Derivative Market DMDM

DERIVATIVE INTRODUCTION
Note : NCFM is the Trademark, Registered by NSE
DERIVATIVE INTRODUCTION
 Derivative means delivery of the financial product
 Main objective of derivative - risk by locking
 Derivative first emerged as Hedging product
 Exchange traded derivative contracts on stocks or index are settled by exchange
of cash difference.
Derivative Definition
1) A security derived from a Debt Instrument, share, Loan whether secured or un

secured, risk instrument or contract for difference or any other form of security.
2) A Contract which Derives its value, from the prices or Index of prices of Underlying
security.
Participants in Derivative Market
Hedgers
Speculators
Arbitrageurs
FUTURES AND OPTIONS TRADING SYSTEM
The future and option trading system of NSE, called NEAT - F & O trading system,
provides national wide online fully automated screen based trading.
Neat System supports an order driven market, order match automatically, on the basis
of security, price, time and quantity.
INDEX ( S&P CNX NIFTY 50 STOCKS)
Index used for the following advantages:-
 Barometer of the Market Behavior

 Nifty is a Bench Mark to ascertain portfolio performance
 Base (underlying) for Derivative Index (Index Future) 
Passive Fund Management by Index Funds
(The fund would buy all Index 50 stocks in the proportion, in which they exist
in the Nifty)
Good Index Attributes (Characteristics)
 Large variety of Different portfolios

 Taking highly liquid stocks
 Professionally Maintained stocks
IISL (Indian Index Service & Products Ltd)

 IISL provides profession Index Management service to Nifty
 IISL established by NSE & CRISIL
 IISL get the Technical Assistance from Standard & Poor.
Impact Cost
 Impact cost is measure the liquidity of the market.

 Any stock qualify to include in Nifty, it has have market impact cost below
0.75%.
 Any stock to enter in Nifty lower impact cost is the main qualification.
INDEX FUND
This fund would be 50 stocks in the proportion, in which they exist in the Nifty.
ETF ( Exchange Traded Fund )
ETF are Innovative product, First introduced in USA in 1993 - 60% of trading value in
American trading volumes in American Stock Exchanges is from ETF.
SPRD (Spider) - S & P 500 Index ETF.

QQQ (Cubes) - Nasdaq 100 Index ETF
TRAHK (Tracks) - Hong Sing Index ETF
Nifty BeEs (Nifty Benchmark Exchange Traded Scheme) - S & P CNX Nifty ETF
DIFFERENCE BETWEEN FUTURE MARKET & OPTION MARKET  A

future contract buyer give the right but obligation to buy.
 A future contract seller give the right but obligation to sell.
 Call gives the buyer the right, but not obligation to buy
 Put gives to buyer the right, but not obligation to sell
 Call gives the seller option premium, but obligation to sell
 Put give to seller option premium, but obligation to buy.
 Value of option increase, when volatility increase
 Value of option decrease, when volatility decrease.
(Buyer = Holder = Owner)
(Seller = Writer)
TYPES OF DERIVATIVES
1) Equity Derivatives (Security Derivatives):-
Index Future
Index Option
Stock Option
Stock Future
2) Financial Derivatives:-
Equity Derivatives
Forex currency future
Interest rate future
3) Under lying Asset or Derivative:-
Financial Derivatives
Commodities
Any other Asset
INITIAL MARGINS
 At the inception (beginning) of a contract every client is required to pay initial

margin is must to trading number.
 Initial margins are charged on Trade by Trade basis
 Initial margins charged by NSCCL - clearing member positions upto client level.
 Initial margins are charged for the purpose of recover & safe guard against the
worst scenario loss of port folio of an individual client to cover 99% VAR
 Worst Scenario loss means, maximum loss under any scenario.
 For calculating worst scenario loss of option value “Black- Scholes” Model is
used.
 Future value is calculated on cost of carry model.
 Initial margins charged on portfolio of future & option contracts
 Premium margins are charged client level
 Initial margins are debited to Initial margin - EQ Index future account
ASSIGNMENT MARGIN
Assignment Margin is charged in addition to initial margin or premium margin. It paid
on Clearing Member assigned position of option contract on individual securities,
according to the interim and Final exercise settlement.
 Assign margins are charged on Clearing Member level
OPEN POSITION CALUCATION

Proprietary open position. 200( total buy) - 400 (total
200 short (Net basis)
sell)=
Client Open Position:
Client A 400 (total buy - 200 (total sell) = 200 long net position
(Gross Basis)
Client B 200 (total buy) - 400 (total sell) = 200 short net position
500 Long+Short
Client C 500 (total buy) - 400 (total sell) = 100 long net position =
Trading Member Total Open position = 700 Long + Short
Clearing member open position : All trading member open position and
custodial participants open positions.
OPEN INTEREST CALULATION
Open Interest means out standing orders of (Long Position + Short Position) contracts
in a particular point of time.
INITIAL MARGINS CHARGED ON F & O MARKET
Index future : 5%
Index option : 3%
Stock F & O : 7.5%
Spread Calendar Margins : 1% Minimum - 3 % Maximum
Note: in option market initial Margin paid by seller Only
EXPOSURE LIMITS IN DERIVATIVE MARKET
For Index Futures & Options
Liquid Net worth x 33 1/3 times = Notional value of gross open position
For stock Futures & Options
Liquid Net worth x 20 times = Notional value of gross open position
For Calendar Spread
For month MTM value (Profit) x 1/3 = open position
SELF DISCLOSING OBLIGATION TO CLEARING CORPORATION
Trading Member
Index future and option : 15% of open position or Rs.500 Crores
which ever is higher
Stock Future and position : 20% of open position or Rs. 500 Crores
which ever is higher
Client Level
Index F & O : 15% of the open position (not exceeding)
Stock F & O : 1% of Free float market capitalization or 5% of the

Open position
FIIS & Mutual Funds
Same as Trading Member Rules
Over all Market wide position limits 20% of Free Float Stock
MARK TO MARKET (MTM) MARGINS
 MTM Margin is charged on continuous Basis at the end of each day, on Daily
Basis of cumulative Net out standing open position (Loss).
 CM (Clearing Member) are responsible to collect & settle the Daily MTM
Margins (profit/loss) from their Trading Members according to their open
positions.
 TM (Trading Member) are responsible to collect & settle the daily MTM
margins for pay in / pay out of their clients according to the clients open
position.
 For calculating MTM margin future last ½ hour Average price is takes, if it is not
traded on that day or last half hour MTM is calculated on theoretical price
model.
 MTM margin balance at the year end shown in current asset account.
NCFM
(NSE’S Certificate in Financial Market)
 Nation wide, online & Automatic Exam and Non-Conventional

