.
What is the trader's profit or loss in Rs.? (Lot size is 1000)
+25000
- 25000
+50000
- 50000

Explanation:
When a trader sells a PUT option, he believes the stock price will
rise.
Here the stock price has fallen by Rs 50. So his Gross loss is Rs 50 x
1000 (lot size) = Rs 50000.
However, when we sell an option, we receive the premium.
Here the premium received by the trader is Rs 25 x 1000 = Rs 25000
So his net loss is Rs 50000 less Rs 25000 = Rs 25000 loss

Q25. When an option moves more in the money, the absolute value
of Delta will
Increase
Decrease
No effect on delta
Tend to become zero
Explanation:
The value of delta increases as an option moves more in the money.
For a Call option, the delta increases as price rises and for a put
option, the delta increases as price falls.

Q 26. The liquid assets which are to be deposited by the clearing

member can be in the form of
Only cash
Only cash and approved securities
Cash, Bank Guarantees, Equity Securities and other Cash
Equivalents
None of the above

Explanation:

Liquid Assets can be in the form of Cash, Cash Equivalents

(Government Securities, Fixed Deposit’s, Treasury Bills, Bank
Guarantees, and Investment Grade Debt Securities) and Equity
Securities.

Q 27. Which one of the below mentioned option will result in a Bear
Spread ?
Selling a Call of a lower strike price and buying a Call of a higher
strike price
Selling a Put of a lower strike price and buying a Call of a higher
strike price
Selling one Call of a lower strike price and buying two Puts of a
higher strike price
None of the above

Explanation:
Bear Spread can be created by :
1) Selling a low strike call and buying a high strike call OR
2) Selling a low strike Put and buying a high strike Put
Remember : Bear spread involves either 2 Calls or 2 Puts and not
Call and Put.

Q 28. We can get high returns from many investment products in the
market in an absolutely risk free manner - State
True
False
Explanation:
Returns are related to the risk taken and hence there cannot be
products in the market that gives high return in risk free
manner.

Q 29. Which tax is applicable for equity transactions done on a

recognized stock exchange ?
Securities Trading Tax
Equity Trading and Service Tax
Derivatives Transaction Tax
Securities Transaction Tax

Explanation:
Trading member has to pay securities transaction tax (STT) on the
transaction executed on the recognized stock exchange.

Q 30. When a futures contract is entered,

no margin is exchanged between the buyer and seller
only the buyer pays the margin to the seller
only the seller pays margin to buyer
the buyer and seller pay margins to each other

Explanation:
In a futures contract, the margin is payable by both buyer and seller
to the Clearing Corporation and not to each other
So among the four given options, option 1 is the most appropriate.
Q 1. An European option can be exercised only on expiry date - State
True or False ?
True
False

Explanation:
European Option is an an option that can only be exercised at the
end of it’s life, at it’s maturity / expiry and not before
that.
An American option can be exercised any time.

Q 2. Clearing member Ram has 6 trading members who are all in

Mumbai and Clearing member Shyam has 6 trading members who
are all outside Mumbai. Both of them have deposited same amount
of liquid assets with the clearing corporation. Which amongst the
following statement is True ?
Clearing Member Ram will have a higher exposure limit than
Clearing Member Shyam
Clearing Member Shyam will have a higher exposure limit than
Clearing Member Ram
Both Ram and Shyam will have the equal exposure limit’s
None of the above

Explanation:
As per Dr. L. C. Gupta Committee recommendations: Members'
exposure should be linked to the amount of liquid assets maintained
by them with the clearing corporation.
There is no mention of any geographical limitations.

Q 3. The potential exposure is calculated by the clearing corporation

on the last trading day of the contract month
on the last trading day of the week
at the end of the trading day
on real time basis

Explanation:
Clearing corporation's on-line position monitoring system monitors
a CM's open position on a real-time basis.
Clearing corporation monitors the CMs for Initial Margin violation,
Exposure margin violation, while TMs are monitored for Initial
Margin violation and position limit violation.
Initial Margin violation and position limit violation.

Q 4. If the far month futures prices are less than near month futures
prices, this is known as
Delta Hedging
Contango
Basis
Backwardation

Explanation:
If futures price are lower than spot price of an asset(or far month
futures is less than near month futures), market participants may
expect the spot price to come down in future. This expectedly falling
market is called "Backwardation market".
If futures price is higher than spot price of an underlying asset,
market participants may expect the spot price to go up in near
future. This expectedly rising market is called "Contango market".

Q 5. A trader sells a future contract and prices rises. The trader will
if he squares up the position.
make a profit
make a loss
Insufficient data
None of the above
Explanation:
For eg - He sells at Rs 100 and prices rises to Rs 110. If he squares
up, he shall make a loss of Rs 10.

Q 6. Mr. A is a risk averse investor. He would prefer secure

investments like fixed deposits and other debt instruments
and not market oriented investments - State True or False ?
True
False

Explanation:
A risk-averse investor would prefer investments that are more
secure and thus would have higher portfolio allocations to debt and
fixed income instruments.
On the other hand an investor who is less risk averse would like to
have greater exposure to equity and other risky investments.

Q 7. Which amongst the following comes under the purview of

Securities Contracts (Regulation) Act-1956 ?
Currency
Securities
Gold
Commodities

Explanation:
As per the Securities Contracts (Regulation) Act-1956, the term
'Securities' include:
- Shares, scrips, stocks, bonds, debentures, debenture stock or other
marketable securities of a like nature in or of any incorporated
company or other body corporate
- Derivative
- Unit’s or any other instrument issued by any collective investment
scheme to the investors in such schemes
- Government securities
- Such other instruments as may be declared by the Central
Government to be securities
- Rights or interests in securities

Q 8. Option premium depends on

volatility of the underlying
current price and the strike price
interest rates in the economy and the time to expiry
All of the above
Q 9. Among the following options, in which future contract, the
contract cannot be used as a means to acquire the underlying asset ?
Copper
Gold
Individual securities
Stock index

Q 10. If the price of the underlying stock of a PUT option is very

volatile, __________________
the premium will comparatively be lower
the premium will comparatively be higher
the premium will be zero
No effect on option premium

Explanation:
Vega, which measure of the sensitivity of an option price to changes
in market volatility is positive for a long call and a long put.
An increase in the volatility of the underlying increases the expected
payout from a buy option, whether it is a call or a put.

Q 11. A trader is long on ABC stock April futures at 3100. He shall

make a loss if the futures price moves to _________________
3300
3200
3400
3000

Explanation:
A long position (purchase) will result in a loss if prices go down
from the purchase price.

Q 12. ______________ are eligible to clear trades in Index Options.

All trading members of a recognised stock exchange
All trading members and their sub brokers
Only members who are registered as clearing members with
the derivative exchange
All Public sector banks

Q 13. If an investor is exposed to a price risk in a stock, by hedging

he would be able to _______
make the outcome more profitable
make the outcome as per SEBI and Stock market regulations
make the outcome more certain
make the outcome more volatile

X WRONG ANSWER
CORRECT ANSWER:
make the outcome more certain

Explanation:

Hedging does not increases the profit but controls the losses. This
makes the outcome more certain.

Hedging involves having two opposite positions. Loss in one will be

countered by a profit in the other. So the outcome is more certain.

Q 14. Writing a covered call is _____________

More risky than writing a naked call
Less risky than writing a naked call
As risky as writing a naked call
Covered call cannot be written in Indian markets

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 15.The Risk Return profile for a Future contract is symmetric

while that of an Option contract is asymmetric – State True or
False ?
True
False

Explanation:
Asymmetric basically means not identical on both sides.
When one trades in Options, the gains when the share moves in one
direction are significantly different from the losses when the share
moves in the opposite direction.
For eg - If one buys a call option and the share prices go down the
loss will be limited i.e. restricted to the premium paid. But if the
share prices move up, the profit’s can be huge / unlimited. This is
known a asymmetric return.
On the contrary in futures or cash market, the returns are
symmetric i.e. equal value of profits or loss is possible.

Q 16. Derivatives can have ______________ as an underlying.

a bond
another derivative
stock index
All of the above

Explanation:
The most common underlying assets include stocks, indices,
commodities, bonds, currencies etc., but they can also be other
derivatives, which add another layer of complexity to proper
valuation.
Q 17. The daily Mark to Market gain or loss is realised _______________
in the equity spot market
in the futures market
in Swap trading
in forwards market

Q 18. When a call option on an index is exercised, the call option

holder receives from the option writer an amount equal to excess of
spot price over the strike price of that call option - State True or
False ?
True
False

Explanation:
The positive difference between a call options strike price and the
market price is the gross profit of the call option buyer which the
option writer has to pay on exercise.

Q 19. It is recommended but not compulsory for the trading

members to have dealers and sales personal in the derivatives
market who have passed a certification program approved by SEBI -
State True or False ?
True
False

Explanation:
It is mandatory that trading members are required to have qualified
approved user and sales person who have passed a certification
program approved by SEBI.
Each dealer should pass SERI approved certification exams.

Q 20. There is only CASH settlement for Nifty futures contract - State
True or False ?
True
False

Q 21. Margins in the derivative segment has to be collected from all

clients, including Financial Institutions and Flls - State True or
False ?
True
False

Q 22. Investors who are called Bulls are those investors who
beli.e.ve the market or stock will fall - State True or False ?
True
False

Explanation:
Bulls believe that market / stock will rise.
Bears believe that market / stock will fall.

