Explanation:

As per SEBI circular – Power of Attorney is optional and should not be insisted upon by the stock broker / stock broker depository participant for opening of the client account.

Explanation:

The lot size for JPYINR is 100000 units but its for 100 Yen. Therefore per lot profit or loss has to be multiplied by 1000 (100000/100)

In the above question, the purchase price is 63 and sale price is 63.30. So the profit is .30

0.30 x 30 (lots) x 1000 = Rs. 9000

Explanation:

The last trading day is also known as expiry day or maturity date of contract. It is the day on which trading ceases in the contract. For all monthly currency futures contract expiry date is two working days prior to the last business day of the expiry month at 12:30 PM. On expiry date the trading in contract ceases at 12:30 pm and not on regular trading time of 5:00 pm or 7:30 pm.

Explanation:

Trading Member open proprietary position : 20 – 5 Lots = 15 lots x 1000 (Lot size) = 15,000

Client P : 15 – 3 Lots = 12 lots x 1000 (Lot size) = 12,000

Client Q : 12 -2 Lots = 10 lots x 1000 (Lot size) = 10,000

TM open position is the sum of all open position = 15,000 + 12,000 + 10,000 = 37,000

Explanation:

Over the last three decades, the derivatives market has seen a phenomenal growth. Some of the factors driving the growth of financial derivatives are:

1. Increased volatility in asset prices in financial markets,

2. Increased integration of national financial markets with the international financial markets,

3. A significant growth of derivative instruments has been driven by technological breakthrough. Advances in this area include the development of high-speed processors, network systems and enhanced method of data entry.,

4. Development of more sophisticated risk management tools, providing a wider choice of risk management strategies, and

5. Innovations in the derivatives markets, which optimally combine the risks and returns over a large number of financial assets, leading to higher returns, reduced risk and lower transactions costs as compared to individual financial assets.

Explanation:

The Bid price for EURUSD is 1.07 and the Bid price for USDINR is 81.64

To get the Bid price for EURINR, we multiply 1.07 x 81.64 = 87.35

Explanation:

Since Indian interest rates were higher than US interest rates, the USDINR future rate will also be higher than spot rate.

The difference of rates is 10%, so the one year rates will be higher by appx 10%.

The future price was 85.10. 10% of 85.10 = Rs 8.51 will be the difference for one year future contract

Per month difference will be 8.51 / 12 = 0.709

So 85.10 – 0.709 = 84.39 will be the spot price when the one month futures price is 85.10

Explanation:

Iteration means the action or a process of iterating or repeating.

The binomial option pricing model values options using an iterative approach utilizing multiple periods to value options.

The binomial option pricing model was developed by William Sharpe in 1978. It has proved over time to be the most flexible, intuitive and popular approach to option pricing. The binomial model represents the price evolution of the option’s underlying asset as the binomial tree of all possible prices at equally-spaced time steps from today under the assumption that at each step, the price can only move up and down at fixed rates and with respective simulated probabilities. This is a very accurate model as it is iterative, but also very lengthy and time consuming.

Explanation:

All orders come as active orders into the order book. If they get a match, they will be executed immediately; else they will enter the order book according to their price and time as passive orders. Thus unmatched orders are known as passive orders.

Explanation:

GDP represents the total market value of all final goods and services produced in a country during a given year. A GDP growth rate higher than expected may mean relative strengthening of the currency of that country, assuming everything else remaining the same.

Explanation:

Consumer Price Index (CPI) is a statistical time-series measure of a weighted average of prices of a specified set of goods and services purchased by consumers. The indicator measures level of inflation in the economy for the basket of goods and services which are generally brought by the people.

A rising CPI means a rising prices for goods and services and is an early indicator of inflation.

Explanation:

The Income-tax Act does not contain any provision or guidance for computation of turnover in Exchange traded derivatives trading.

The computation of turnover is a very important factor as the applicability of tax audit is determined on the basis of turnover. Also, if the taxpayer is opting for the presumptive taxation scheme under section 44AD (subject to total turnover not exceeding Rs. 2 crores), he can declare the profit at the rate of 6% of such turnover in case of receipts in cheque or any digital modes or 8% of turnover in case of cash receipts.