 Conducted by NSE
 1. NCFM Develop the practical knowledge 2. Skills to operate the Financial
Market. 3. Improve the quality of Intermediation.
 Flexibility in Test Date, Testing Centre, Test time is allowed - Not flexibility a
person.
FUTURE AND OPTION CONTRACT SPECIFICATIONS
 Nifty and security F & O Contract value Rs. 2,00,000/- (minimum)

 Nifty Lot : 100
 Security Lot : 100
 S & P CNX Nifty options interval : 10 Points
 C NX IT : 10 points Bank Nifty : 10 Points
 Security option intervals : 2.5 to 50
Security Rates Intervals ITM-ATM-OTM
Less than or equal Rs. 50 2.5 3 - 1 - 3
> 50 Rs. 250 5 3 - 1 - 3
> 250 Rs. 500 10 3 - 1 - 3
> 500 Rs. 1000 20 3 - 1 - 3
> 1000 Rs. 2500 30 3 - 1 - 3
> 2500 50 3 - 1 - 3
Nifty Index Levels Strike Interval ITM - ATM - OTM

UPTO 2000 25 4 - 1 - 4
> 2001 TO 4000 50 4 - 1 - 4
> 4001 TO 6000 50 5 - 1 - 5
> Above 6000 50 6 - 1 - 6
 Nifty future & option daily settlement : Nifty future closing

 Nifty F & O closing settlement : Nifty closing on expiry date
 Stocks F & O daily settlement : Security future closing
 Stocks F & O closing settlement : Security spot closing on expiry date
 Nifty option style: European (Exercise only on Expiry date)
 Security option Style : American (Interim Exercise at any time)
 By Buying or selling future contracts (Index or stock) either profit or loss is
unlimited.
 At any point of time, 3 Nifty & stock future contracts are available for trading
 At any point of time Total option contracts available : 42 contracts (3 months x
7 strike prices x 2 options - put & call)
ELIGIBILITY OF ANY EXCHANGE TO ENTER IN DERIVATIVE MARKET
 Fulfill the eligibility condition of Dr.LC. Gupta committee

(Chairman L.C. Gupta - 24 members - 1998)
 Minimum members 50
 Forming governing council limited to 40% of Trading members
 Clearing and settlement takes place in SEBI Approved clearing house
 Clearing member Net worth Rs. 300 Lakhs
 Contract value of F & O, not less than 2 Lakhs
 Maintain initial margin
 Issuing Risk Disclosure Document for client awareness and “Know Your
customer” rules
 Passing the NCFM Exam, Dealers & Sales persons.
ELIGIBILITY OF ANY STOCK TO ENTER IN DERIVATIVE MARKET
 Non Promoter holding (free float capitalization) not less than Rs. 750 Crores from
last 6 months
 Daily Average Trading value not less than 5 Crores in last 6 months
 At least 90 % of Trading days in last 6 months
 Non Promoter Holding at least 30%
 BETA not more than 4 (previous last 6 months)
 500 Crores capitalization at the time of listing.
SECURITIES INCLUDE ACCORDING TO SECURITY CONTRACT

(REGULATION) ACT 1956
 Shares, Scrips, Stocks, Bonds, Debentures and any marketable securities of

incorporated company
 Derivatives
 Units (any collective investment schemes) - Mutual funds units
 Government securities and receipts
 Any instrument declared by Central Govt.
 Rights or Interest in Securities
Note : But EXIM policy is not a security.
OBJECTIVES OF SEBI ACT 1992
 Protect the Interest of Investors

 Development the Security Market
 Regulating the Security Market
POWERS OF SEBI ACT 1992

 Regulate the Business of Stock exchanges
 Regulate the working of stock brokers
 Prohibit fraudulent and unfair practices
 Regulate the self regulatory organizations
 Inspect the stock exchanges and mutual fund transactions
 Promoting the such functions according to securities contracts (Regulate) Act
1956.
OBJECTIVES OF SECURITIES CONTRACT (REGULATION ACT 1956)
 The principle act for governing the trading of securities in India is securities
contract (regulation) Act 1956
 Governing means continued supervision of stock exchanges for : -
1. Regulations of Transactions in Securities

2. Contacts in securities
3. Listing of securities in stock exchanges
SEBI AND STOCK EXCHANGE RELATIONS
 Every stock exchange must be registered in SEBI

 Every stock exchange must be furnished annual reports to SEBI.
PROBLEMS IN CUSTOMIZED (Forward) CONTRACTS
1. Lack of Centralization.
2. Lack of Liquidity
3. Counter party risk problems
Note. 1) Example to customized contract is forward contract.

2) Customized (Forward) contract not trading derivative market.
3) Forward contracts are Bi-lateral contracts.
4) Forward contracts on expiration to settled by Delivery of the Asset.
TYPES OF OPTION CONTRACTS

ITM - In the money contract - Positive cash flow
OTM - Out the money contract - Negative cash flow
ATM - At the money contract - “Zero” cash flow
Intrinsic value - In the money amount of the auction

Time Value - Difference between Premium and Intrinsic value
IN SIDER PERSON
(Connected person with company)
 Management of the company ( Chairman, MD and Directors)
 Merchant Banker, Share Transfer Agent, Registrar, debenture trustee, broker

investment advisor, sub broker, auditors.
 Relatives of the above connected person. (More than 10% share holders)
 Maximum penalty of insider Information Rs. 5 lakhs

PRICE SENSITIVE INFORMATION
 Financial results
 Dividend declaration information.
 Issue and buy back information
 Major expansion & New projects expansions.
 Amalgamation, mergers and take over information.
 Disposal of any part of the undertaking.
 Policies, Plans & operations of the company.
Note. If any price sensitive information is leaked by an insider person is called

inside information.
CLEARING MEMBERS - KEEPING THE BOOKS

( According to the SEBI committee recommendation on derivative market)
1. Fund receive and paid in clearing member account book.
2. Fund received and paid of each client information account book
3. Fund obligations to the clearing member and clients a separate & distinct
account book.
CLEARING SOFTWARE GENERATE THE FOLLOWING REPORTS