Q 23. A Mutual Fund floats a new fund offer of a 100% equity

scheme. Till the time it invests this cash in equiti.e.s, the fund can
take equity exposure by buying stock index futures - State True or
False ?
True
False

Explanation:
FIIs & MF's can take exposure in equity index derivatives subject to
the following limits:
Long positions in index derivatives (long futures, long calls and
short puts) not exceeding (in notional value) the FII's / MF's holding
of cash, government securities, T-Bills and similar instruments.
Short positions in index derivatives (short futures, short calls and
long puts) not exceeding (in notional value) the FII's / MF's holding
of stocks.
Q 24. A portfolio with 200 stocks is only half as risky as another
portfolio with 100 stocks - State True or False ?
True
False

Explanation:
Higher the number of shares in a portfolio, lower is the risk.

Q 25. A writer / seller of a deep out of the money CALL option is

Bullish - receiver of premium
Bullish - payer of premium
Bearish- receiver of premium
Bearish - payer of premium

Explanation:
A seller of call option is always bearish. It doss not matter if the
option is In the money or Out of the money.
All sellers i.e. of Call or Put options will receive the premium.

Q 26. The net worth requirements of Clearing Members and Trading

Members is the same for the derivatives exchange - State True or
False ?
True
False
Explanation:
The Net Worth requirements of Clearing Members is higher than
Trading Members.

Q 27. You have created a Short Position on futures contract. This can
be squared up by ____________
by executing a purchase of a Call option of the same security
by executing a forward contract
by executing a purchase of the same futures contract
by executing a sale of the same futures contract
Explanation:
A short future contract can be squared up by buying the same
contract and in no other way.

Q 28. A separate client account has to be maintained to keep the

money and securities deposited by clients - State True or False ?
True
False

Explanation:
The trading members own money and securities cannot be mixed up
with the clients money and securities.

Q 29. One can use Index Futures for hedging to eliminate or reduce
the _____________
Unsystematic Risk
Systematic Risk
Sector specific Risk
Operational Risk

Explanation:
An investor can diversify his portfolio and eliminate major part of
price risk i.e. the diversifiable/unsystematic risk but what is left is
the non-diversifiable portion or the market risk-called systematic
risk.
This systematic risk can be reduced using index based derivatives
like Index Futures.
Q 30. If a Trading member defaults in the derivative segment, he can
still continue the trading business in the cash segment. - True or
False ?
False
True

Explanation:
A default by a member in the derivatives segment will be treated as
default in all segments of that exchange and as default on all
exchanges where he is a member.

Q 1. The total number of outstanding / unsettled contracts in the

market, at any point of time is known as "OPEN INTEREST" - True or
False ?
True
False

Explanation:
An open interest is the total number of contracts outstanding (yet to
be settled) for an underlying asset.

Q 2. The clearing corporation may utilize the client account margins

deposited with it for fulfilling the dues which a clearing member
may owe to the clearing corporation for the trades on the clearing
members own account. State True or False ?
True
False

Explanation:
Client’s money cannot be used by the Clearing or Trading member
for his trades.

Q 3. A clearing member has deposited eligible liquid assets of Rs.75

lacs. The exchange has minimum liquid net worth requirement of
Rs. 50 lakhs. The member has not entered into any transactions so
far. What is the margin available for trading. (in lakhs)
75
50
25
125

Explanation:
Liquid Net worth is defined as Liquid Assets minus Initial Margin.
In above case he has deposited Rs 75 Lakhs as liquid assets. Rs 50
Lakhs is the requirement, so the balance Rs 25 Lakhs will be used as
initial margin.

Q 4. Is it true that an efficient cash market is required for an efficient

futures market ? Yes or No ?
Yes
No

Q 5. If the price of a future contract increases, the mark to market

margin account of the holder of the short position in that contract is
credited for the gain. State whether True or False ?
True
False

Explanation:
In a short position, if the price increase their is a loss. So the mark to
market margin will be debited.

Q 6. The absolute amount of minimum capital adequacy

requirement for derivative brokers is same as that for cash market -
True or False ?
True
False
Explanation:
The absolute amount of minimum capital adequacy requirement for
derivative brokers/dealers has to be much higher than for cash
market.
Further, if a broker/dealer is involved both in cash and futures
segments, or in several exchanges, the capital adequacy requirement
should be satisfied for each exchange/segment separately.

Q 7. Change in option premium for a unit change in ________________ is

known as Rho.
market volatility
Price of the underlying asset
Risk free interest rate
liquidity

Explanation:
Rho is the change in option price given a one percentage point
change in the risk-free interest rate.

Q 8. The ask price is the price at which _________

the cleaning corporation settles the transaction
the trader is prepared to sell the share
the trader is prepared to purchase the share
the trader is prepared to either buy or sell the share

Explanation:
BID ASK price means Buyer and Seller price - eg Rs 100 - 101
So Ask price is the price at which the trader is prepared to sell the
share.

Q 9. In India, futures and options on individual stocks are allowed on

A few selected stocks only
All stocks listed on any of the exchanges
All stocks with stock price of more than Rs.100 or Rs 50 in A and B
group resp.
Only those stocks which are simultaneously listed on all the stock
exchange in India

Explanation:
Only those stocks are included to be traded in the derivatives
segment which meet the SERI / Exchange criteria for derivatives
trading,

Q 10. Higher the price volatility, higher would be the initial margin
requirement - State True or False ?
True
False

Explanation:
If the price of a stock is very volatile, the risk of losses increases. So
the Stock Exchanges collect higher initial margins in such cases.

Q 11. In a derivative exchange, the net worth requirement for a

clearing member is higher than that of a non-clearing member.
True
False

Q 12. Money and securities deposited by clients with the trading

members should be kept by them in a separate clients account -
True or False ?
True
False

Q 13. All active members of the Exchange are required to make

initial contribution towards Trade Guarantee Fund of the Exchange -
State True or False ?
True
False

Q 14. An increase in the interest rates will lead to __________

increase the premium on put options
decrease the premium on put options
No effect on put options
Expiration of the option automatically

Explanation:
High interest rates means high cost of capital and this will result in
an increase in the value of a call option and a decrease in the value
of a put option.

Q 15. In a forward contract, the party that's agrees to sell the

underlying asset on a certain specified date for a certain specified
price is said to have assumed ___________
A long position
a square off position
a short position
a trade off position

Explanation:
Trade off basically means- an exchange where you give up one thing
in order to get something else. In a forward contract for eg - the
farmers sells his crop two months hence in exchange of some
amount of money.

Q 16. Mr. Hitesh is a trading member. One of his clients has

purchased 12 contracts of March series index futures and another
client as has sold 10 contracts of March series index futures. The
exposure of Mr. Hitesh as trading member is ____________
grossed up at 22 contracts
netted out at 2 contracts
maximum of 10 and 12 which is 12 contracts
The Exchange will decide to either gross up or net out the exposure
depending upon his past record

Explanation:
The open position of all the clients of a trading member are grossed
up to arrive at the total exposure of the trading member.

Q 17. In case of Call options, if the market price is less than the
exercise (strike) price, the option will _______________
expire worthless
seller of the option will exercise it
will definitely get exercised
none of the above

Explanation:
If market price is below strike price, the option expires worthless as
the buyer will incur the maximum loss of his premium paid and the
seller will earn the premium received.

Q 18. Does the difference between exercise price of the option and
spot price affects option premium ? State Yes or No.
Yes
No

Explanation:
The Option premium is a combination of intrinsic value and time
value and other factors.
The Intrinsic value is difference between Spot and Exercise Price
(Strike Price).
Exercise price remains constant whereas the Spot price fluctuates.
So the option premium will fluctuate as per the movement in Spot
price.
Q 19. A high initial margin level improves solvency & financial
capability of the clearing corporation - True or False ?
True
False

Explanation:
Higher initial margin collection from trading members reduces the
chances of their defaults thus improving the solvency & financial
capability of the clearing corporation.

Q 20. An American put option gives the buyer the right but not the
obligations to sell to the writer an underlying asset at a specified
price on or before the expiry date - State whether True or False ?
True
False

Explanation:

The owner of American option can exercise his right at any time on
or before the expiry date/day of the contract.
The owner of European option can exercise his right only on the
expiry date/day of the contract.

Q 21. State True or False - A futures contract is usually referred to by

its delivery month.
True
False

Explanation:
A key characteristic of a futures contract that designates when the
contract expires and when the underlying asset must be delivered.
The exchange on the futures contract is traded will also establish a
delivery location and a date within the delivery month when the
delivery can take place.
Not all futures contracts require physical delivery of a commodity,
and many are settled in cash.
Delivery Month is also referred to as "contract month."

Q 22. Mr A sold a put option of strike Rs.400 on PQR stock for a

premium of Rs.32. The lot size is 500. On the expiry day, PQR stock
closed at Rs. 350. What is your net profit or loss?
-25000 (Loss)
-9000 (Loss)
9000 (Profit)
25000 (Profit)

Explanation:
Mr. A sold a PUT option, that means he has a bullish or neutral
viewon PQR stock.
However, PQR stock has fallen by Rs 50 ( 400 - 350 ).
Which moms he has lost Rs 50.
Since he has sold a PUT, he will receive the premium which is Rs 32.
So his net loss will be Rs 50 (Loss) - Rs 32 (Premium Reed) = Rs 18
Total Loss = Rs 18 x 500 (lot size) = Rs. 9000

Q 23. In an Index Futures contract, the tick size is 0.2 of an index

point & the index multiple is Rs 50, then 'a tick' is valued at
____________
Rs 50
Rs 100
Rs 10
Rs 2.50

Explanation:
Rs 50 X 0.2 = Rs 10.
Each tick movement will result in profit or loss of Rs 10 for the
Index buyer or seller rasp.
Q 24. The securities which are placed by clearing members with the
clearing corporation as a part of liquid assets are _____________
marked to market on a periodical basis
is not marked to market as they are blue chip shares
may or may not be marked to market depending on the decision of
the Stock Exchange
None of the above

Explanation:
As per Prof. J. R. Verma Committee recommendations the securities
placed with the Clearing Corporation shall be marked to market on a
periodical basis (weekly).