Explanation:

Clients’ positions are arrived at by summing together net (buy – sell) positions of each individual client. Please note that positions are only netted for each client at contract level and not netted across clients and are rather added up across clients.

A Trading Member’s open position is the sum of proprietary open position, client open long position and client open short position.

Explanation:

With the view to ensure orderly trading and market integrity, SEBI prescribes stock exchanges to implement a mechanism of price bands/ operating ranges so as to prevent acceptance of orders placed beyond the price limits set by the stock exchanges.

For currency option, the price operating range shall be based on the DELTA of the options contract and calculated using the previous close price of the underlying and volatility. The price band so computed shall be subject to a minimum operating range which would be applicable for all contracts.

Explanation:

In the first leg of the spread trade : Sold the three month futures at 81.4 and bought the six month futures at 82.1. Here he has made a loss of 81.4 – 82.1 = – 0.7

To reverse his position – In the second leg of his trade he bought the three months futures at 81.2 and sold the six month futures at 82.2. Here he has made a profit of 82.2 – 81.2 = 1

So overall he has made a profit of -0.7 +1 = 0.3 X 1000 (lot size of USDINR)

= Rs 300 profit

Explanation:

The difference between the interest rates is 3 % ( 7% – 4%)

3 % of 83.10 = 2.493

So the appx. one year future rate for USDINR = 83.10 + 2.493 = 85.59

Explanation:

Option Value = Intrinsic Value + Time Value

Option premium consists of two components : intrinsic value and time value

Intrinsic value refers to the amount by which option is in the money.

Time value is directly proportional to the length of time to expiration date of the option.

Explanation:

India has an interest rate higher than USA, so as per the concept of Interest Rate Parity, the USDINR Future price will always be at a premium to Spot prices. If the interest rate gap widens, so will the spot price-future price gap.

For eg. If the current spot and future price of USDINR is 83 and 84 and if interest rates in India rises, the spot future gap will also widen ie. 82.5 – 84.50 or 83 and 85 etc.

So it will advisable for Mr. Alok to Sell USDINR short term and buy USDINR long term.

Explanation:

When the price was 99.60/99.90, Mr. Mohit sold GBPINR – so he sold at 99.60 as that is the Bid (Buyers) price.

When the price was 98.65 / 98.85, he bought GBPINR, so he bought at 98.85 as that is the Ask (Sellers) price.

Out of the 10 lots bought, he has squared off only 5 lots.

99.60 – 98.85 = 0.75 is the profit

Total Profit = 0.75 x 5 lots x 1000 (each lot of GBPINR)

= 3750

Explanation:

In India, the contract size or lot size is quoted in USD ie. 1000 USD is the lot size and the price is always quoted in INR ie. The exchange rate in Indian Rupees for 1 US Dollar.

Explanation:

The payoff graph for futures displays a linear or symmetrical style. This means there are infinite possibilities for getting profits and losses through futures.

In case of futures contracts for Currency, Stocks, Stock index etc, both long as well as short position has unlimited profit or loss potential. This results into linear pay offs for futures contracts.

Explanation:

The Clearing Corporation acts as a central counterparty i.e., it provides financial guarantees for all transactions executed on the Exchange. It acts as a legal counterparty to all trades through the process called Novation. Thus Clearing Corporation becomes the buyer to every seller and seller to every buyer.

If there is a default in this scenario, Clearing Corporation being counter party, is responsible for ensuring the settlement, thus managing risk and guaranteeing settlement to both the parties.

Explanation:

Selling a PUT option means having an obligation to BUY an underlying asset.

The right to buy the asset is called Call option and the right to sell the asset is called Put option. A buyer of Put option has the right to sell the underlying asset at the strike price and the seller of put option is obliged to buy / take delivery of the underling asset at the strike price.

Explanation:

When the price was 61.80/61.90, Ms. Reshma bought USDINR, so she bought at 61.90 as that is the Ask (Sellers) price.

When the price was 62.65/62.75, she sold USDINR – so she sold at 62.65 as that is the Bid (Buyers) price.

