NISM Series XVI: Commodity Derivative Mock Test - Free Demo /10 NISM Series XVI: Commodity Derivative Certification – Free Demo 1 / 10 1. Mr. A sold a Gold call option of strike price Rs. 40,000 (per 10 grams) for a premium of Rs. 600 (per 10 grams). The lot size is 1 Kg. This option expired at a settlement price of Rs. 42000 per 10 grams. Calculate the profit or loss to Mr. A on this position. (Do not consider any tax or transaction costs) a. Loss of Rs. 20,000 b. Profit of Rs. 2,00,000 c. Profit of Rs. 2,80,000 d. Loss of Rs. 1,40,000 Explanation:Selling a call option means the view is bearish (price to fall). Mr. A has sold a call option but the price has risen from Rs.40000 to Rs. 42000. This means there is a loss of Rs. 2000. He has however earned a premium of Rs.600.So his net loss is Rs. 2000 – Rs. 600 = Rs. 1400Rs 1400 is the loss for 10 grams.So for 1 kg or 1000 grams (lot size), the loss is (1000 x 1400 / 10) = Rs 140000. 2 / 10 2. ________ contracts give the buyer the right to sell a specified quantity of an asset at a particular price on or before a certain future date. a. Call Option b. Put Option c. Both Call and Put Options d. None of the above Explanation:Put option contracts give the buyer the right to SELL a specified quantity of an asset at a particular price on or before a certain future date.Call option contracts give the purchaser the right to BUY a specified quantity of an asset at a particular price on or before a certain future date. 3 / 10 3. Mr. Suresh has entered a short speculative position in commodity futures. Which of the following would be a possible outcome for Mr. Suresh at the expiry of the contract? a. Mr. Suresh makes a profit if the price of futures contract increases b. Mr. Suresh will not make any profit or loss for any price fluctuations of futures contract c. Even if the future prices rises or falls, Mr. Suresh will always make a profit d. Mr. Suresh makes a profit if the price of futures contract decreases Explanation:Short position means Mr. Suresh has sold the futures contract expecting the prices to fall. He can only make a profit if the futures prices fall.For eg. Mr. Suresh sells a futures contract at Rs 100. The price falls and on expiry the price is Rs. 90. Here he will make a profit of Rs. 10. 4 / 10 4. In which of these strategies does an investor buy a lower strike option and sells a higher strike option? a. Covered Short Put b. Bear Spread c. Covered Short Call d. Bull Spread Explanation:In a Bull Spread, the investor buys a lower strike and sells a higher strike option.This strategy is used when the investor has a Moderately Bullish view. 5 / 10 5. Coffee, cocoa, and sugar are examples of _______ . a. Hybrid commodities b. Sweet commodities c. Soft commodities d. Hard commodities Explanation:There are two main types of commodities that trade in the spot and derivatives markets:– Soft commodities: These are perishable agricultural products such as corn, wheat, coffee, cocoa, sugar, soybean, etc.– Hard commodities: These are natural resources that are mined or processed such as crude oil, gold, silver, etc. 6 / 10 6. Which category of membership entitles a member to execute trades on his own account as well as for his clients and also to clear and settle trades executed by himself as well as of his clients ? a. Professional Clearing Member b. Self Clearing Members c. Trading Member d. Authorised Persons Explanation:Self Clearing Members (SCM) / Trading cum Clearing Member (TCM): This category of membership entitles a member to execute trades on his account as well as for his clients and also to clear and settle trades executed by himself as well as of his clients.Clearing members are members of the clearing corporation. They carry out risk management activities and confirmation/inquiry of trades through the trading system. 7 / 10 7. Calculate the total cost of carry from the following data – Spot price of the commodity Rs 35000; Time period 180 days; Cost of interest 9% and Cost of storage 2%. a. Rs. 1955.49 b. Rs. 1898.43 c. Rs. 1677.36 d. Rs. 1749.22 Explanation:The cost of carry has two components – Interest cost (for 180 days) and storage cost (for 180 days)Interest Cost = 35000 x .09 (Interest rate) x ( 180 /365) for 180 days= 35000 x .09 x 0.4931= 1553.26Storage Cost = 35000 x .02 (Storage cost) x (180/365) for 180 days= 35000 x .02 x 0.4931= 345.17So the total cost of carry will be 1553.26 + 345.17 = 1898.43 8 / 10 8. Black-Scholes option pricing model uses ______ to estimate theoretical options price. a. Underlying asset of the asset b. Risk-free interest rate c. Strike price of the option d. All of the above Explanation:The Black-Scholes model was published in 1973 by Fisher Black and Myron Scholes. It is one of the most popular, relatively simple and fast modes of calculation of option prices.This model is used to calculate a theoretical price of options using the five key determinants of an option’s price: underlying price, strike price, volatility, time to expiration, and short-term (risk free) interest rate. This model provides the formula to calculate price of options based on cash settlement or physical settlement of Options on goods / securities. 9 / 10 9. In a _______, one party is known as the “fixed price payer” and the other party known is as the ‘floating price payer’. a. Swap contract b. Option contract c. Forwards contract d. Futures contract Explanation:Swaps are agreements between two counterparties to exchange a series of cash payments for a stated period. The periodic payments can be charged on fixed or floating prices, depending on the terms of the contract. One of the commonly used commodity swaps is “fixed-for-floating swaps”In a “fixed-for-floating commodity swap”, one party known as the “fixed price payer” makes periodic payments based on a fixed price for a specified commodity that is agreed upon at the execution of the swap, while the other party known as the “floating price payer” makes payments based on a floating price for such commodity that is reset periodically. 10 / 10 10. ‘Backwardation’ is more prevalent in agricultural commodities due to _______ factors in certain agricultural commodities. a. Profit booking b. Hedging c. Seasonality d. Scarcity Explanation:If the futures price is lower than the spot price of an asset, market participants may expect the spot price to come down in the future. This expectedly falling market is called the “Backwardation market”.This backwardation despite cost-of-carry arises due to seasonality factors in commodities, especially in agricultural products. E.g. during the sowing season, spot supplies are less while it increases during harvesting month which will come after around 3 months. Hence, spot prices are expected to be lower during harvesting months (i.e., 3 months later) than the present spot price (i.e., while sowing). Your score is 0% Restart quiz Exit Your feedback is important to us.😊 Thank you for your feedback. Send feedback