1. Daily obligation statement
2. Daily obligation statement of custodial trades.
3. Final settlement obligation statement .
Note: initial margin report is not generated by clearing software.
NSE - SPAN (Standard portfolio analysis of risk)
The object of NSE -SPAN is to identify over all risk in a portfolio base merging system
of all future and option contracts for each member.
 Margining on the NSE’S derivatives market is done using the SPAN margining
system.
 The actual margining and position monitoring is done on line, on an intraday
basis using PRISM which is real time.
 The SPAN RISK ARRAY represents specific derivative instrument (gain or lose
value) current time to a specific time in the near future.
ADJUSTMENT FOR CORPORATE ACTIONS
 Corporate actions can be classified into two types
1. Stock Benefits: Bonus Rights , Merges / Demerges, amalgamations splits,

warrants Etc
2. Cash Benefits
 The basis for any adjustment for corporate action is such that the value of
the position for the Market Participants, on the cum and Ex - Dates for
the corporate action, shall continues to remind the same as far as possible.
 In F & O Segment Any adjustment for corporate actions is carried out on

the last day on which a security is traded on a cum basis in the underlying
equities market. After the closing of trading hours.
 If Dividend above 10% of the market value of share is declare, then only it
is added to the future and option market.
 Dividend Declare below 10% of the market value of the share is called
ordinary dividend, above 10% called Extra - ordinary dividend.
ANNUAL RETURNS
Every Company shall within 60 days from today on which the Annual general meeting
is held, prepare are file annual return with registrar of companies.
ANNUAL GENERAL MEETING
The annual general meeting should be held on the earliest of the three relevant dates
as prescribed below, with the city (or) town on which the registrar office of the
company is situated.
a) 15 months from the previous general meeting.

b) Last day of the calendar year.
c) 6 months from the close of the financial year.
Annual General Meeting of company may be called by giving at last 21 days notice in
writing .
DIVIDEND
Dividend shall be declared or paid by a company for any financial year.
The amount of Dividend shall be deposited in a separate bank account within 5 days
from the date of declaration of dividend. The dividend shall be paid within 30 days
from the date of its declaration.
SOME IMPORTANT BITS
1. NYSC (New York Stock Exchange) is the American stock exchange but it does
not trade derivatives.
1. An application for arbitration can be filled within 6 months from the date of
dispute is obligation to client.
2. The daily margin in T+2 rolling settlement comprises of MTM (mark to market)
margin & value at risk (VAR) based margin.
3. A client shall make payment for security purchase to the trading member before
the funds pay - in - day
4. It is a compulsory for a trading member to maintain a separate bank account

for the client? - Yes.
5. A copy of advertisement has to be submitted by a trading member to NSE for

prior approval before its issue in publication / media.
6. Full message window “LIS” indicates - all listing related messages.
7. Stock exchanges does not issue securities in primary market.

8. Which of the following statement/s is TRUE on the NEAT system?
a) Disclosed quantity orders cannot be modified to such a quantity where
the disclosed quantity is greater that the order quantity.
b) Expect for the Limited Physical market, a user cannot modify an order to
a quantity less than the specified revealer lot and multiple of regular lot.
c) Orders cannot be modified to a quantity greater than the issued capital

for the security.
Ans:- Statement (A), (B) and (C)
9. Which of the following is not true about Mark to Market Margin?
a) Mark to Market margin is computed on the basis of mark to market loss of

a member.
b) Mark to Market margin is calculated by marking each transaction in a

scrip to the closing price of the scrip at the end of trading.
c) Mark to market profit/loss across different securities within the same

settlement is set off to determine the mark to market loss for a settlement.
d) Mark to market loss is the notional loss which the member would incur in
case the cumulative gross outstanding position of the member in some
securities were closed out at the close price of the securities.
Ans:- “d”
10. Which of the following is FALSE about auctions in the NEAT system?
a) All auction orders are entered into the auction order book.
b) Auction order matching takes place at the end of the solicitor period for
the auction.
c) Auction matching takes place only across orders belonging to the same
auction.
d) All auction trades take place at the last traded price for that day in the
regular lot book in the normal market.
Ans:- “d”
11. Which of the following statements is FALSE about the NEAT system?
a) The order / trade slips are confirmation / modification / cancellation /
rejection slips.
b) Members can take print of confirmation slips at the end of the day from
the reprint option in the supplementary menu.
c) Margin report is generated on - line.
d) The trade and order slips are generated on line.
Ans:- “c”
12. which of the following statement/s is TRUE about trade cancellation in the
NEAT system.
a) The trade cancellation request is sent to the Exchange for approval and
message to that effect is displayed in the message window.
b) When a request for the trade cancellation is approved by the Exchange, the
parties to trade receipt system message confirming the trade cancellation
and
the trade cancellation slip is printed at their respective trader work stations.
c) If the exchange rejects the trade cancellation request, the trade cancellation
rejection slip is print at their respective trader workstations.
Ans:- “a,b &c”
13. Which of the following is are TRUE about the ticker in the NEAT system?
a) The user has the option of selecting the securities that should appeat in
the ticker.
b) When a request for the trade cancellation is approved by the Exchange,

the parties to trade receipt system message confirming the trade
cancellation and the trade cancellation slip is printed at their respective
trader workstations.
c) The ticker displays information about any trade in the system as and when
it takes place.
Ans:- “a,b &c”
15) A trading member has the right to enter and exit from the member ship of the
exchange.
16) Which country having the highest listing companies
Brazil
Italy
Mexico
* China (Hong Kong)
* Japan
Canada
* America
* India
17) Which Index is Highest - Trade in World Indices.
a) Nifty b) Hong Song

c) Nikky d) None of the above.
18) Which of the follwing doesn’t raise mututal funds.

a) IDBI Principle b) Franklin Templeton
c) UTI Units d) NSE / BSE / RBI
19) Which of the following stock has high liquidity ?