62.65 – 61.90 = 0.75 Profit

Out of the 20 lots purchased, she has squared off only 5 lots.

Profit on squared off position = 0.75 x 5 lots x 1000 (Lot size)

= 3750

Explanation:

A calendar spread is a contract where a trader buys/sells a particular month contract (Futures or Options) and sells/buys (take an opposite position) of the same contract of a different month. Both have the same underlying but different maturities.

In calendar trade position trader does not have risk of underlying security/currency movement but only have basis risk due to change in the spread between two contracts.

Explanation:

Ms. Vijaya wants to sell USDINR at 83.40. There is a buyer at 83.50. But we do not know the quantity of the buying order. In case there is sufficient quantity, the sell order will get executed at 83.50. But if the buy quantity is not sufficient when compared to the quantity Ms. Vijaya wants to seel, the trade wlll also get executed at a lower price but not below 83.40 as that is the limit price.

Explanation:

The formula for Interest Rate Parity is :

Future Rate = Spot Rate X (1 + Interest Rate of Quoted Currency) / ( 1 + Interest Rate of Base Currency)

= 95.65 X ( 1 + 0.005 ) / ( 1 + 0.04 )

= 95.65 X ( 1.005 / 1.04)

= 95.65 x 0.9663

= 92.4265

This is lower than the spot rate of 95.65

Explanation:

An important constituent of the securities market is a trading member/ stock broker who is a member of the stock exchange.

In India, investors cannot access the Exchange platform directly. They have to compulsorily trade through registered stock brokers/trading member of the Exchanges. Hence, stock brokers/trading members are one of the important intermediaries of securities market. A trading member is allowed to execute trades on his own account as well as on account of his clients.

Explanation:

Currency pairs are quoted based on their bid (buy) and ask prices (sell). The bid price is the price that the bank / forex broker will buy the base currency from you in exchange for the quote or counter currency. The ask—also called the offer—is the price that the bank / broker will sell you the base currency in exchange for the quote or counter currency.

In the above question 83.10 is the bid price at which the exporter will be able to sell one unit of USD to the bank.

Explanation:

INR has depreciated which means the price of USDINR will rise. As the trader has bought USDINR he will be in profits in this situation.

Tick Size is Rs .0025

100 Ticks X .0025 = 0.25 X 10 lots X 1000 ( Lot size of USDINR)

= Rs 2500 Profit

Explanation:

Since the trader believes that GBPUSD will fall from 1.20 to 1.14, he is assuming that GBP will weaken against USD. So in India he will short GBPINR and long USDINR.

Explanation:

The Income-tax Act does not contain any provision or guidance for computation of turnover in Exchange traded derivatives trading.

The computation of turnover is a very important factor as the applicability of tax audit is determined on the basis of turnover. Also, if the taxpayer is opting for the presumptive taxation scheme under section 44AD (subject to total turnover not exceeding Rs. 2 crores), he can declare the profit at the rate of 6% of such turnover in case of receipts in cheque or any digital modes or 8% of turnover in case of cash receipts

Explanation:

The Central Government, vide a notification, has stipulated the setting up of the Investor Protection Fund (IPF) by Stock Exchanges. This fund should take care of legitimate investment claims which are not of speculative nature of the clients of defaulting member(s).

Explanation:

When the interest rate gap widens between US and India, the forward premium also goes up.

So by buying USDINR futures he can hedge his position and safegaurd against possibility of a higher USDINR price in future due to interest rate gap widening.

Explanation:

Earlier the value of each currency against another currency was derived from gold exchange rate.

For example, if one unit of gold is valued at Indian Rupees (INR) 10,000 and US dollar (USD) 500 than the exchange rate of INR versus USD would be 1 USD = INR 20. This mechanism of valuing currency was called as Gold Standard.

In the above example, using this system of calculation :

54000 / 675 = 80

So 1 USD = 80 INR

Explanation:

Options are classified into two types: – European options and American options

European options can be exercised by the buyer of the option only on the expiration date. American options can be exercised by the buyer any time on or before the expiration date.

In India, currently only European Options i.e. right to exercise option on specific date only, are allowed.