Q 25. Contract month means ____________

Month in which the transaction is done
Month of expiry of the futures contract
Month of beginning of the futures contract
None of the above

Explanation:
Contract month is the maturity month of the contract.
For eg - A trader may buy an March month contract in January.
So March will be the contract month.

Q 26. Initial margin is calculated based on _____________

Average price movement in the last 5 working days
Value-At-Risk (VAR) based margining.
fixed at 25% for most of the scrips and 35% for volatile scrips
As per the The Black & Scholes Model

Explanation:
Initial margin requirements are based on 99% value at risk over a
one day time horizon.
Q 27. Daily 'Trading Price Limit’s' define the maximum percentage
by which the price of a future contract can rise above or fall below
the previous days settlement price - State whether True or False ?
True
False

Q 28. For portfolio hedging by institutions and mutual funds, index

based derivatives are more suitable and are much more cost
effective than derivative based on individual stocks - State True or
False ?
True
False

Q 29. A Clearing Member is responsible to the exchange for his

transactions & also for the position of his trading members under
him - True or False ?
False
True

Q 30. A default by a member in the derivatives segment will be not

be treated as default in the cash segments of that exchange - State
True or False ?
False
True

Explanation:
A default by a member in the derivatives segment will be treated as
default in all segments of that exchange and as default on all
exchanges where he is a member.

Q 31. Does trading in derivatives become expensive due to high

margins ? State Yes or No.
Yes
No
Explanation:
Cost components of futures transaction include margins, transaction
costs (commissions), taxes etc.
So higher the margins more expensive the trading.

Q 32. ________________ risk is the component of price risk that is

unique to particular events of the company and/or industry and this
risk could be reduced to a certain extent by diversifying the
portfolio.
Unsystematic Risk
Systematic Risk
Arbitrage Risk
Interest Rate Risk
Q33. The Clearing of trades on a stock exchange can be done by
_____________
by the trading members
by the clearing members
both by clearing members and trading members
none of the above
Q34. In an In the money PUT option _______________
strike price would be lower than the market price
exercise price would be equal to the market price
strike price would be higher than the market price
strike price would be zero

Explanation:
A put option is said to be In The Money when market price is lower
than strike price.

Q 35. Delta measures the expected change in the option premium for
a unit change in __________
Volatility of underlying asset
treasury interest rates
time to option expiry
spot price of underlying asset

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

Q 36. In an out-of-the money put option __________

Strike price would be higher than the market price
Exercise price would be equal to the market
Strike price would be lower than the market price
strike price would be zero

Explanation:
A put option is said to be OTM when spot (market) price is higher
than strike price.
A call option is said to be OTM, when spot (market) price is lower
than strike price.

Q 37. Liquid assets criterion for professional clearing members is

different from that of the trading cum clearing members - True or
False ?
True
False

Q 38. A trader sold on ABC Stock Futures Contract at Rs.354 & the
lot size is 900. What is your profit or loss if you purchase the
contract back at Rs.341 ?
Rs 11700
- Rs 11700 (Loss)
Rs 8300
- Rs 8300 (Loss)
Explanation:
He sold at Rs 354 and bought back at Rs 341 which means he has
made a profit.
Rs 354 - Rs 341 = Rs 13
Rs 13 X 900 (Lot size) = Rs 11700 Profit

Q 39. When would a trader make a profit on a short position of

September futures?
when he buys a October future at a lower price
when he sells another September future at a lower price
he square of this short position by buying the September future
at lower price
when he sells October futures at a lower price.

Explanation:
Profit can be made in a short position when the price falls and the
same is bought back.
For eg - You sold a stock at Rs 100 i.e. created a short position. When
price falls to say Rs 80 and you buy it back, you make a profit of Rs
20.
In case of futures, you have to square up in the same expiry month.

Q 40. Which of the following is not an application of indices?

index derivatives
exchange traded funds
private equity funds
Index funds

Explanation:
Private Equity Funds are not connected to any index nor are they
listed on a stock exchange.

Q 41. Options contracts are not symmetrical with respect to rights &
obligations of the parti.e.s involved - State True or False ?
True
False

Explanation:
The buyer of an option has a right but not the obligation in the
contract. Also his riskd are limited to the extent of premium paid.
The writer/seller of an option is one who receives the option
premium and is thereby obliged to sell/buy the asset if the buyer of
option exercises his right. His risks are unlimited.
Thus Option contracts are not symmetrical as the buyers and sellers
have different obligations and risk factors.
On the other hand obligations and returns in Futures are
symmetrical for both buyer and sellers.

Q 42. Time value and intrinsic value of a call option are always
either positive or zero- True or False ?
True
False

Explanation:
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.
Time value also can never be negative.

Q 43. The gain or loss is realized on daily basis due to mark to

market mechanism in which of the following contracts ?
Forward Contracts
Contracts in Swaps
Future market contracts
Equity Cash Market contracts
Q 44. Stock Brokers are allowed to fund margin requirement of their
clients. They may not collect such margins from their clients - State
True or False ?
True
False

Explanation:
As per Or. L. C. Gupta Committee all clients should pay margins.
Brokers should not fund margins of clients.

Q 45. The main logic behind Position limit’s is to _____________

prevent the market being unduly influenced by the activiti.e.s
of an individual/group of investors
prevent the market being unduly influenced by Central Govt
polici.e.s
give direction to the market to move up or down as determined by
SEBI
to encourage high networth investors to provide direction to the
market

Explanation:
Position limits are the maximum exposure levels which the entire
market can go up to and each Clearing Member / Trading member
or investor can go up to.
Thus no investor can take an extra ordinary large position and
influence the direction of a scrip / market.

Q 46. The seller of the put option gains if price of underlying asset
Decreases
Increases
Does not change
Both 2 and 3

Explanation:
The seller of PUT option is either bearish or neutral. He gains the
premium received if the underlying increases or remains flat.

Q 47. A portfolio with 50 different stocks is twice as risky as another

portfolio with 100 stocks in it - State whether True or False ?
True
False

Explanation:
Higher the number of stocks, better the diversification and lower the
risks.

Q 48. Mr A buys a call option with lower strike price and sells
another call option with higher strike price both on the same
underlying share and same expiration date, the strategy is called
___________
Bull Spread
Bear Spread
Butterfly Spread
Calendar Spread
Explanation:
A bull call spread is constructed by buying a call option with a low
strike price, and selling another call option with a higher strike
price.

Q 49. Futures trading is considered more risky than equity trading

due to___________
high leverage
High pressure
high volatility
high liquidity
Explanation:
Traders can trade in derivatives by paying a small margin ( around
25 to 30% of the total contract value), This leverage increases the
risk as the trader can take up positions beyond his capacity.

Q 5O. Institutional investors pay higher margins than the individual

investors for derivatives trading - State True or False
True
False

Q 51. The derivatives segment of a Stock Exchange is under the

same governing council as the cash segment - State
True or False ?
True
False

Explanation:
The derivatives exchange/segment has a separate governing council
and no common members are allowed between the Cash segment
Governing Board and the Derivatives segment Governing Council of
the exchange.

Q52. You have bought a futures contract and the price drops, you
will
Make a profit
Make a loss
given information is incomplete to arrive at a conclusion
none of the above

Q53. Stock price is ______________

same as in the near month future contract
same as exercise price of an option
same as strike price of an option
the price of the underlying in the spot market
Explanation:
Stock price or Spot price means the current market price of that
stock in the cash market.

Q 54. A naked call option means that the writer does not currently
owns the underlying - State True or False ?
True
False

Explanation:
An options strategy in which an investor writes (sells) call options
on the open market without owning the underlying security.
This strategy is sometimes referred to as an "uncovered call' or a
"short call".

Q 55. Factor(s) influencing option pricing include which of the

following ?
time to expire
volatility of the underlying shares
dividend pay out
all of the above

Q 56. When ordinary cash dividends are declared, put option values
will decrease - State True or False ?
True
False

Explanation:
Cash dividends issued by stocks have big impact on their option
prices.This is because the underlying stock price is expected to drop
by the dividend amount on the ex-dividend date.
Put options gets more expansive due to the fact that stock price
always drop by the dividend amount after ex-dividend date.
In case of call options, they can get discounted by as much as the
dividend amount.

Q 57. A Writer of an option ______________

has obligation in the contract
receives the premium
has choice in the contract
Both 1 and 2

Explanation:
The writer of an option is one who receives the option premium and
is thereby obliged to sell/buy the asset if the buyer of option
exercises his right.

Q 58. The daily settlement prices of equity derivatives are decided

by _____________
Clearing Corporation
SEBI
Brokers Association
RBI

Explanation:
One of the responsibilities of the Clearing Corporation is to decide
the Daily Settlement Prices.

Q 59. The maximum possible loss for the option buyer is the
premium paid, but the profit’s can be higher depending on the
underlying price movement. This is true for which type of options ?
true for all types of options
true for American options only
true for European options only
false for all types options

Explanation:
The difference between American and European options is relating
to the time of exercising the contract. Profit potential in both of
them is same.

