NISM Series XIII: Common Derivative Certification - Free Demo /20 NISM Series XIII: Common Derivative Certification – Free Demo Mock Test 1 / 20 1. Assume a situation in which the American Central Bank is planning to increase the interest rates. All other things remaining the same, will the USD appreciate or depreciate against other major currencies ? a) Appreciate b) Depreciate c) No Effect Explanation:Higher interest rates offer lenders in an economy a higher return relative to other countries.Therefore, higher interest rates attract foreign capital and cause the exchange rate to appreciate. 2 / 20 2. One year interest rate is 4% in US and 1% in UK. If current GBPUSD spot rate is 1.65, which of the following could be closest to one year future rate of GBPUSD? a) 1.7325 b) 1.6500 c) 1.6995 d) 1.6005 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)= 1.65 X ( 1 + 0.04 ) / ( 1 + 0.01 )= 1.65 X ( 1.04 / 1.01)= 1.65 x 1.0297= 1.699 ANOTHER EASIER WAY OF SOLVING THIS IS BY APPROXIMATE METHOD :The difference betwwen the interest rates is 3 % ( 4% – 1%)3 % of 1.65 = .0495 per yearSo the appx. one year future rate for GBPUSD = 1.65 + .0495 = 1.6995 3 / 20 3. ___________ 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. a) Unsystematic Risk b) Systematic Risk c) Arbitrage Risk d) Interest Rate Risk Explanation:Unsystematic risk, also known as specific risk or diversifiable risk, refers to the component of risk that is specific to individual companies or industries. This type of risk arises from factors such as company management, competitive position, business operations, regulatory changes, or other company-specific events. Since it is specific to particular companies or industries, it can be diversified away by holding a diversified portfolio of assets.Diversification involves spreading investments across different assets or securities to reduce the impact of unsystematic risk. By holding a diverse portfolio containing assets from various sectors or industries, investors can mitigate the impact of adverse events affecting any single company or industry. Therefore, unsystematic risk can be reduced to a certain extent through diversification. 4 / 20 4. The Spot price ie. the market price of a share is Rs 200 and the interest rate is 12% pa. Which of the below price is closest to 3 months future maturity ? a) 206 b) 200 c) 203 d) 224 Explanation:Yearly Interest Rate is 12%. Full year’s interest = 12% of 200 ie. Rs 24So for 3 months the cost of interest is Rs 6.Therefore the 3 month future contract will have an price of appx. Rs 206. 5 / 20 5. ________ is the account between investors and primary dealers for holding Govt. Securities. a) PDO Account b) Gilt Account c) Constituent Subsidiary General Ledger Account d) Subsidiary General Ledger Account Explanation:Gilt A/c is an account between Schedule Commercial Banks (SCB) and Primary Dealers (PDs) and investors.Entities other than Schedule Commercial Banks (SCB) and Primary Dealers (PDs) that want to hold government securities must open an account with a designated SCB or PD and this account is called Gilt Account. 6 / 20 6. A paddy farmer buys a weather insurance to protect himself if there is less rainfall in his region. This is like a derivative contract – what is the underlying for this weather derivative ? a) Actual Rainfall b) Temperature recorded c) Storms and Hurricanes d) Crop yield Explanation:The underlying for a weather derivative contract, such as the weather insurance bought by the paddy farmer, is typically “Actual Rainfall.” This means that the payout or settlement of the derivative contract is based on the observed amount of rainfall during a specified period in the farmer’s region. The derivative contract is structured to provide financial compensation to the farmer if the actual rainfall falls below a predetermined threshold, helping to mitigate the farmer’s risk of crop loss due to insufficient rainfall. 7 / 20 7. What does Non Farm payroll indicator measure ? a) Inflation scenario b) Employment scenario c) Wages scenario d) Agriculture scenario Explanation:Nonfarm payrolls represent the number of jobs added or lost in the economy over the last month, not including jobs relating to the farming industry etc.A rising number means that the economy is adding jobs and is good for the currency. A fall means the economy has weakened which leads to a depreciation in the currency. 8 / 20 8. A metal company has imported iron and steel from USA and has to make payments after three months. To hedge the risk the company buys a USDINR call option at a strike price of Rs 49 and pays a premium of Rs 1.50. When the option matures, the settlement price was Rs 52.40. How much profit did the company make per USD on this option strategy in Rs. ? a) 5.30 b) 3.40 c) 1.90 d) -3.40 Explanation:The Company buys Rs 49 call option at Rs 1.50 premium.So the total cost = 49 + 1.50 = 50.50The Settlement Price is 52.40So the profit is 52.40 – 50.50 = Rs 1.90 9 / 20 9. A trader buys April USDINR futures at different times over a two day period as under : Day 1 – 5 lots at 10.30 am at 54.5 and 10 lots at 2 pm at 54.2 Day 2 – 10 lots at 11 am at 54 and 10 lots at 3 pm at 54.10 On