Explanation:

As per SEBI rules for Liquid Assets & Liquid Networth -The clearing member shall meet with the liquid networth requirements prescribed by the Clearing Corporation at all points of time. Currently in Currency Derivatives, every clearing member of the Clearing Corporation is required to maintain a minimum liquid networth of Rs.50 lacs.

Explanation:

Operational risk is the risk of monetary loss resulting from inadequate or failed internal processes, manual and systems error or external events.

For the stock broker, operations risks are essentially risk arises on account of handling of client assets, regulatory non-compliance, trading error, non-payment for buying or selling a scrip, non-delivery of scrip(s), denial of matched order by clients, sudden closure of banks where funds are deposited etc.

Explanation:

To match his bullish views, Mr. Sameer writes a PUT option of strike 84.50 and receives a premium Rs.0.40.

However the price has fallen and the settlement price is Rs. 83.70.

So he makes a loss of 84.50 – 83.70 = 0.80

However, he has received a premium of 0.40

So his net loss will be 0.80 – 0.40 = 0.40

Explanation:

A call option would be Out of the Money, if underlying price is lower than the strike price.

The underlying price (current price) ie. 83 is lower than strike price ie. 84. ( Loss situation)

A put option would be out of the money if underlying price is higher than the strike price.

A call option would be in the money, if underlying price is higher than the strike price

A put option would be in the money if underlying price is lower than the strike price

Explanation:

Depending upon the gap between trade and value date, spot forex trading can either be categorized as ‘Cash’, ‘Tom’ or ‘Spot’ transaction

Ready or cash – The transaction to be settled on the same day.

Tom – The delivery of foreign exchange to be made on the business day next to the date of transaction.

Spot – The most important value date is the “spot” value date, which is settlement after two business days.

Explanation:

Arbitrageurs make profits by simultaneously entering opposite side transactions in two or more markets ie. buy in one market at a lower price and sell in another at a higher price.

Here, in the OTC Market the Bid Ask price is 81.40 / 81.50. So an arbitrageur will buy at 81.50

In Futures Market the Bid Ask price is 82.00 / 82.10. So the arbitrageur will sell at 82.00

Thus he will make an arbitrage profit of Rs 0.50 ( 82.00 – 81.50 )

Explanation:

Speculators/Traders try to predict the future movements in prices of underlying assets and based on the view, take positions in derivative contracts.

On the other hand, hedgers use derivatives to reduce their risk. They have a real exposure to foreign currency risk on account of their underlying business and their objective is to remove the foreign currency risk using Exchange Traded Currency Derivatives.

Explanation:

Seller of option receives the premium with obligation to sell/ buy the underlying asset, if the buyer exercises his right.

Seller has the obligation and not the right to buy or sell an underlying asset – depending on the buyer exercising his right.

Explanation:

Arbitration is a quasi-judicial process, is an alternate dispute resolution mechanism prescribed under the Arbitration and Conciliation Act, 1996. The Exchanges prescribe the provisions in respect of arbitration and the procedure therein has been prescribed in the Regulations.

Explanation:

The Institute of Chartered Accountants of India (ICAI) has issued guidance notes on Accounting for Derivatives Contract.

Explanation:

For monthly contracts, the expiry day is two working days prior to the last business day of the expiry month.

In the above question, last working day is 30th – Tuesday. The dates will be as under :

30th – Tuesday – Last working day

29th – Monday – National holiday

28th – Sunday – Holiday

27th – Saturday – Holiday

26th – Friday – first working day prior to last day working day

25th – Thrusday – second working day prior to last working day – This will be the expiry day.

Explanation:

Whenever the base currency buys more of the quotation currency, the base currency has strengthened / appreciated and the quotation currency has weakened / depreciated. For example, if USDINR has moved from 81.00 to 82.00, the USD has appreciated and the INR has depreciated.

So in the above question – USDINR has moved from 81.02 to 81.22 , so USD has appreciated against INR by 20 paisa.

Explanation:

To benefit from a bearish view, Mr. Inderneel has two options to use ie. either Short a Call or go long in a Put.

Shorting a call has limited profits to the extent of premium received.