Q 60. If a Clearing members defaults, the margin paid on his own

account only is allowed to be used by the clearing corporation for
realizing it’s dues from the member. The clients margin remain
unaffected - State True or False ?
True
False

Explanation:
In case of Clearing Member default, margins paid by the Clearing
Member on his own account alone would be used to settle his dues.

Q 61. A future contract is a very standardized contract that leaves

very little (except the price) open to negotiation – State True or
False ?
False
True
Explanation:
Terms of the future contracts are standardized w.r.t. quantity, time
period etc. Only price is decided by the demand supply and other
market situations.
A forward contract on the other hand is not standardized.

Q 62. Shorter the time to maturity of the call option, higher will be
the time value - State whether True or False ?
True
False

Explanation:
Other things being equal, options tend to lose time value each day
throughout their life. This is due to the fact that the uncertainty
element in the price decreases.
Thus shorter the time to maturity, lower will be the time value.

Q 63. Mr. Anand asks his broker to buy certain number of contracts
at the market price, this instruction is called _______________
arbitrage order
limit order
stop loss order
market order

Q 64. A client registration form contains client's ___________________

investment objectives
background
beneficial identity
all of the above

Q 65. Any person who wishes to open a Trading Account must be

given the following documents by his trading member _____
Complete version of all the laws of SEBI
Risk disclosure document
All the rules & regulations of the exchange
SEBI guidelines on the subject

Explanation:
Model Risk Disclosure Document is issued by the members of
Exchanges and contains important information on trading in
Equities and F&O Segments of exchanges.

Q 66. The 'ASK' price is always _______________

greater than the bid price
equal to bid price
lower than the bid price
none of the above

Explanation:
Bid and Ask price means the Buyer and Seller price.
For eg price of a stock as quoted on a stock market is Rs. 100 - 101.
So 100 is the Bid price and 101 is the Ask price.
The Ask will always be higher the Bid price.

Q 67. Mr. Mohan entered into a contract with Mr. Soham to buy 500
bags of Cotton at a price of Rs 800 per bag. Delivery of goods and
payment of money will take place 4 months from now. Both Mr.
Moham and Mr. Soham have a right as well as an obligation under
this contract. What type of contract is this?
Options
Forwards
Futures
Swaps
Explanation:
Forward contract is an agreement made directly between two
parti.e.s to buy or sell an asset on a specific date in the future, at the
terms decided today. There is no Stock Exchange, Commodity
Exchange etc. involved.

Q 68. The process by which a futures contract is terminated by a

transaction that is equal and opposite to the original transaction is
called _____________
netting
off setting
hedging
mark to market
Explanation:
A closing transaction is one that reduces or eliminates an existing
position by an appropriate offsetting purchase or sale.
Q 69. The Clearing members in derivatives exchange are required to
make a minimum deposit of Rs 20 lakhs with the exchange/clearing
corporation in the form of liquid assets -State True or False ?
False
True

Explanation:
Clearing Members have to maintain a Minimum Deposit in Liquid
Assets of Rs 50 lakhs with the exchange or it’s Clearing Corporation.

Q 70. If you have a long or short position in a futures contract, this

can be closed by initiating a reverse trade - True or False ?
True
False

Q 71. The idea and economic rational of introducing forward

contracts is to
help arbitrage
help trading
help hedging
both 1 and 3

Explanation:
The essential idea of entering into a forward is to fix the price and
thereby avoid the price risk. By entering into forwards, one is
assured of the price at which one can buy/sell an underlying asset.
Thus Forward contracts are basically meant for hedging / managing
the risks.

Q 72. As per Accounting Standards, the initial margin paid by an

option seller is shown under __________ in the balance sheet
Bad Debts
Fixed Assets
Current Assets
Current Liabilities

Explanation:
The seller/ writer of the option is required to pay initial margin for
entering into the option contract and it’s 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 73. A person who is bullish and a payer of premium is a

_______________
buyer of call option
seller of call option
buyer of put option
seller of put option

Q 74. Investor Mr. X wants to sell 11 contracts of Feb series at

Rs.6300 & investor Mr. Y wants to sell 13 contracts of March series
at Rs.6450. Lot size is 50 for both these contracts. The initial margin
is fixed at 6%. How much initial margin is required to be collected
from both these investors(sum of initial margin of X and Y) by the
broker?
Rs 251550
Rs 459450
Rs 640000
Rs 374900

Explanation:
Margin from Mr. X Rs 6300 X 11 contracts X 50 (lot size) X 6% =
207900 Margin from Mr. Y Rs 6450 X 13 contracts X 50 (lot size) X
6% = 251550 Total Margin = 207900 + 251550 = 459450.
Q 75. A trader has taken a short position of one contract in Sept ABC
futures (contract multiplier50) at a price of Rs.1800. When he
closed this position after a few days, he realized that he has made a
profit a Rs.5000. Which of the foil closing actions would have
enabled him to generate the profit?( Please ignore brokerage costs) .
Buying 1 Sept ABC futures contract at 1900
Buying 1 Sept ABC futures contract at 1700
Selling 1 Sept ABC futures contract at 1900
Selling 1 Sept ABC futures contract at 1700
Explanation:
To make a profit of Rs 5000, he has to earn Rs 100 per share
( 5000 / 50 (lot size) = 100 )
Since he has gone short, he will make a profit when the price falls
and he buys at the reduced price.
I-le has sold at It’s 1800, so when he buys back at Rs 1700 he make
Rs 100 profit per share.
Rs 100 X 50 ( Lot size ) = Rs 5000 profit.

Q 76. The option which gives the holder a right to buy the
underlying asset on or before a particular date for a certain price, is
called as _____________
European put option
American put option
American call option
Explanation:
In case of American options, buyers can exercise their option any
time before the maturity of contract.
In case of European options, owner of such option can exercise his
right only on the expiry date/day of the contract.
Q 77. A call option gives the holder a right to buy how much of the
underlying from the writer of the option?
The specified quantity or less than the specified quantity
The specified quantity or more than the specified quantity
Only the specified quantity
None of the above

Explanation:
Only the specified quantity as per the lot size of the option contract.

Q 78. Which of the following is closest to the forward price of a share

if cash price is Rs 425, forward contract maturity=12 months from
date, market interest rate 12%
425
482
476
437

Explanation:
12 months maturity means full one year of interest cost.
So 12% of 425 = 425 x 12 / 100 =51 425 + 51 = 476 is closest to the
one year forward price.

Q 79. A trader is very bearish on specific companies. However he is

bullish on the market as a whole. Which of the following is the most
appropriate strategy to take advantage from this view?
sell the shares of those specific companies and also sell index
futures
sell the shares of those specific companies and buy index
futures
buy the shares of those specific companies and sell index
futures.
do nothing
Q 80. The concept in which the derivative trader gets a higher
exposure for the small portion of margin amount brought by him is
called as ____________
Arbitrage
Leverage
Delta Hedgeing
Speculation
Q 81. The networth criterion for Professional clearing Members is
the same as that for Trading cum clearing members - State whether
True or False ?
True
False
Explanation:
The Professional clearing Member is required to bring in additional
Interest free security deposit of Rs. 2 Lakhs and Collateral security
deposit of Rs. 8 Lakhs per trading member whose trades he
undertakes to clear and settle in the F&O segment.

Q 82. Which of the following problem(s) that exist in the forward

contracts are solved by the Futures contracts ?
a central agency for monitoring
settlement problems
counter party risk
all of the above

X WRONG ANSWER
CORRECT ANSWER:
all of the above

Q 83. Loss incurred on derivatives transactions can be carried

forward for a period of 12 assessment years - State whether True or
False ?
True
 False

Explanation:
Loss incurred on derivatives transactions which are carried out in a
recognized stock exchange can be carried forward for a period of 8
assessment years.

Q 84. A short position in a CALL option can be closed out by taking a

long position in a PUT option with same exercise date and exercise
price - State True or False ?
True
False

Explanation:
A short position in a CALL option can be closed out by taking a long
position in a same CALL option with same exercise date and exercise
price.

Q 85. Which of the following complaints can be taken up by the

exchange for redressal ?
Claims for notional loss; opportunity loss for the disputed
period or trade
Complaints pertaining to trades not executed on the Exchange
by the complainant
Claims of sub-broker/authorized persons for private
commercial dealings with the trading member
Excess Brokerage charged by Trading Member / Sub-
broker

Explanation:
Exchanges provide assistance if the complaints fall within the
purview of the Exchange and are related to trades that are executed
on the Exchange Platform. Excess Brokerage charged by Trading
Member / Sub-broker comes under this assistance.
Q 86. Mr. Ravi purchases 10 call option on stock at Rs. 20 per call
with strike price of Rs 350. If on exercise date, stock price is Rs. 310,
ignoring transaction cost, Mr. Ravi will choose _______________
to exercise the option
not to exercise the option
may or may not exercise the option depending on whether he
likes the company or not
may or may not depending on whether he is in town or not

Explanation:
Mr. Ravi has bought a Call Option assuming that the price will rise.
The price has fallen and he is in a loss. So he will not choose to
exercise his option.

Q 87. Trading members are required to possess a higher level of

Capital Adequacy (as per balance sheet) than clearing members-
True or False ?
True
False

Explanation:
Clearing Members are permitted to settle their own trades as well as
the trades of the other non-clearing members known as Trading
Members who have agreed to settle the trades through them.
Thus the Capital Adequacy requirement is higher for Clearing
Members.