day 3 he sell 20 lots at 54.50. Using FIFO method calculate how much profit he has made on the Squared up position ? a) 2000 b) 5500 c) 3000 d) 4500 Explanation:FIFO means First In First Out.So lets see the buying cost of the first 20 lots.5 X 54.50 + 10 X 54.20 + 5 X 54 = 1084.50He has squared up 20 lotsThe sale price of 20 lots is 54.50 = 1090Total Profit = 1090 – 1084.50 X 1000 ( Lot size of USDINR )= 5500 10 / 20 10. An ‘Immediate or Cancel’ order is an order which is valid for the day on which it is entered and if the order is not executed during the day, the system cancels the order automatically at the end of the day – True or False ? a) True b) False Explanation:In a Day Order – the system cancels the unexecuted order automatically at the end of the day.An ‘Immediate or Cancel’ (IOC) order is an order to buy or sell a security immediately – and if that order is not executed immediately it will be cancelled.For eg – A trader enters an IOC order to buy 1000 shares of XYZ Ltd at Rs 100. If at that time there are sellers of 200 shares only at Rs 100, the trader will get the 200 shares and the balance order of 800 shares will get cancelled immediately. 11 / 20 11. A Gilt account can be opened with ______ . a) RBI b) Any branch of a Nationalized bank c) Any branch of a NBFC d) Only select branches of Schedule Commercial Banks Explanation:A Gilt A/c an account between Schedule Commercial Banks (SCB) / Primary Dealers (PDs) and investorsEntities other than Schedule Commercial Banks (SCB) and Primary Dealers (PDs) that want to hold government securities must open an account with a designated SCB or PD and this account is called Gilt Account. 12 / 20 12. A expert currency trader feels that EUR should strengthen against JPY in the next few months. Assuming JPYINR remaining same during this period, what currency future trade should be most profitable for him if his calculations come out correct ? a) Buy EURINR b) Buy JPYINR c) Sell EURINR d) Sell JPYINR Explanation:If EUR is to appreciate against JPY and JPY is to remain same against INR then EUR will appreciate against INR. So he will buy EURINR. 13 / 20 13. The contract size for USDINR futures contract is __________. a) USD 100 b) INR 100 c) USD 1000 d) INR 1000 Explanation:The Contract size or lot size in the case of USDINR is USD1000In case of GBPINR it is GBP 1000; EURINR it is EUR 1000; JPYINR it is JPY 100,000. 14 / 20 14. _________ pays the initial margin when entering into a futures contract. a) The Buyer b) The Seller c) Both Buyers and Sellers d) 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. 15 / 20 15. An European option can be exercised only on expiry date – State True or False? a) True b) False Explanation:European Option is an an option that can only be exercised at the end of its life, at its maturity / expiry and not before that.An American option can be exercised any time. 16 / 20 16. 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? a) -25000 (Loss) b) -9000 (Loss) c) 9000 (Profit) d) 25000 (Profit) Explanation:Mr. A sold a PUT option, that means he has a bullish or neutral view on PQR stock.However, PQR stock has fallen by Rs 50 ( 400 – 350 ).Which mems 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 Recd) = Rs 18Total Loss = Rs 18 x 500 (lot size) = Rs. 9000 17 / 20 17. An action which does not result in any profit or loss in future is known as ________ . a) Risk Insurance b) Hedging c) Trading d) Arbitrage Explanation:Hedging involves taking an action to reduce or mitigate the risk of adverse price movements in an asset or investment. It’s typically done by taking an offsetting position in a related security or asset. The purpose of hedging is not to make a profit but to protect against potential losses. Therefore, it’s an action that does not result in any profit or loss in the future. 18 / 20 18. If the Treasury bill futures contract price changes by 500 ticks, the change in value of one futures contract is ________ . a) 500 b) 5 c) 2500 d) 5000 Explanation:The tick size for contracts is Rs 0.0025.Given that the face value of one contract is equal to Rs 200,000 and given that tick size is 0.0025, the minimum change per contract will be:200,000 x 0.0025 / 100 = 5.In the example, the contract price changes by 500 ticks, so the change in value will be 500 x 5 = 2500 19 / 20 19. Suppose the 3 month rate is 5.5%, the 1 year rate is 7.5% and the 10 year rate is 6 %, than the shape of term structure would be ______ a) Normal b) Inverted c) Flat d) Humped Explanation:When the rate is high for medium term and falls off on either side, we have a humped shape of the term structure. 20 / 20 20. ________ are created from the securitization process. a) Structured investment products b) Structured credit products c) SWAPS d) Debentures Explanation:Structured credit products (SCP) are derived from a pool of bonds through a process called securitization, which redistributes the cash flows from the pool of bonds to create new securities.Structured investment products (SIP) are hybrid assets and derived by combining a bond with option whose underlying is one of the four financial underlying or a physical asset. Your score is 0% Restart quiz Exit