He is expecting a major fall as he is having a strong bearish view. Therefore he should Long a Put option to take the maximum benefit of this trend.

Explanation:

As per the SEBI’s Code of Conduct for Brokers – A stock-broker shall issue without delay to his client a contract note for all transactions in the format specified by the stock exchange.

Explanation:

Being long in a CALL option means you have taken a bullish view and expect a rise in the price of underlying.

So when the spot price will rise, there will be a rise in the option value leading to profits.

Explanation:

Resolution of complaints by Stock Exchanges : Stock Exchange shall resolve service and other related complaints at its end. Service related complaints shall include non-receipt/ delay of Account statement, non-receipt/ delay of bills, closure of account/branch, technological issues, shifting/closure of branch without intimation, improper service by staff, freezing of account, alleged debit in trading account, contact person not available in Trading member’s office, demat account transferred without permission etc.

For Complaints related to trade, settlement and ‘deficiency in services’, resulting into any financial loss, the stock exchange shall resolve the complaint on its own as per the time lines prescribed.

Explanation:

Basis risk is the potential risk that arises from mismatches in a hedged position. Basis risk occurs when a hedge is imperfect, so that losses are not exactly offset by the hedge. Basis risk can arise from standardization of derivatives contract for amount and expiry date.

(For example, you need to hedge an exposure of USD 9500, which requires the futures contracts of 9500 / 1000 = 9.5. Since we can buy or sell only in integral multiples, we need to buy or sell either nine or ten contracts. The former leads to under-hedging and the latter, to over-hedging. Second, the derivatives contract expires on every Friday day of the week or two working days prior to the last business day of the expiry month. If the exposure to be hedged has maturity of some other day in the month, there will be mismatch in the maturity. The discrepancy in the amount and maturity of exposure and the derivatives contract leaves a residual risk called basis risk)

Explanation:

When a person is bearish he can either sell a Call option or buy a Put option. But in case of selling a Call option, his profits will be limited to the extent of premium received.

So in the above case, where the trader wishes to maximise his profits, buying a Put Option is the best alternative.

Please note :

Buying Call – Bullish view

Selling Call – Bearish / Neutral view

Buying Put – Bearish view

Selling Put – Bullish / Neutral view

Explanation:

Hedgers face risk associated with the prices of underlying assets and use derivatives to reduce their risk.

With context of forex market, in India, “Hedging” means the activity of undertaking a foreign exchange derivative transaction to manage currency risk and “Currency risk” means the potential for loss on account of movement in exchange rates of Rupee against a foreign currency or on account of movement in exchange rates of one foreign currency against another or on account of movement of interest rate applicable to a foreign currency.

Explanation:

Trading in Exchange Traded Currency Futures is transparent and safe. So the company will prefer this mode.

Since it wants to pay USD after three months, it will buy ie. go long on three month USD futures as a hedge against fluctuations.

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. Therefore, only in-the-money options have intrinsic value whereas at-the-money and out-of-the-money options have zero intrinsic value.

Thus, for the same tenor, the premium for buying an In-the-money option will be higher than premium for buying an At-the-Money option.

Explanation:

For the stop loss buy order, the trigger price has to be less than the limit price

For e.g. If for stop-loss buy order, the trigger is Rs 84.0025, the limit price is Rs 84.2575, then this order is
released into the system once the market price reaches or exceeds Rs 84.0025. This order is added to the regular lot book with time of triggering as the time stamp, as a limit order of Rs 84.2575.

Explanation:

For exchange traded derivative contracts, the Clearing Corporation acts as a central counterparty to all trades.

The key difference being that exchange traded derivatives are standardized, more transparent, the counterparty risk is borne by a centralized corporation with stringent margining systems while OTC contracts are customized, opaque in pricing, risk management is decentralized and individual institutions/ clients take counterparty risk of each other.

Explanation:

The economic role of derivatives is Risk Management through the process of hedging.

Explanation:

In interbank market, currency prices are quoted with two way price. In a two way quote, the prices quoted for buying is called bid price and the price quoted for selling is called as offer or ask price. Note that these prices are always from the perspective of the market maker and not from the perspective of the price taker.