a) All infotech stocks b) CNX Nifty Junior
c) Nifty Index stocks d) All listed companies
20) Initial Margin Collected on ______________________
a) Up Front Margin b) T + 1
c) T -1 d) End of the Day
1. The basis for any adjustment for corporate action shall be such that
1. The value of the position of the market participants on ex-date is higher that the value of the
position on cum-date
2. The value of the position of the market participant on cum and ex-date for
corporate
action shall continue to remain the same as far
2. In the F&O segment, any adjustment for corporate actions shall be carried out on
1. The first day on which a security is traded on a cum basis in the underlying cash market.
2. The first day on which a security is traded on an ex-dividend basis in the underlying market.
3. the last day in which a security is traded on a cum basis in the underlying cash market.
4. none of the above.
3. You are a speculator. You predict the market will go up in the near future and want to take
advantage of it. You would.
1. Buy Nifty futures 2. Sell securities in the cash market.
3. Sell Nifty futures 4. None of the above.
4. You are a speculator. You predict the market will go down in the near future and want to
take advantage of it. You would :
1. Buy Nifty futures 2. Self securities in the cash market.
3. Sell Nifty futures 4. None of the above
5. When the spread between the one-month and two-month futures contracts narrows, you can
profit by :
1. Buying the near-month contract and Selling 2. Both the above
the fair - month one
3. Selling the near-month contract and buying 4. None of the above
the far-month one
6 In the first week of March, you observe that the spread between the March and April futures
contracts has widened. How can you profit from this observation?.
1. By buying he March contract and Selling 2. Both the above
the April one
3. By Selling March contract and buying 4. None of the above
the April one.
7. A speculator with a bullish view on a security can

1. Buy stock futures 2. Sell stock futures
3. Buy index futures 4. Sell index futures.
8. A bull spread is created by
1. Buying a call and a put 3. Buying two calls
2. Buying a call and selling a call 4. Selling two calls
9. A Bear spread is created by

1. Sell a call & Buy a Call 3. Sell a put & Buy a call
2.Sell a call & Buy a put 4. Buy a call & Sell a put
10. Which of the below listed factors does not affect the price of an option on a stock?
1. Stock price 3. Volatility
2. Dividend 4. Liquidity of stock in the underlying cash market
11. It is _________ optimal to exercise a call option on a non-dividend paying stock.

1. Sometimes 3. Always
2. Never 4. Rarely
12. A put option should always be Exercise _____________ if it is sufficiently deep in the
money.
1. early
3. At the begging of the training period 4.
2. as late as possible
at the close of the trading period
13. Initial margin is collected to

1. make good losses on the outstanding position
2. make good daily losses
3. safeguard against potential losses on out standing positions
4. none of the above
14. The sum of _______ percent of the notional value of gross open position in index future as
short index option contract and ____ percent of the notional values of futures and short
option position is stocks shall not exceed liquid net worth.
1. 3,5 3. 8,16
2. 5,3 4. 5,10
15. The CM/TM is required to disclose to the clearing corporation details of any person or
persons acting in concert who together own_______ percent or more of the open interest of
all futures and options contracts on a particular underlying index on the exchanges.
1. 20 3. 15
2. 12 4. 25
16. The SEBI Committee on derivatives has recommended that the exposure limits for brokers
should be linked to the _______
1. Daily turnover of the broker
2. Satisfactory margin payment track record of the broker
3. Net worth of the broker
4. Deposits kept by the broker with the exchange/clearing corporation
5. I am not attempting the question
17. Which of the following is not the duty of the trading member?
1. Filling of ‘Know Your Client form
2. Assisting the client to arrange for margin.
3. Bringing risk factors to the knowledge of
4. Execution of Client Broker of client Agreement
18. The Neat F & O trading system ________

1. Allows one to enter combination trades2. does not allow combination trades
3. allows only a single order placement at a time 4. None of the above.
19. The futures price is ________

1. The price of a contract in the future 2. Spot price plus cost of carry
3. the price at which a future contract trades In the market
4. the price set by the exchange
20. A trading member allowed to clear to clear his own trades only is know as
1. Trading member - clearing member 2. Trading member are not allowed
3. Professional clearing member 4. Self-clearing member
21. Weekly options trading commenced on NSE in _________
1. NSE does not trade in Weekly options 2. 02-Jun-2005
3. 04-Jul-2005 4. 04-Jun-2005
22. The value of taxable securities transaction relating to Option in securities is the __
1. The strike price of such option in securities 2. The option premium of such option
3. None of the above in securities
4. aggregate of the strike price and the option Premium of such option in securities.
23. On NSE’s options market, until the buyer pays in the premium, the premium due is deducted
from the available ________ on a real time basis.
1. Cash Deposit 2. Liquid Net Worth
3. Cash and non-cash deposit 4. Effective Deposit
24. To be eligible for option trading, the market wide position limit in the stock should not be
less than Rs._________
a. 250 Crore b. 100 Crore
c. 50 Crore d. 500 Crore
25. Daily Mark to Market settlement of futures takes place on _____ basis.
a. (a) T+0 b. T+3
c. T+5 d. T+1
26. What is displayed in the NEAT Trading System Ticker Screen?
(a) The electronic display that continuously shows only the stock symbol,
volume and price at which each successive trade occurs.
b) The Electronic display that continuously shows only the price at which each successive
c. In portfolio management d. All of the above
27. NSCCL’s on-line position monitoring system monitors open position of _____
On a real time basis.
1. Clearing Member only 2. Trading member only
3. Clearing member and trading member4. Dealer Only
28. Futures differ from forwards in the sense that ______.

1. Settlement of contract takes place 2. Both parties are bound to give/take
in the future delivery.
3. position are marked-to-market everyday4. Contracts are custom designed
29. Which of the following is required for personal working in the Industry in order to dispense
quality Intermediation?.
1. To follow certain code of conduct. 2. To possess requisite skills and
knowledge.
3. To have a proper understanding of 4. All of the above.
the business and skills to help it remain.
competitive
30. Which of the following statement is true ?