Q 88. A trader sold a call option on a share of strike price Rs. 200
and received a premium of Rs. 12 from the option buyer. What can
be his maximum loss on this position.
Rs 200
Rs 188
Rs 12
Unlimited
Explanation:
When a trader sells a Call option he is bearish / neutral on that scrip.
But in case the price rises, he makes losses and theoretically price
can rise to any levels - so his losses can be unlimited.
In this eg, he has sold Rs 200 call at Rs 12. In case the price rises, the
call price will also rise and can rise to theoretically any levels
leading to 'unlimited losses'

Q 89. Investor protection fund for the derivatives segment is

______________
same as that of cash segment
Independent of that of cash segment
contributed by ministry of finance
no investor protection fund is there for the derivative segment

Q 90. The contract size in futures market is defined by ______________

The Stock Brokers
The Stock Exchange
The Parties to the contract
SEBI

Explanation:
The Contract size (Lot size) is specified by the exchange. (Minimum
value of Rs 2,00,000).

Q 91. In Options - the seller of an contract pays an upfront premium

at the time of entering into the contract - State whether True or
False ?
True
False as the premium is paid on maturity
False as the premium is paid by the buyer and not the
seller
 None of the above
Q 92. The mark-to-market margin debits for index options are made
on _____________
weekly basis
daily basis
fortnightly basis
every friday
Explanation:
All types of Mark to Market margin debits are made on daily basis.

Q 93. A calendar spread in index futures is treated as _____________ in a

far month contract when the near months contract is expired.
long position
hedged position
naked position
Short position

Q 94. The main objective of derivatives is to enable market

participants to _________
Trade
Manage the risks
Speculate
Arbitrage

Q 95. Higher the interest rate, the higher the CALL option premium
- State True or False ?
True
False

Explanation:
High interest rates will result in an increase in the value of a call
option and a decrease in the value of a put option.
Q 96. A Buyer or holder of the option is the party to the contract
who has _____________
the obligation but not the right
the right but not the obligation
the right and the obligation
None of the above

Explanation:
A Call option gives the buyer the right, but not the obligation to buy
the underlying at the strike price.
A put option gives the buyer of the option the right, but not the
obligation, to sell the underlying at the strike price.

Q 97. The Trading members on the exchanges derivatives segment

are not required to be registered with SERI.- State whether True or
False ?
False
True

Q 98. A unique principle of futures trading makes trading possible

for those who do not want to make or take delivery of underlying
assets. Which is that principle ?
Traded on a recognised exchange
Price uncertainity
Standardisation of contracts
Cash settlement

Q 99. On the National Stock Exchange, for its index futures, what
would be the opening day of its April series?
Last Friday of March month
Last Friday of April month
Last Friday of Jan month
Last Friday of February month
Explanation:
There are 3 series of index futures active all the time. A new series is
introduced as the older series expires.
Let’s assume the Jan, Feb and March series are active currently.
On the last Thursday of Jan, the Jan series will expire.
So that next day ie. on the last Friday of Jan, the April series will be
activated. This will be the opening day for April series. Thus we will
have three series active i.e. Feb, March and April.

Q 100. Operational risks include losses due to ______________

natural calamities
computer system failure
power failure
all of the above

Explanation:
Operational Risk includes losses incurred from risks resulting from
breakdowns in internal procedures, people and systems.

Q 1. The Stock Exchanges and Stock Brokers decide the option

premiums — True or False ?
True
False

Explanation:
Stock Exchanges decide the rules and provide the platform for
trading and Stock Brokers act as authorized mediatories.
The option prices are decided by the buyers and sellers based on the
spot price, time value, volatility and many other factors.

Q 2. The Indian Stock Future Markets deals in

Swaps
Equity Cash
Equity Derivative
All of the above

Explanation:
Swaps are series of forward contracts. Equity Cash is traded in the
Spot Markets.
Equity Derivatives like Futures and Options are traded in the Stock
Futures markets.

Q 3. Usually as the level of risk rises, the expected rate of return on

that investment should also rise - True or False ? True
True
False

Explanation:
Higher the risk (E.g. Equity Shares ) higher is the return
Lower the risk (E.g. Bank Fixed Deposit’s) lower is the return.

Q 4. The system of SEBI which enables investors to lodge and follow

up their complaints and track the status of redressal of such
complaints from anywhere is called SCORES — True or False ?
True
False

Q 5. A short seller has the time of one week to deliver the stocks -
True or False ?
True
False

Explanation:
Selling Short means Seller does not own the stock he is supposed to
deliver.
Even if a trader has stock he has to deliver the shares in T+2 days.
Q 6. The total liquid assets comprise of at least 60% of the cash
component and the rest is non cash component – True or False ?
True
False

Explanation:
The total liquid assets comprise of at least 50% of the cash
component and the rest is non cash component.

Q 7. In the accounting system of open options as on Balance Sheet

day, the "Provision for Loss on Equity Index/ stock Option Account"
is shown as deduction from "Equity Index! stock Option Premium"
which is shown under _________________
Current Assets
Current Liabilities
Short term Debts
None of the above

Q 8. Operational risks include losses due to ________________

Inadequate disaster planning
Too much of management control
Government policies
Income tax regulations

Explanation:

An operational risk is defined as a risk incurred by an organisation's

internal activities. So losses due to fraud, inadequate
documentation, inadequate disaster management, improper
execution are all Operational risks.

Q 9. A tax which is clearly mentioned in the Contract Note is

_________________
Long Term Capital Gain Tax
Short Term Capital Gain Tax
Both 1 and 2
Securities Transaction Tax (STT)

Q 10. _________________ refers to when securities professionals making

unnecessary and excessive trades in customer accounts for the sole
purpose of generating commissions.
Hedging
Arbitrage
Churning
Broking

Q 11. What role do speculators play in the Futures Market ?

They sell futures and buy it back when price rises to make a profit
They buy futures and sell it back when the price rises to make a
profit
They sell futures and also sell in the cash market to create a hedge
None of the above

Q 12. As per the L.C.Gupta Committee recommendations a separate

Investor Protection Fund must be created for derivatives segment -
True or False ?
True
False

Q 13. An index option is a Money Market Instrument - True or

False ?
True
False

Explanation:
An index option is a Derivative Product.
Q 14. Option which gives buyer a right to sell the underlying asset, is
called ___________ option
Call
Put
American
European

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 15.If there is not much price movement, the OTM option will be
beneficial to ___________
Buyer of Call Option
Seller of Call Option
Buyer of Put Option
None of the above
Explanation:
There is no Intrinsic Value in OTM (Out of the Money) option but
only Time Value. So a buyer of an option will pay the premium and
the seller will receive it.
If there is not much price movement, the seller will earn the
premium received.

Q 16. A Trading member can either clear his trades or use the
services of Professional Clearing members - True or False?
True
False
Explanation:
A Trading member cannot clear his trades. Only a Trading cum
Clearing members can clear their own trades.
Q 17. A Broker or Dealer who is already registered with an existing
stock exchange will have to get additional registration for the
Derivative Exchange - True or False ?
True
False

Explanation:
In addition to their registration as brokers of existing stock
exchanges, Derivative brokers/dealers and clearing members are
required to seek registration from SEBI.

Q 18. The cash component of Liquid Securities can include Unit’s of

money market mutual fund and Gilt funds where applicable haircut
is 10%. — True or False ?
True
False

Q 19. As per J.R.Verma Committee recommendations, Volatility

should be calculated based on _____________ of logarithmic daily
returns.
Variance
Delta
Standard Deviation
CAGR

Q 20. Impact cost is low when ______________

volume/ liquidity is low
volume/ liquidity is high
the scrip is trading at a all time high
the scrip is trading at a all time low

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 will be high the impact cost will be low.

Q 21. **In the Options segment, if you buy a CALL, you expect the
market / scrip to move ___________
Down
Up
One cannot buy a Call in options market
Remain range bound

Explanation:
A buyer of a CALL Option has a bullish view- so he will expect the
market / script to move up to make a profit.

Q 22. An investor who is less risk averse would like to have greater
exposure to equity and other risky investments compared to fixed
income instruments - State True or False ?
False
True

Explanation:
Although Equity Markets can give good returns but they are quiet
risky to invest. So only a less risk adverse investor would prefer to
invest in equity.
A more risk-averse investor would prefer investments that are more
secure and thus would have higher portfolio allocations to debt and
fixed income instruments.
Q 23. **Forward contracts are OTC contracts - True or False ?
True
False

Explanation:
The forward contracts are negotiated between two parties, the
terms and conditions of contracts are customized as per their
requirements These are OTC contracts.

Q 24. You are bullish on a stock but unsure of the overall market.
The action you should take is :
Buy Stock futures and sell Index futures
Sell Index futures
Buy Stock Futures
None of the above

Q 25. A trader sells a lower strike price CALL option and buys a
higher strike price CALL option, both of the same scrip and same
expiry date. This strategy is called ____________
Bearish Spread
Bullish Spread
Long term Investment
Butterfly

Explanation:
A bear call spread is a limited profit, limited risk option strategy that
can be used when the options trader is moderately bearish on the
underlying security.
It is entered by buying call options of a certain strike price and
selling the same number of call options of lower strike price (in the
money) on the some underlying security with the same expiration
month.
Q 26. The Over the counter options are _____________
Calculated based on the delta.
standardised options
customised options
always in the money options
Explanation:
Over the Counter options are made as per the needs of the trading
parties - so they are customised.
Future options are standardised as per the rules of stock exchange.

Q 27. Financial Derivatives are used for -

Speculation
Hedging
Arbitrage
All of the above

Q 28. "If you buy a PUT option at premium of Rs 20 at the Strike

Price of Rs 250, lot is of 400 shares, then the maximum possible
loss is ____________
Rs 5000
Rs 8000
Rs 20,00,000
Unlimited

Explanation:
When you buy an option, either Call or Put - the maximum loss is the
premium you have paid.
In this ease the premium paid is Rs 20 x 400 shares = Rs 8000.