The price quoted by a market maker is valid for certain quantity of the currency pair and it may vary if the amount for which quote is sought is higher. Spread is an important parameter to note while assessing market liquidity, efficiency of market maker and market direction. Clearly, a narrow spread indicates a higher liquidity and higher efficiency of the market maker. In USDINR spot market, the spreads are wide at the time of opening and gradually start narrowing as the market discovers the price. Similarly, for a USD 100 mn transaction the spread is likely to be higher when compared to the spread for USD 1 mn transaction.

Explanation:

A forward contract is a customized contract between two parties, where settlement takes place on a specific date in the future at today’s pre-agreed price.

(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)

Explanation:

The exporter had gone short at 88 and the settlement price is 87.70. So there is a profit.

88 – 87.70 = 0.30

0.30 x 100 ‘lots’ x 1000 ‘lot size’ = Rs. 30,000

Explanation:

The Committee on Fuller Capital Account Convertibility had recommended that currency futures may be introduced subject to risks being contained through proper trading mechanism, structure of contracts and regulatory environment.

Accordingly, Reserve Bank of India in the Annual Policy Statement for the Year 2007-08 proposed to set up a Working Group on Currency Futures to study the international experience and suggest a suitable framework to operationalise the proposal, in line with the current legal and regulatory framework.

Explanation:

One of the reasons the local currency depreciates is due to out flow of foreign capital.

So by increasing the limits of Foreign Portfolio Investor (FPIs) holdings in stock market, the country can attract more foreign capital.

Explanation:

The difference between spot price and future price is usually the cost of carry (interest) and other factors.

On the expiry day, the cost of carry is almost nil, so the prices of future and spot tend to merge.

Explanation:

The unabsorbed loss can be carried forward up to 8 assessment years. It can be set off only against the business income in the subsequent years.

Explanation:

All positions (brought forward, created during the day, closed out during the day) of a clearing member in currency futures contracts, at the close of trading hours on a day, shall be marked to market at the daily settlement price (for daily mark to market settlement) and settled in cash.

The settlement is done by debit/ credit of the clearing accounts of clearing members with the respective clearing bank on T+1 as per timeline specified by clearing corporation.

Explanation:

A party aggrieved by an arbitral award may appeal to the appellate panel of arbitrators of the stock exchange against such an award. However if the party is not satisfied by the appellate arbitral award, it may file an application to the Court of competent jurisdiction in accordance with Section 34 of the Arbitration and Conciliation Act, 1996.

Explanation:

As per Income Tax rules – A transaction is deemed as speculative if it is periodically or ultimately settled otherwise than through actual delivery or transfer. However, Section 43(5) has specifically excluded certain derivative transactions from the meaning of speculative transaction as these instruments are used for hedging underlying assets.

Further, an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange shall not be deemed to be a speculative transaction. Thus, income or loss from dealing in exchange traded currency derivatives shall be deemed as normal business income (non-speculative business) even though delivery is not effected in such transactions.

Explanation:

SEBI introduced the concept of Interoperability among Clearing Corporations which necessitates linking of multiple Clearing Corporations. Inter-operability among Clearing Corporation (CC) has enabled a Clearing Member to select the Clearing Corporation of its choice to clear and settle trades executed in multiple exchanges.

The interoperability framework is applicable to all the recognised clearing corporations excluding those operating in International Financial Services Centre (IFSC) and all the products available for trading on stock exchanges, except commodity derivatives, made available under this framework. Hence, interoperability is also applicable to Currency Derivatives Segment.

Explanation:

Mr. Shashank has bought a PUT and sold a CALL – In both the cases he has assumed that the USDINR will fall and he can make a profit.