1. Basket trading is illegal in India. . 2. NSE does not allow basket trading
in it’s F&O Segment.
3. Basket trading has been discontinue in the 4. F&O Segment has a
F&O segment. Basket trading facility.
31. Immediate or cancel is an order which will automatically ____ in F & O segment of NSEIL.
1. Be matched because it being a preferential order 2. be cancelled if it is not matched
3. Get stored in the system for matching, immediately and in its entirely.
If not executed immediately 4. cancel the unmatched portion of
The Order quantity.
32. The market price of a product or commodity is:
a) Determined by demand only. c)Determined by supply only.
b) Influenced by government manipulation. d)Determined by demand and supply.
33. Futures on individual stocks are allowed

a) On all stocks listed on the stock exchange
b) On few selected stocks only
c) On all stocks listed on all stock exchanges in India.
d) On all stocks where price is more than Rs. 100 per share.
34. If someone is ‘bearish’ in the market ?

a) He expects the market to rise.
b) He expects the market to fall.
c) He expects the market to move sideways.
d) He expects the market to close.
35. The value of derivative instrument

a) Is fixed b) Is reset at fixed internals
c) Depends on the value of an underlying asset. d) None of the above.
36. An exchange traded futures contract is similar to an OTC (OVER THE COUNTER)
derivative. Some common features are :
a) Both are tailored (e.g. non-standardized) instruments
b) Both require margin collection by a clearinghouse.
c) Both are exposed to credit-risk i.e., risk of non-performance by counter party.
d) None of the above.
37. Futures contracts can be reversed with any member of the derivatives segment of the
exchange.
a) True c) Cannot be reversed
b) Cannot be reversed for the next one month. d) False
38. Taking position in futures opposite to that in cash market for protecting cash market
holdings is :
a) Speculating c) Arbitrage
b) Hedging d) None of the above.
39. Derivatives are highly leveraged, which implies that

a) You can take a higher position with smaller investments using derivatives.
b) You can take a lower position with higher investments using derivatives
c) You can take a higher position if you buy the underlying assets instead of buying
derivatives
d) You should buy the underlying assets as you might make more profit on
them rather than
derivatives.
40. At the point of entering into the future contract

a) Both the buyer and the seller pay initial margin to the exchange
b) The buyer alone pays initial margin to the exchange.
c) The seller alone pays initial margin to the exchange.
d) No margin is playable to the exchange by the buyer of the seller.
41. If you have bought a futures contract and the price drops, you will be making a profit.
a) True c) False
b) Sometimes true d) Sometimes false
42. Each forward contract

a) Can be structured as required by the buyer and seller
b) Will have the same specifications
c) Specifications are decided by the RBI
d) None Of The above
43. Cash market is a market with immediate or near immediate delivery.

a) True c) False
b) True only in USA d) True only in Europe
44. Online trading is a system where trading is accomplished through terminals which are
connected to a central computer.
a) True c) False
b) Sometimes true d) Partially false
45. In futures contracts, the contract maturity period is defined

a) By the exchange c) By the RBI
b) By the parties to the contract d) By the government.
46. The greater the number of participants in any market generally lower the liquidity.
a) True
b) False
c) True only for the year 2002.
d) True only for the year 2001.
47. In the olden days, the area within the exchange where trading was conducted through open
outcry was known as the Pit.
a) True c) False
b) True only for the year 2002. d) True only for the year 2001.
48. Futures contracts may or may not be traded on an exchange.

a) True c) False
b) True only for the year 2002. d) True only for the year 2001.
49. If the price of the underlying asset rises sharply after the initiation of a futures contract
a.The long position becomes profitable
b.The long position becomes unprofitable
c. The short position becomes profitable
d.None of the above.
50. A fund manager is bullish on the market. What should be his course of action?
a) Buy the index future c) Sell the index future
b) Sell his entire portfolio d) None of the above.
51. You have purchased shares and sent them for transfer. In the meantime, market is likely to
fall due to some adverse development. What should you do ?
a) Do nothing c) Buy the index futures
b) Sell the index futures d) None of the above.
52. Tick size is

a) The maximum daily movement permitted in the price of the contract
b) The maximum permitted price movement during the entire life of the contract
c) The minimum permitted price movement in a future contract
53. A long or short position ion a future contract can be closed easily by initiating a reverse trade.
a) True c) False
b) True only in Europe d) True only in Africa
54. You can buy stock futures in India regardless of whether you own the shares or not.
a) True c) False
b) True only in Mumbai d) True only in Delhi
55. You can buy Index futures in India regardless of whether you own the index share or not.
a) True c) False
56. In a futures market a buyer of a contract is obliged to buy the underlying at the contract price
from the clearing house and not to the actual seller.
a) True c) False
b) True only in Mumbai d) True only in Delhi.
57. In case of futures, the initial margin is paid only by the seller and not the buyer.
a) True
c) False
b) True only in Mumbai
d) True only in Delhi.
58. A warrant could be understood as :

a) A derivative instrument
c) A kind of equity share
b) A kind of debenture
d) A kind of financial bond.
59. Use of index futures for hedging helps us eliminate the following risk :
a) Stock specific risk c) All possible risks
b) Not risk d) Market risk
60. If you wanted to create a perfect hedge for your portfolio, the value of index futures
you would sell should equal.
a) Value of your portfolio / Beta of your portfolio
b) Value of your portfolio * Beta of your portfolio
c) Value of your portfolio - Beta of your portfolio * 100
d) Value of your portfoli + Beta of your portfolio * 100
61. Generally higher the price volatility, higher would be the initial margin requirement.
a) True c) False
b) True only in Africa d) True only in Japan
62. A derivative exchange faces

a) Legal risk c) Operational risk
b) Liquidity risk. d) All of the above.
63. One of the methods to control financial risk is to have

a) Exposure limits. c)Un-interrupted power supply unit.
b) Speculate heavily. d) None of the above.
64. The securities which are not delivered in the clearing house during pay-in, are
purchased by the clearing house from the market. The process is known as
a) Close-out c) Penalty
b) Auction d) Upla badla
65. When no offer for particular scrip is received in an auction or when members who offer
the scrip in auction fail to deliver the same during auction pay-in, the outstanding
transaction is
a) Annulled c) Cancelled
b) Closed-out d) None of the above.
66. An investor has buy position in a scrip, he can make his position nil in the settlement
by
a) Selling any security of equal quantity.
b) Sell the same scrip and same quantity.
c) Sell any index scrip of equal quantity
d) Sell any A - group scrip for equal quantity
67) the future market has is own terminology. If a trader was long in the market, what
would that mean?
a) The trader sold a future contract
b) The trader bought a futures contract
c) The trader’s open position exceeded his net worth
68) Hedgers and speculators strike a balance due to their needs as

a) Hedger has to take risk while speculator has to vie up risk
b) Both hedgers and speculators have to take risk.
c) Both hedgers and speculators have to give up risk.
d) Hedger avoids risk while the speculator takes risk.
69) The risk which is measured by a ‘Beta’ value is called:

a) Unsystematic Risk c) Default risk
b) Systematic Risk d) None of the above.
70) A stock option is an example of a