Q 29. The future contracts are custom designed and hence each
contract is different as per the terms of the contracting parties.
False
True

Explanation:
Future contracts are standardised and forward contracts are custom
designed.

Q 30. Which risks can be managed by selling Index Futures ?

Mark to Market risks
Time value risks
Systematic Risks
Unsystematic Risks

Explanation:
Unsystematic Risk 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.

Systematic Risk An investor can diversify his portfolio and eliminate

major part of price risk i.e. the
Diversifiable/unsystematic risk but what is left is the non-
diversifiable portion or the market risk-called systematic risk.
Variability in a security's total returns that are directly associated
with overall movements in the general market or economy is called
systematic risk. Thus, every portfolio is exposed to market risk. This
risk is separable from investment and tradable in the market with
the help of index-based derivatives. When this particular risk is
hedged perfectly with the help of index-based derivatives, only
specific risk of the portfolio remains.

Q 31. '‘*A buyer of Put Option —

Has the obligation to take delivery of asset
Has the right to buy the underlying asset
Has the right to sell the underlying asset
Has the obligation to give delivery of asset

Explanation:
Put Option is an option contract giving the owner the right, but not
the obligation, to sell a specified amount of an underlying security at
a specified price within a specified time. This is the opposite of a call
option, which gives the holder the right to buy shares.

So an 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. There is no obligation
when you buy an option.

Q 32. A long position in a CALL option can be closed by taking a

short position in PUT option.

False
True

Explanation:
A long position in any option can be closed by selling that option and
not in any other way.
So a long position in a CALL option can be closed by selling that
CALL option.

Q 33. If a stock has very low volatility then it would have a lower
option premium.
True
False

Explanation:
Lower the volatility lower the risk and so lower the premium.
The stocks which are highly volatile will have comparatively higher
option premiums as there involves a lot of risk trading in such
stocks.
such stocks.

Q 34. In index futures, if the near leg of the calendar spread

transaction expires then the farther leg becomes a regular open
position.
True
False

Explanation:
Calendar spread means an options or futures spread established by
simultaneously entering a long and short position on the same
underlying asset but with different delivery months.

In the above question, lets assume a trader has gone long in index
options in current month and short in index options in third month.
In case he does not close his position by the end of current month,
his current month option will expire and the third month option
contract will become an open position as there is no opposite option
contract in his account.

Q 35. In the derivatives market, all the margins are collected

by____________
Margin House
SEBI
Clearing House
Clearing Banks

Q 36. A __________________ is created by shorting a call and a put option

of same strike and same expiry.
Long Straddle
Short Straddle
Bullish spread
None of the above
Explanation:
A Short Straddle strategy carried out by holding a short position in
both a call and a put that have the same strike price and expiration
date. He sells a call and a put so that he can profit from the
premiums. The maximum profit is the amount of premium collected
by writing the options.
The short straddle is a risky strategy an investor uses when he or
she believes that a stock's price will not move up or down
significantly. Because of its riskiness, the short straddle should be
employed only by advanced traders due to the unlimited amount of
risk associated with a very large move up or down.

Q 37 Theta is the rate of change in option premium for a change in

the price of the underlying asset.
True
False
Explanation:
Delta is the rate of change in option premium for a change in the
price of the underlying asset.
Theta is the change in option price given a one-day decrease in time
to expiration. It is a measure of time decay.

Q 38 When a call option is ‘In The Money’- the ____________

Strike Price is lower than Spot Price
Strike Price is higher than Spot Price
Strike Price is same as Spot Price
None of the Above

Explanation:
An In the money (ITM) option would give holder a positive cash
flow, if it were exercised immediately.
A call option is said to be ITM, when spot price is higher than strike
price. And, a put option is said to be ITM when spot price is lower
than strike price. In our examples, call option is in the money

Q 39. Delta is the change in option price given a one-day decrease in

time to expiration - State True or False ?
True
False

Explanation:
The most important of the 'Greeks' is the option's is "Delta". This
measures the sensitivity of the option value to a given small change
in the price of the underlying asset. It may also be seen as the speed
with which an option moves with respect to price of the underlying
asset.
Q 40. ** _______________ is minimum move allowed in the price
quotations.
Theta
Ask Price
Tick Size
Bid Price

Explanation:
Tick size is the minimum price movement of a trading instrument.
Exchanges decide the tick sizes on traded contracts as part of
contract specification. The exchange informs the lot size and the tick
size for each of the contracts traded on F&O segment from time to
time. Tick size for Nifty futures is 5 paisa.

Q 41. '‘*In the Options segment, if you buy a PUT, you expect the
market / scrip to move ___________
Up
Down
Range bound
One cannot buy a PUT in options market.

Explanation:
A buyer of a PUT option has a negative / bearish view and so he
expects the market / script to move down to makes a profit.

Q 42. Arbitrage activities would ensure that the prices of futures

contract is aligned with the prices of the underlying assets. True or
False ?
False
True

Explanation:
Arbitrage occupies a prominent position in the futures world as a
mechanism that keeps the prices of futures contracts aligned
properly with prices of the underlying assets.
Whenever the prices are not aligned, the arbitrageurs will step in to
use the price difference to make profit’s.

Q 43. **In futures contract the lot size is determined by

The Stock Exchange
Professional Clearino Member

Q 43. **In futures contract the lot size is determined by _____________

The Stock Exchange
Professional Clearing Member
The Company
SEBI

Explanation:
It’s the duty of the stock exchange to inform of the lot size and the
tick size for each of the contracts traded on F&O segment from time
to time.
Q 44. As the expiry / maturity of a futures contract approaches, the
spot price and future price tend to become same. This is known as
____________
Covariance
Cosetting
Convergence
Corelation

Q 45. **If you buy a PUT option at premium of Rs 20 at the Strike

Price of Rs 250, lot is of 400 shares, then the maximum possible
Profit is ___________
Rs 8000
Rs 5000
Rs 100000
Unlimited

Explanation:
The buyer of an OPTION, be it CALL or PUT, enjoys the benefit of
having an unlimited profit (theoretically)
In the above example, you have bought a PUT option assuming that
the share will fall. When the share starts to fall the premium will
keep on rising and rising..from Rs 20 to Rs 30 and so on.

Q 46. A low level of initial margin increases the possibility of

defaults of a stock broker - State True or False ?
True
False

Explanation:
A broker collects the initial margins from his clients as per their
positions and pays to the exchange.
A low level of initial margin collected from clients can lead to
defaults of clients in case of major movement of stock prices. So if
clients default, it also increases the chances of the broker defaulting.

Q 47. A calendar spread contract in index futures attracts higher

margin than sum of two independent legs of futures contract.
False
True

Explanation:
A calendar spread contract in index futures attracts LOWER margin
than sum of two independent legs of futures contract.
This because the risk is very less on colander spreads.

Q 48. An American Put option gives the buyer the right to sell the
underlying asset at a specified price on or before the expiry /
maturity date - State True or False ?
False
True

Explanation:
European Options can be exercised only on maturity but American
Options can be exercised on or before maturity.

Q 49. "If futures price are lower than spot price of an asset, market
participants may expect the spot price to come down in future. This
situation is called —
Contango
Reverse System
Backwardation
Impact costs
Explanation:
As per the Expectancy Model of Future Pricing - If future prices are
higher than spot prices (over the normal cost of carry) we can
expect the spot prices to go up in future. This is called as Contango.
Similarly, if the future prices are lower than spot prices, we can
expect the spot prices to go down and this is called as
Backwardation.

Q 50 When the strike price decreases, the premium on call option

increases.
True
False

Explanation:
The lower strike price would have a higher call option premium
because the intrinsic value increases.
For e.g. - If the market price is Rs 200 and the 180 strike price call
option has a premium of Rs 25 (Rs 20 intrinsic value and Rs 5 time
value), then the 160 call option will have a premium of approx Rs 45
( It’s 40 intrinsic value and Rs 5 time value)

Q 51. In BID-ASK price, the bid price is the price at which _____________
the trader is willing to buy the asset
the trader is willing to sell the asset
the trader is willing to either buy or sell the asset
All of the above

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 price of State Bank of India as seen on the trading
screen is Rs 200 - 201, this means Rs 200 is the bid price and Rs 201
is the ask price.
Q 52. The major reason for collecting high initial margin is to
improve the solvency of the clearing corporations.
True
False

Explanation:
Higher the margins lower the risks of client or broker defaulting.
This improves the solvency of the Clearing Corporations.

Q 53. '"A Clearing member is required to provide liquid assets and

these liquid assets should be at least 75% in cash, bank FD's etc and
balance 25% in non cash assets. True or False ?
False
True

Explanation:
The total liquid assets should comprise of at least 50% ( and not
75% ) of the cash component and the rest is non cash component.

Q 54. Beta is the change in option price given a one percentage point
change in the risk-free interest rate.
True
False

Explanation:
Rho is the change in option price given a one percentage point
change in the risk-free interest rate.
Beta a measure of systematic risk of a security that cannot be
avoided through diversification.

Q 55. In futures market, basis is referred to as ______________

Beta of the future stock
Volatility of the market
Price difference between Spot and Future price
The Bid-Ask price

Explanation:
The difference between the spot price and the futures price is called
basis.
If the futures price is greater than spot price, basis for the asset is
negative. Similarly, if the spot price is greater than futures price,
basis for the asset is positive.