Trade 1 – Buys a Put option at 0.57. So he has to pay a premium of Rs. 0.57. The RBI reference rate is 83.75. So there is a loss as the price has moved up with respect to strike price of 83.50. However his loss will be restricted to the premium paid ie. Rs. 0.57

Trade 2 – Sells a Call option at Rs. 0.25. So he receives this premium of Rs.0.25. The RBI reference rate is 83.75 and the strike price is 83. So here is makes a loss of Rs. 0.75 (83 – 83.75) due to adverse price movement. The net loss is 0.50 (0.25 – 0.75)

Loss from Trade 1 is 0.57 and loss from Trade 2 is 0.50. Total Loss = 0.57 + 0.50 = 1.07

Explanation:

Clearing Bank acts as an important intermediary between a clearing member and the Clearing Corporation. Every clearing member needs to maintain an account with any of the empaneled clearing banks.

The clearing accounts are to be used exclusively for clearing & settlement operations

All transactions of pay-in/pay-out of funds are carried out by these clearing banks. The pay-in obligation details are passed on to the clearing banks by clearing corporation, who then debit the clearing member account.

Closure of a Clearing Bank Account requires prior permission of Clearing corporation.

Explanation:

A market order is where a trader purchases or sells their contracts at the best market price available across the market depth to complete the order quantity/lot.

Market orders are orders for which no price is specified at the time the order is entered. For such orders, the trading system determines the price.

Explanation:

The price of GBPINR can be calculated as under :

1.3300 x 75.64 = 100.6012

1.3325 x 75.65 = 100.8036

GBPINR will be 100.6012 / 100.8036

Explanation:

Clearing Corporation registered with SEBI is responsible for clearing and settlement of all trades executed in Exchange Traded Currency Derivatives. Clearing Corporation acts as a legal counterparty to all trades in Currency Derivatives Segment of the Exchange and also guarantees their financial settlement.

Explanation:

Monitoring of position limits: Clearing corporation end of day provides Exchange wise position limit applicable to various clients and member for next day.

Explanation:

The right to buy the asset is called call option. The buyer of the call option has the right to buy the asset from the seller of the call option.

Explanation:

For a option seller, the profits are limited to the premium he receives but the losses can be unlimited.

For eg. When a person sells a Call option, he believes that price will fall. If prices fall, his profit will be the premium which he has received. But if prices rise (and theoretically price can rise to any levels), the losses can be unlimited.

Explanation:

The Offer price for EURUSD is 1.2575 and the Offer price for USDINR is 83.75

To get the Offer price for EURINR, we multiply 1.2575 x 83.75 = 105.3156

Explanation:

The Investor’s Protection Fund is a fund established and maintained by the Exchanges with an aim to protect the interests of the clients of the trading members of the Exchange, who may have been declared defaulters or who may have been expelled, under the provisions of the Rules, Bye-laws and Regulations of the Exchange.

Explanation:

Selling USDINR – view is weakening of USD against INR

Buying JPYINR – view is strengthening of JPY against INR

Taking a collective view – USD weakening against JPY or JPY strengthening against USD

Explanation:

KRA – ‘KYC Registration Agency’

As per the regulatory framework of SEBI (KYC Registration Agency) Regulations – KYC for New Clients: a) The Member is to perform the initial due diligence of the new client whose KYC data are not available with the KRAs, upload the KYC information for both individuals and non-individuals with proper authentication on the system of the KRA, furnish the scanned images of the KYC documents to the KRA, and retain the physical KYC documents.

Explanation:

The losses from the trading of Exchange traded derivatives, if treated as a normal business loss, can be set off against the income from the other heads. However, the business loss cannot be set off against the income from salary. The unabsorbed loss can be carried forward up to 8 assessment years. It can be set off only against the business income in the subsequent years.

Explanation:

MTM for April USDINR futures :

Bought at 83.60 and Settlement price was 83.70. So positive MTM of 0.10

MTM for May USDINR fututes :

Sold at 83.80 and Settlement price was 83.90. So negative MTM of 0.10

Net the MTM will be +0.10 – 0.10 = Zero

Explanation:

A calendar spread is a contract where a trader buys/sells a particular month contract (Futures or Options) and sells/buys (take an opposite position) of the same contract of a different month.

If interest rates in India are expected to rise and interest rates in US to fall, this will result in INR strengthing against USD and increase of spread. To take advantage of a possible increase in spread he will go long in three month USDINR and to complete the calendar spread, he will short one month USDINR.