a) Commodity c) Derivative Instrument
b) Money market instrument d) Foreign Exchange contract
71) Volatility of prices of the underlying assets and dividend yield do not affect the
option values.
a) True c) False
b) True only in USA d) True only in Japan
72) In an in-the-money call option the exercise price would be lower that the market
price.
a) True c) False
73) Intrinsic value of an option cannot be negative.
a) True c) False
74) A long position in a call option may be squared up by taking a long position in a put
option with identical exercised date and exercise price.
a) True b) False
c) True only in Mumbai d) True only in Delhi
75 Strike price is the price for which the underlying may be purchased (in case of a
call) or sold (in case of put) by the option writer upon exercise of the option.
a) True b) False
c) True only in USA d) True only in Japan
76 An investor is bullish on a particular stock, but does not possess liquid cash to buy the
scrip. What should he do ?
a) buy an index - future c) Wait till he saves enough money
b) Buy an option on the particular stock d) Do nothing
77 Selling long a stock means

a) Seller does not own the stock he is supposed to deliver
b) Seller has to deliver the stock after a long time
c) Seller owns the stock he is supposed to deliver
d) Seller has to deliver the stock along with interest.
78 Market makers add

a) Speculation to the market.
b) Liquidity to the market.
c) Fluctuation to the market.
d) Nothing to the market.
79 Longer the time to maturity of the call option, lesser be its time value.
a) True c) False
80 With decrease in strike price, the premium on call decreases.

a) True c) False
b) True only in USA d) True only
81 Buyer of OTM put option is

1. Bullish - payer of premium
2. Bullish - receive of premium
3. Bearish - payer of premium
4. Bearish - receiver of premium
82 which of the following is true.

a) A spread trading strategy involves taking a position in two or more options of the
different type.
b) A spread trading strategy involves taking a position in two or more
option of the same type.
c) A spread trading strategy involves taking a position in one put and five call option of
different types.
83. options are

a) Contracts that can be settled in cash or settled by deliver depending on the choice of the
seller of the options.
b) Contracts that can be settled in cash or settled by delivery depending on the choice of the
buyer of the options
c) Contracts that can be settled in cash or settled by delivery
depending on the terms of the contract as decide by the exchange
84. Time value and intrinsic value together comprise option premium.
a) True
c) False
b) True only in USA
d) True only in Japan
85. Interest rates affects option premium.

a) True
b) False
c) True only in USA
d) True only in Japan
86. The buyer of an option can lose no more than the option premium paid
a) True b) False
87. Exchange traded options are standardized options

a) True c) False
88. Purchaser of a call option has expectation that stock price will
a) Increase c) Decrease
b) Remain constant d) None of the above.
89. In an options contract on futures, the underlying asset is a

a) Present contract b) Past contract
c) Futures contract d) None of the above.
90. The bid is the price at which market maker is prepared.
a) To buy.
b) To sell
c) To remain idle
91. Exercise prices of options are specified by

a) Government
b) Company
c) Market makers
d) Exchange
92. The purchase of a share in one market and the simultaneous sale in a different market
to benefit from price differentials is known as
a) Mortgage b) arbitrage
c) garbage d) bandage
93. Step margins would ensure the development of a successful market.

a) True c) False
94. If Reliance weekly volatility is known then Reliance Annual volatility is equal to
a) Weekly Volatility X 52 b) Weekly volatility X Sqrt of 52
c) Weekly volatility X 12 d) Weekly volatility X SQRT of 12
95. At the end of each trading day, the clearing House process of settling your account on
a cash basis (funds added to your balance if your position has made a profit, deducted if
you sustained a loss) is called :
a) Marking to the market. b) Performance bond call.
c) Maintenance performance bond call. d) Initial performance bond call.
96. Daily mark-to-market margin payments arise on adverse positions resulting from
price movements in futures.
a) True b) False
c) True only in 2001 d) True only in 2002
97. Mark-to-market margins will be collected on a :

a) Weekly basis b) Every 2 days
c) Every 3 days d) Daily basis
99. Who will be eligible for clearing trades in stock futures ?

a) All Indian citizens b) All members of the BSE :
c) Only members who are registered with the derivatives segments
as Clearing Members
d) all of the above.
100. A trading member of a derivatives segment must maintain trade confirmation slips and
exercise notice record from the trading system of the Exchange for a period of.
a) 1 year b) 2 Years
c) 3 Years d) 5 Years
101. The daily settlement price for Index futures shall be decided by
a) SEBI b) the Reserve Bank of India.
c) The clearing corporation / house d) none of the above.
102) The risk associated with trading in derivatives have to be laid down in?
a) A verbal agreement with the client b) Risk disclosure document
c) Need not be laid down d) None of the above.
103. If the price of a future contract decreases, the margin account of the buyer of futures is
debited for the loss.
a) True b) False
104. if the trading member exceeds his prescribed position limit,

a) He would be able to only close his own contracts.
b) He would be able to open new positions
c) All his dealers will be disqualified.
105. Initial margin of the previous day must be paid

a) By the end of the day.
b) Before beginning of the next trading day.
c) During banking hours next day.
106. Daily mark-to-market margin for index futures contract

a) is calculated on the daily closing price of the index futures
b) is calculated on the basis of weighted average of the index.
c) is calculated on the basis of average of last 30minutes value of the index.
107. Separation of trading, settlement, accounting and risk control function

a) Minimizes operation risk at the level of firm.
b) Creates new operation risk
c) Forces people to cheat in the firm. d) None of the above.
108. The purpose of initial margin is
a) To insure futures contract writer against any loss on their position.
b) To account for daily profit or loss on position.
c) to protect the clearing house from a one day adverse price movement
on an open position.
109. The margin requirements for the derivatives segment would be prescribed by
a) The SEBI b) The Stock Exchange
c) The RBI d) None of the above.
110. A sub- Broker can charge commission from his client under the SEBI ( Stock
Broker and Sub - Brokers ) Regulations, 1992.
a) Not exceeding one and half percent of the value mentioned in the sale
or purchase
note.
b) Not exceeding half percent of the value mentioned in the sale or purchase note.
c) not exceeding two and half percent of value mentioned in the sale or purchase note
d) none of the above.
111. The L.C. Gupta committee has recommended that initial margin shold be calculated
on
a) gross basis b) net basis
c) no basis as margin should not be made applicable d) 200% margin should be
collected
112. The L.C. Gupta committee recommended that the exchange and SEBI be involved in
regulation of the derivatives market.
a) True b) False
113. In L.C. Gupta Committee’s view, collection of initial and mark-tomarket margins by
brokers from their clients should be insisted upon in the case of derivatives trading.
a) True
b) False
c) True only in 2001
d) true only in 2002
114. Margins in futures trading are to be paid by

a) only the buyer
b) only the seller
c) both the buyer and seller
d) the clearing corporation
115. Which method is used to obtain the volatility estimate?