Q 56. "An option which would give a zero cash flow to its holder if it
were exercised immediately is known as _____________
At the money option
Out of the money option
In the money option
None of the above

Explanation:
A situation where an option's strike price is identical to the price of
the underlying security. Both call and put options will be
simultaneously "at the money." For example, if XYZ stock is trading
at 75, then the XYZ 75 call option is at the money and
simultaneously "at the money." For example, if XYZ stock is trading
at 75, then the XYZ 75 call option is at the money and so is the XYZ
75 put option.
At the money option would lead to zero cash flow if it were
exercised immediately. Therefore, for both call and put ATM
options, strike price is equal to spot price.

Q 57. When a clearing member! broker make unnecessary

transactions in his clients account with the sole aim of
making commissions, this is known as
Technical Trading
Stop Loss Trading
Churning
Portfolio Planning

Q 58. You have sold one lot of JSW Steel futures for Rs 900 (lot size
250) expecting that this share will go down. But you also wants to
protect yourself against any loss of more than Rs 2000. What should
you do ?
Place a limit order to buy at Rs 908
Place a stop loss buy order at Rs 892
Place a stop loss buy order at Rs 908
Place a limit sell order at Rs 908

Q 59. A buyer of Call Option —

Has the obligation to take delivery of asset
Has the obligation to give delivery of asset
Has the right to buy the underlying asset
Has the right to sell the underlying asset

Explanation:
CALL OPTION : An agreement that gives an investor the right (but
not the obligation) to buy a stock, bond, commodity, or other
instrument at a specified price within a specific time period.
It may help you to remember that a call option gives you the right to
"call in" (buy) an asset. You profit on a call when the underlying
asset increases in price.

Q 60. You are interested in creating a perfect hedge for your

portfolio. For this you need to sell index futures and the
index futures sold should be equal to
Value of your portfolio + Beta of your portfolio
Value of your portfolio / Beta of your portfolio
Value of your portfolio * Beta of your portfolio
Value of your portfolio - Beta of your portfolio
Explanation:
To get a hedge, one has to multiply the beta of his portfolio with the
value of the portfolio and them sell that value of index futures.

Q 61. The holder of an option has ___________

the obligation but no right
the right but no obligation
some rights but more obligations
no rights and no obligations

Q 62. The intrinsic value is the difference between Market Price and
Strike Price of the option and it can never be negative.
True
False

Q 63. The risk return profile of an option contract is _____________

symmetric
asymmetric
like treasury bond
like mutual funds

Explanation:
Asymmetric basically means not identical on both sides.When one
trades in Options, the gains when the share moves in one direction
is significantly different from the losses when the share moves in the
opposite direction.
For eg - If one buys a call option and the share prices go down the
loss will be limited i.e. restricted to the premium paid. But if the
share prices move up, the profit’s can be huge/unlimited. This is
known a asymmetric return.
On the contrary in futures or cash market, the returns are
symmetric i.e. equal value of profit’s or loss is possible.
Q 64. Arbitrage is a tool used to protects ones portfolio against any
downturn by going short in index. True or False ?
True
False

Explanation:
To protect ones portfolio against any downturn by going short in
index is called Hedging.
Arbitrage is a tool to use price differences in different markets to
make a profit.

Q 65. When a person buys a call option, he has an —

Mixed View
Slightly Long term view
Bullish view
Bearish view

Q 66. **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 Profit is ______________
Rs 400
Rs 7000
Rs 43000
Unlimited

Explanation:
When you buy a CALL option, your losses are limited to the extent of
premium paid, but your profit’s, theoretically can be unlimited as
the price of the underlying can rise to any levels.
When the price of an underlying rises, the price of an CALL option
will also rise and so you can have unlimited profit’s.
Q 67. "In the Straddle Strategy both options have same strike price
but in Strangle strategy, the strike price are different and are mostly
out of the money options- True or False ?
False
True

Explanation:
In the case of Straddle, the viewis that the market will move
substantially in either direction, but while in straddle, both options
have same strike price, in case of a strangle, the strikes are different.
Also, both the options (call and put) in this case are out-of-the-
money and hence the premium paid is low.

Q 68. 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

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

Q 69. "Hedgeing is a tool used to protects ones portfolio against any

downturn by going short in index. True or False ?
True
False

Explanation:
Hedging basically 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.
In the above question, if an investor own 30-40 stocks and feels the
market (and so his stocks) will go down due to a upcoming event, he
will short the index to minimise his losses.
Investors use this strategy when they are unsure of what the market
will do.

Q 70**The spot price of ABC share is Rs 500, the call option of Strike
Price Rs 500 is —
In the money
Out of the money
At the money
None of the above

Explanation:
At the Money - A situation where an option's strike price is identical
to the price of the underlying security. Both call and put options will
be simultaneously "at the money."
For example, if XYZ stock is trading at 100, then the XYZ 100 call
option is at the money and so is the XYZ 100 put option.
An at-the-money option has no intrinsic value, but may still have
time value. Options trading activity tends to be high when options
are at the money.

Q 71. A client G1 has bought 1 contract of ABC futures May series at

Rs 3240. The closing price of this share when the market closed on
last Thursday of May was Rs 3188. What is his Profit (+) or Loss (-) ?
(Market lot 100)
-3240
-5188
5600
-5200

Explanation:
Purchase Price - Rs 3240
Sale Price - Rs 3188
So there is a loss : 3240 - 3188 = -52 x 100 = -5200

Q 72. When a trader buys a put option, he has an —

Mixed view
Bearish view
Bullish view
Confused view

Q 73. **In a Derivatives Market, the person who takes the risk are
____________
Arbitrageurs
Speculators
Hedgers
None of the Above

Explanation:
hedgers use derivatives to manage risks, Arbitrageurs use Cash
market and Derivative market to make money by using the price
differences. Speculators take open positions and take the risks.

Q 74. The difference between the bid price and the ask price is
known as _____________
basis
bid-ask spread
tick
premium

Explanation:
The difference between the best buy and the best sell orders is
called bid-ask spread.
For eg - If the price of a stock is Rs 100 and 100.50, then 0.50 poise
is the bid-ask spread.
Q 75. A Trading Member can also be a Clearing Member — True or
False ?
True
False

Explanation:
A Trading Member can also be a Clearing Member by meeting
additional requirements. There can also be only clearing members.

Q 76. The option premium paid by the option buyer remains with
the exchange till the time it is closed out or expired.
True
False

Explanation:
The Option premium is collected by the exchange but is given to the
seller of option.

Q 77. "Higher the interest rate, higher will be the option premium -
True or False ?
True
False

Explanation:
Higher interest rates will lead to higher future price / higher option
premium as the cost of carry i.e. cost of financing increases.

Q 78. A major recommendation of L.C.Gupta Committee was that a

separate Investor Protection Fund must be created for derivatives
segment - State True or False ?
True
False

Q 79. **A short seller __________

 Must own the share
Must own at least 75% of the shares
Need not own the shares
None of the above

Explanation:
Short Selling means the selling of a security that the seller does not
own.
Short sellers assume that they will be able to buy the stock at a
lower amount than the price at which they sold short.

Q 80. Position limits have been designed to ____________

prevent the markets from being wrongly influenced by
Government policies
support the market and determine its movements
stop the markets being wrongly influenced by the trading
activities of investor(s)
all of the above

Q 81. The mark to mark debits for stock futures are done on a —
Daily basis
Weekly basis
Monthly basis
Hourly basis when markets are very volatile

Explanation:
In the futures market, profits and losses are settled on day-to-day
basis - called mark to market (MTM) settlement.
The exchange collects these margins (MTM margins) from the loss
making participants and pays to the gainers on day-to-day basis.
Therefore all futures postions - for both Index and Stocks are
marked to market on a daily basis.
Q 82. Derivatives market helps shift of speculative trades from
unorganized market to organized market. True or False ?
True
False

Explanation:
In the unorganized markets, there is a huge risk of counter party
default etc. In the organized markets for derivatives the Clearing
Corporation guarantees the clearing and settlement of all trades
even if there is a default of any participant.

Q 83. If you have a long position in futures contract, you can square
up it by ______________
Buying a call option of that security
Selling the same futures contract
Selling the far month future contract so that you have more time
and can earn more
Buying a put option of that security

Explanation:
A future contract can be squared up by selling the same contract and
in no other way.

Q 84. The Ask price is always greater than Bid price. True or False ?
True
False

Explanation:
Bid price is the price buyer is willing to pay and ask price is the price
seller is willing to sell.
For example the prices as seen on the screen will be - Reliance Inds
900 - 901, where 900 is the bid price and 901 is the ask price.
So the Ask price is always greater than Bid price.
Q 85. An investor who is risk averse will invest more in Fixed
Income and Debt instruments than to equity market related
investments.
True
False

Explanation:
A risk-averse investor ie. an investor who wants to play safe and not
take risks, will prefer investments that are more secure and thus
would have higher portfolio allocations to debt and fixed income
instruments.
On the other hand an investor who is less risk averse would like to
have greater exposure to equity and other risky investments.

Q 86. **A stock broker has two clients P and Q. P has purchased 200
contracts and Q has sold 300 contracts in May Tata Steel futures
series. What is the outstanding liability (open Position) of the
member towards Clearing Corporation in number of contracts?
100
200
300
500

Explanation:
While calculating the outstanding liability of a member, the total of
all clients open postion is taken into account. The positions cannot
be netted against two clients.
So in the above case the total open position is 200 + 300 = 500
contracts.

Q 87. **Impact Cost is the measure of liquidity — True or False ?