Explanation:

Tick Size: It is minimum move allowed in the price quotations. The minimum trading increment or price differential at which traders are able to enter bids and offers is called as tick size. For example, if tick size for USDINR futures is Rs. 0.0025, the price entered by buyer and seller can be 74.9975, 75.0000, 75.0025 in multiple of Rs.0.0025.

Explanation:

All the currency pairs which are traded in India viz – USDINR, EURINR, GBPINR and JPYINR have a maximum of 12 calendar months from current calendar month.

Explanation:

The question asked is to calculate the MTM only on OPEN POSITIONS.

Mr. Mohanla has bought 40 lots and sold 30 lots, so his open position is of LONG 10 lots at Rs 99.70

The settlement price is Rs 99.60, which means he is in a loss situation

The MTM payable will be (99.60 – 99.70) x 10 lots x 1000 lot size = – Rs. 1000

Explanation:

The investor has invested Rs 166000 in US Securities when the USDINR rate was 83

So she had invested 166000/83 = 2000 Dollars in US Stocks.

Her investment grew by 20% : 2000 x 20% =2000 + 400 = 2400

She is repatriating at USDINR rate of 81 : 2400 x 81 = 194400

Therefore her investment in INR terms have grown from Rs 166000 to Rs 194400

194400 / 166000 x 100 = 117.11

This is an increase of 17.11 %

Explanation:

She will be considered as a speculator as she is taking a view on the currency market and trades accordingly to make a profit if her view proves correct or make a loss if her view goes wrong.

Speculators : This set of market participants does not have a real exposure to foreign currency risk.

These participants assume foreign exchange risk by taking a view on the market direction and hope to make returns by taking the price risk.

Explanation:

GVK International should be worried about USD depreciating against INR and so should short USDINR to counter this risk.

For example – It is expecting export remittance at say USDINR = 83. But if this depreciates to say 82, it will incur a loss. So it should short USDINR to hedge its position.

Explanation:

Ms. Kalpana invested 10000 USD x 80 (Exchange Price) = Rs. 8,00,000

Her return on this investment was 18%

So 18% of Rs 8,00,000 = Rs 1,44,000

She repatriated to India Rs 8,00,000 (Original amount) + Rs 1,44,000 (Profits) = Rs 9,44,000

She received USD 12000

Therefore 9,44,000 divided by USD 12000 = 78.66

The exchange rate on repatriation was 78.66

Explanation:

In the interbank market, USD is the UNIVERSAL base currency other than quoted against Euro (EUR), Sterling Pound (GBP), Australian Dollar (AUD) etc.

Therefore, in the interbank market, GBP and EUR will be quotation currency.

Explanation:

On expiry the spot and future prices tend to merge ie. become same.

So the trader should sell the USDINR future which are at a premium (lets assume it at 82.50) to spot price (82).

On expiry, the future price will be around 82 and he will square up his position and make a profit (82.50 – 82 = 0.50)

Explanation:

In case of futures, it is an obligation on both buyer as well as seller to settle the contract, however in option the buyer of an option has right but not the obligation to buy/sell the underlying asset.

Explanation:

As per the Institute of Chartered Accountants of India (ICAI) guidance notes on Accounting for Derivatives Contract – All derivative contracts should be recognised on the balance sheet and measured at fair value.

Explanation:

RBI vide press release 2015-2016/1362 dated December 09, 2015, has stated following:

“The Reserve Bank of India intervenes in the foreign exchange market as and when required in order to manage excessive volatility and to maintain orderly conditions in the market. As a further measure it has been decided to intervene in the Exchange Traded Currency Derivatives (ETCD) segment, if required.

Explanation:

Investors can have grievances against a) intermediary/broking firm through which it is carrying out the transactions or/and (b) against the company of which it is a shareholder.

Explanation:

The option seller / writer receives the premium and therefore is obliged to perform. The option buyer pays the premium and therefore gets the rights to demand.

The option buyer has only rights and no obligation and therefore he faces only the risk of premium paid.

On the other hand, option seller is under obligation to buy or sell (depending on whether put option is sold or a call option is sold, respectively) and therefore faces unlimited risk.