a) Exponential weighted moving average method.
b) Weighted average method. c) Simple average method
116. Lower margins would induce more players to join the market.
a) True b) False
c) True only in 2001 d) True only 2002
117. Higher margins would result in less number of players wanting to join the market.
a) True b) False
118. Initial margin is set up taking into account the volatility of the underlying
market. Generally higher the volatility, higher is the initial margin.
a) True c) False
b) True only in 2001 d) True only in 2002
119. The securities Contact (Regulation) Act 1956 was amended in December 1999 in
order to redefine the definition of securities so as to include :
a) a share as a security b) share index as a security
c) government bond as a security d) debenture as a security.
120. Brokerage charged to clients must be indicated separetly from the price in the
contract note.
a) True b) false
c) true only in 2001 d) True only in 2002
121. In case of a clearing member default, the margin paid by such member on his own
account only would be allowed to be used by the clearing corporation for realizing its
own dues from the member. Clients margins will remain unaffected.
a) True b) False
122. Clearing corporation on a derivatives exchange should become a legal counterparty to all
trades and be responsible for guaranteering settlement for all open position.
a) True b) False
123. Clearing members in derivatives exchange shall make a deposit of Rs. 50 lakhs with
the Exchange / clearing Corporation in the form of liquid assets.
a) True b) False
124. The clearing corporation / house has the ower to disable a defaulting clearing
member from trading further.
a) True b) False
125. Liquid Net worth of clearing members defined as per the J.R. Verma Report as
a) liquid assets maintained with the clearing corporation / House less
initial margin applicable
b) liquid assets maintained with the bankers by the clearing members less current
liabilities.
c) Working capital as per the Balance sheet of the clearing member
126. Liquid Net worth is always higher than liquid assets maintained by Clearing
members with the clearing corporation / House.
a) True b) False
127. Liquid assets minus Initial margin is equal to Liquid Net worth.
a) True b) False
128. Calendar spread transactions on index futures carry a high level of risk for the stock
exchange authorities as they attract very low margins.
a) True b) False
129. A profession clearing member:
a) Is a member on the cash segment of the stock exchange.
b) may or may not be a member on the cash segment of the stock exchange.
c) Should become a member on cash segment of the stock exchange with 3 years
130. Value-at-risk is calculated on the basis of

a) Historical Volatility b) Perfect market prices.
c) Equilibrium market prices. d) None of the above.
131. Each trading member in F & O segment of NSEIL can have

a) Only tow user Ids c) Only one user ID
b) As many users as he wishes d) Only three Ids
132. A speculator with a bearish view on a security can

a) Buy index futures b) Buy stock futures
c) Sell stock futures d) Sell index futures
133. Interim exercise settlement takes place for option contacts with ___ style exercise
a) American c) African
b) Asian d) European
134. The value of an option ______ with increase in volatility

a) decreases c) increases
b) does not change d) increases or decreases
135. who undertake clearing and settlement for all executed on the NSE’s F & O
segment?
a) NSE c) IISL
b) NSCCL d) SEBI
136. An in-the-money option contract would generate ______ upon exercise for the
buyer
a) positive cash flows
b) pre-determined amount of cash flow
c) no cash flow d) negative cash flow.
137. A stock can be eligible for derivatives trading, if the non-promoter holding in the
company is at least ______
a) 50% b) 75%
c) 30% d) 20%
138. The principal Act, which governs the trading of securities in India, is the ____
a) The SEBI Act, 1992
b) The companies Act, 1956
c) The depositories Act, 1996
d) The securities contracts (Regulations) Act, 1956
139. Var methodology seeks to measure the amount of value that a portfolio may stand to loss
within a certain time horizon due to potential changes in _____
a) Underlying stock volatility c) Underlying index volatility
b) Underlying asset spot price d) Underlying exposures
140. Derivatives first emerged as _______ products.

a) Speculative c) Arbitrage
b) Volatility d) Hedging
141. The open position of a client in futures and options on an underlying security can
not exceed higher of ____% of free float market capitalization ___ of open interest,
which ever is higher .
a) 10,50 b) 10,5
b) 1,50 c) 1,5
142. The total number of outstanding contracts (long/short) at any point in time is called
the _______
a) volume traded c) open interest
b) outstanding d) net positions
143. The SEBI committee on derivative has recommended that every clearing member
shall keep such books of accounts as necessary to show and distinguish _____
a) Funds received from and paid to clearing member’s own account
b) Funds received from and paid to each of his client.
c) Funds belonging to the clearing member and clients by maintaining a separate and
distinct account.
d) All of the above.
144. Margins are computed on _______

a) net Position of futures contracts
b) the portfolio of futures and option contracts
c) futures and option contracts on each security separately
d) Net sell positions
145. The basket trading facility enables the generation of _____ files in the derivatives
trading system and its execution in the cash segment of NSEIL.
a) Day order c) Portfolio off-line order
b) Limit order d) Spread trading
146. The short option minimum margin equal to ____% of the value of all short index
options is levied.
a) 3 c) 5
b) 8 d) 2
147. Which of the following is TRUE about the S & P CNX Nifty ?
a) Impact cost can not be calculated
b) Impact cost of the 50 constituent securities is very high
c) Impact cost of the 50 constituent securities is very low
d) All the 50constituent securities have same impact cost
148. In the F & O segment of NSEIL, obligations for client positions are calculated on a
______ basis.
a) outstanding trades c) Net
b) Margin d) Gross
148A. the computation of open position for client trades would be carried out on a
_________ basis
a) outstanding trades b) Net
c) Margin d). Gross (long -short)
149. an order which is activated when a price crosses a limit is _____ in F & O segment
of NSEIL
a) Market order c) Fill or fill order
b) Stop loss order d) None of the above.
150. Exchange traded derivative contracts on a stock index are generally _____
a. Not to be settled
b. Settled by exchange of demat security
c. Settled by exchange of cash difference
d. Settled by exchange of securities
151. a put option gives the _____ the right but not the obligation to ______ the
underlying asset at a specified price.
a) Seller, buy
b) Seller, sell
c) Owner, buy
d) Owner, sell
152. NSCCL computers the initial margin percentage for each Nifty index futures
contract on a _____ basis
a) trade by trade
b) weekly
c) fortnightly
d) monthly
153. At any point of time, _______________ Nifty futures contracts are available for
trading
a) two c) five
b) four d) three
154. Who are the participants in the derivatives market ?