False
True
 Explanation:
Impact cost basically means what additionally a trader must pay
because of the order size i.e. due to price increase if there it is a big
buy order and price decrease if there is a big sell order.
If the scrip is very liquid i.e. there are huge buyers and sellers, the
impact cost will be very low. Therefore, if the liquidity is high - the
impact cost is low and if the liquidity is poor, the impact cost is high.

Q 88. The difference between the spot price and the futures price is
called tick.
False
True

Explanation:
The difference between the spot price and the futures price is called
BASIS.
Q 89. ."In the Options segment, if you sell a PUT, you expect the
market / scrip to move _____________
Either up or down as you profit in both directions.
One cannot sell a PUT in the options market
Up
Down

Explanation:
A seller of a PUT option has a positive / bullish view and he expects
the market / script to go up to make a profit.

Q 90. A put option gives the buyer the right to ______________

Buy the underlying at market price
Buy the underlying at set price
Sell the underlying at market price
Sell the underlying at set price
Explanation:
A put option is a financial instrument that gives the buyer the right,
but not an obligation, to sell a set quantity of a security at a set strike
price at some time on or before expiration.
In easy terms - what ever may be the market price, the buyer of put
opton will be able to sell security at the set price or strike price as he
has paid a premium for it.
Q 91. "A person sells a put option of Strike Price 265, market lot
1000, at a premium of Rs 40, the maximum profit he can make is
_______________
Rs 25,000
Rs 2,65,000
Rs 40,000
Unlimited

Explanation:
The maximum profit for a seller of an option is the premium he
receives. In this case he has received Rs 40. The Lot size is 1000.
So the maximum profit he can make is 40 x 1000 = Rs 40,000.

Q 92. ______________ pays the initial margin when entering into a

futures contract.
The Buyer
The Seller
Both Buyers and Sellers
None of the above

Explanation:
In futures both buyer and seller pays the margin as both are heavily
exposed to market risks.
In options, only the seller has to pay the margin as buyers have a
limited risk.
Q 93. The Clearing Corporation has the power to charge special
margin if it may think fit.
True
False

Q 94. The right to buy an asset for a certain price on or before a

specified date is the characteristics of a ________________
American Put Option
American Call Option
European Put Option
European Call Option

Q 95. **Contract month is the month in which futures contract —

Expires
Are at the lowest price
Are at its highest price
None of the above

Explanation:
Contract month is the month in which futures contract expires.
At the expiry of the nearest month contract, a new contract with 3
months maturity will start. Thus, at any point of time, there will be 3
contracts available for trading.
Q 96. "Derivative markets mostly comprises of —
Long term investors
Speculators
Hedgers
Both 2 & 3

Explanation:
Long term investors buy stocks in the Spot / Cash market and take
their delivery and keep it for long term.
The active participants in Derivative markets are Hedgers,
Speculators and Arbitrageurs etc.

Q 97. **Liquid Assets offered by a Clearing Member to the Clearing

Corporation can include Mutual Fund Units and Bank Gaurantees.
True or False ?
False
True

Explanation:
Clearing member is required to provide liquid assets to cover
various margins and liquid networth requirements. The total liquid
assets comprise of at least 50% of the cash component and the rest
is non cash component.
1. Cash Component:
• Cash
• Bank fixed deposits (FORs) issued by approved banks and
deposited with approved custodians or Clearing Corporation.
• Bank Guarantees (BGs) in favor of clearing corporation from
approved banks in the specified format.
• Units of money market mutual fund and Gilt funds where
applicable haircut is 10%.
• Government Securities and T-Bills

2. Non Cash Component:

• Liquid (Group I) Equity Shares as per Capital Market Segment
which are in demat form, as specified by clearing corporation from
time to time deposited with approved custodians.
• Mutual fund units other than those listed under cash component
decided by clearing corporation from time to time deposited with
approved custodians.
Q 98. "In the Option segment, if you sell a CALL at a premium of Rs
45 at the Strike Price of Rs 400, lot is of 200 shares, then the
maximum possible loss is
Rs 9000
Rs 20,000
Rs 80,000
Unlimited

Explanation:
For a seller of an option - the maximum profit is the premium he
receives and the maximum loss is unlimited.

Q 99. When a person sells a call option, he has an —

Bullish view
Bearish view
Long term view
None of the above

Q 100 The Stock Broker! Clearing Member has full authority to close
out a transaction of his client if ____________
the client has not paid the daily settlement amount
the client not paid the initial margin
Both 1 and 2
A broker cannot close out a transaction

1)Which of the following is true?

a. Delta for all the bullish positions is positive
b. Delta for all the bullish positions is negative
c. Delta for all long positions is positive
d. Delta for all short positions is positive

2)In case of American option: ____________

a. The exercise date is same as the expiration date
b. The exercise date and expiration date may differ
c. There is no exercise date
d. There is no expiration date

3)Time decay of the option works: ____________

a. To the benefit of the option buyer
b. To the benefit of the option seller
c. To the benefit of the option writer
d. None of the above

4)If the interest rates in the economy go up,

a. The value of call option goes up and the value of put option goes
down
b. The value of call option goes down and the value of put option
goes up
c. The value of call as well as put options goes up
d. The value of call as well as put options goes down

5) Theta is the second derivative of: __________________

a. The interest rates in the market
b. The time to option expiry
c. The underlying asset price
d. None of the above

6) An Fll has an open short position of 5 contracts in XYZ futures

(contract multiplier
50) August series. The Initial Margin was 6% till yesterday, but has
been revised to
7% today. The closing price was Rs. 4,500 yesterday and Rs. 4,600
today. How much
additional Initial Margin will the RI be required to bring in?
a. Pay Rs 6,500 more
b. Pay Rs 13,000 more
c. Pay Rs 19,500 more
d. Pay Rs 26,000 more
7) You bought a January XYZ Stock Futures contract at Rs. 268 and
the lot size is 1000.
What is your profit (+) or loss (-), if you square off your position at
Rs. 291?
a. + 23,000 Rs
b. - 23,000 Rs
c. + 46,000 Rs
d. — 46,000 Rs

8) You bought a XYZ Stock Put contract at Rs. 280 strike price for Rs.
27 each. The lot
size is 1000. On the expiry day, XYZ Stock closed at Rs. 244. Your
option was
automatically exercised. What is your net profit (+) or loss (-)?
a. + 27,000 Rs
b. — 27,000 Rs
c. + 9,000 Rs
d. — 9,000 Rs

9) What would be the closest forward price of a share, if Cash Price

= Rs.900, Forward
Contract Maturity = 6 months from date, Market Interest rate =
12%? [ b
a. Rs 900
b. Rs 955
c. Rs 1,000
d. Rs 1,008

10) You own 10,000 shares of ABC at price of Rs. 120. The stock has
a beta of 1. You wish
to create a perfect hedge. To hedge, would you buy or sell index
futures and for
what quantity?
a. Buy index futures worth Rs 6,00,000
b. Sell index futures worth Rs 6,00,000
c. Buy index futures worth Rs 12,00,000
d. Sell index futures worth Rs 12,00,000

11) Investor 'A' wants to sell 8 contracts of August series and

Investor 'B' wants to sell 5
contracts of September series at 4,500 and 4,550 respectively
(contract multiplier
50). The Initial Margin is fixed at 6% by the Clearing Corporation.
How much Initial
Margin is required to be collected from both investors together by
the broker?
a. Rs 27,150
b. Rs 39,750
c. Rs 1,76,250
d. No margin required for short positions

12) You sold a put option contract on a share with strike price of Rs.
245 for premium of
Rs. 36. What is the maximum net loss on expiry of this position?
a. Rs 36
b. Rs 209
c. Rs 245
d. None of the above

13) If you are holding a stock with beta of 1.65 for value of Rs
30,00,000, how many
Index futures contracts (contract multiplier75) would you sell for
the best hedge, if
the Index futures are quoted.at7300? (You may choose the nearest
round figure.)
a. 6 contracts
b. 12 contracts
c. 18 contracts
d. 9contracts

14) Current Price of XYZ Stock is Rs. 295. Rs. 260 strike call is
quoted at Rs. 45. What is
the approximate Time Value?
a. Rs 10
b. Rs 35
c. Rs 45
d. Rs 80

15) The buyer of a put option is under obligation to sell the

underlying to the
seller/writer of the option at the prevailing market price on or
before expiry date.
a. True
b. False

16) You sold one XYZ Stock Futures contract at Rs. 278 and the lot
size is 1000. What is
your profit or loss, if you purchase the contract back at Rs. 274?
a. Loss of Rs 2,78,000
b. Profit of Rs 2,78,000
c. Loss of Rs 4,000
d. Profit of Rs 4,000

17) Intrinsic value of an option is sum of Option Premium and Time

value.
a. True
b. False

18) Option premium is adjustable against the exercise price on

settlement, if the option
is exercised on maturity.
a. True
b. False

19) Time value is always lesser than Intrinsic value.

a. True
b. False

20) Vega is the change in delta of an option for a unit change in

volatility in underlying's
price.
a. True
b. False

21) Contract multipli.e.r, along with the price, determines the value
of the futures contract. a. True
b. False

22) Impact cost is low when the liquidity in the system is poor.
a. True
b. False

23) In forward contracts, the minimum amount by which the price

would change (tick)
and the price limit’s for a day's operations are specified by an
authority.
a. True
b. False

24) A long position in a futures contract can be reversed only with

the same
counterparty from whom the contract was initially purchased.
a. True
b. False
25) Hedgers are suffici.e.nt for effici.e.nt working of a derivatives
market and there is no
real economic need of either speculators or arbitrageurs.
a. True
b. False