a) Hedgers c) Speculators
b) Arbitrageurs d) All of the above
155. In the NEAT F & O system, the hierarchy amongst users comprises of _____
a) dealer corporate manager, branch manager
b) corporate manager, branch manager, dealer
c) branch manager, dealer, corporate manager
d) corporate manager, dealer, branch manager
156. Which of the following is a customized contract ?

a) Forward c) Warrants
b) Swaptions d) All of the above
157. you are a fund manager managing a portfolio of Rs. 5 Million having a beta of 1.
The spot Nifty stands at 1250. Yo would like to insure your portfolio against a 10% fall in
the index and hence you buy 15 contracts of January 1125 Nifty puts. Now your
portfolio is _____
a) Over - insured against a 10% drop in the index
b) Adequately insured against a 10% drop in the index
c) Under insured against a 10% drop in the index
d) Not insured against a 10% drop in the index.
158. An authorized person in the futures & option segment is ____

a. any person who is acting in any capacity on behalf of the trading member of a
participant for any activity relating to the trades done and executed.
b. A person authorized by the exchange as an approved user of a trading member.
c. An approved user of a participant.
d. All of the above.
159. if the order is not traded during the day in F & O segment of NSEIL, the system
cancels the order automatically at the end of the day, such an order is called a ____
a) good-till-cancelled order
b) stop-loss order
c) Day order
d) Limit order
160. which of the following is true about NCFM (NSE’s Certification in Financial Market)?
a) NSE launched NCFM to test practical knowledge and skills, that are required to
operate in financial markets.
b) NSE launched NCFM to certify personnel with a view to improve quality of
intermediation.
c) NCFM is an online testing system.
161. At the inception of a contract, every client is required to pay____ to the trading
member / clearing member.
a) Security margin b) Inception margin
c) Initial margin d) Guarantee amount
162. Which of the following users is at the highest level of the hierarchy as far as trading
on the NEAT F & O system is concerned ?
a) Corporate manager b) Clearing Member
c) Initial Branch Manager c) Dealers
163. Order for which no price is specified at the time the order is entered is called ____
order
a) GTC c) Limit
b) Stop-loss d) Market
164. Final settlement of future contracts takes place at closing price of the ___
a) futures contract c) Expiring contract
b) Underlying d) Near month contract
165. by buying index futures one can make ______

a) unlimited profits or losses since market may go up or down
b) unlimited profits or losses since market any go up or down
c) limited profit but unlimited losses
d) limited profits or losses
166. a stock broker means a member of ____________

a) SEBI
c) Any exchange
b) Any stock exchange
d) A recognized stock exchange
167. Index funds are ……………. Managed

1) Actively
2) Passively
3) Family
4) None of the above
168. In an options contract, the option lies with the

1) Buyer
2) Both
3) Seller
4) Exchange
169. The best buy order for a given future contract is the order to buy the index at the
1. Highest price
2. Average of the highest and lowest price
3. Lowest price
4. None of the above
170. The best sell order for a given future contract is the order to Sell the index at the
1. Highest price
2. Average of the highest and lowest price
3. Lowest price 4. None of the above
171. On the NSE’s Neat-F&O system, matching of trade takes place at the
1. Active order price 2. Passive order price
3. Market Price 4. None of the above.
172. In the case of options, final exercise settlement is ………..

1. Sequential 2. Random
3.Automatic 4. Voluntary
173. The market price of a product or commodity is :

1. Determined by demand only
2. Determined by supply only.
3. Influenced by government manipulation
4. Determined by demand and supply.
174. Futures on individual stocks are allowed

1. On all stocks listed on the stock exchange
2. On few selected stocks only
3. On all stocks listed on all stocks exchange in India
4. On all stocks where price is more than Rs. 100 per share
175. Which is the oldest index in India?

1.BSE 30 Sensex 2. BSE 100
3. S & P CNX Nifty 4. BSE 200
176. You have purchased shares and sent them for transfer. In the meantime, market
is likely to fall due to some adverse development. What should you do?
a) Do nothing b) Buy the Index Futures
c) Sell the Index futures d) None of the above
177. An Indian businessman imports regularly from the US. If he buys dollars in a
forward contract, what is his plan (or) An Indian businessman exports regularly
to US if he sell dollars in a forwarded contract, what is his plan
a) Creating a hedge b) Taking risk
c) Speculating on the dollar d) None of the above
178. Use of Index futures for hedging helps us eliminate the following risk :
a) Stock Specific Risk b) All possible risks
c) No risk d) Market risk
179. Which of the following kind of loss would you attribute to ‘legal’ risk?
a) IT Department has seized books of account of a broker
b) Police department has arrested a broker
c) A contract cannot be enforced because of signature mismatch
180. Operational risk include loses due to

a) Inadequate contingency planning b) Limit to gross exposure.
c) Market movement. d) Strict management control
181. A typical validity period for a transfer - deed remains

a) 12 months from the stamped date
b) Till next book closure following stamped date.
c) Either 12 months from the stamped date or till next book closure
following stamped date whichever is later.
d) Valid throughout its life irrespective of stamped dates.
182. The securities which are not delivered in the clearing house during pay-in, are
purchased by the clearing house from the market. This process is known as
a) close-out b) Penalty
c) Auction d) Upla badla
183. When no offer for a particular scrip is received in an auction or when members
who offer the scrip in auction fail to deliver the same during auction pay-in, the
outstanding transaction is
a) Annulled b) cancelled
c) closed-out d) None of the above
184. Hedges and speculators strike a balance due to their needs as

a) Hedger has to take risk while speculator has to give up risk
b) Both hedgers and speculators have to take risk
c) Both hedgers and speculators have to give up risk
d) Hedger avoids risk while the speculators takes risk
185. How are prices fixed in case of a forward contract

a) They are decided at the time of entering into the contract.
b) They are decided at the end of the contract period.
c) They are decided and revised from time to time based on market condition
186. Which of the following options will yield a profit to the purchaser?
a) An expired option that is “at the money”
b) A call option when the price of the underlying share increases above the
option’s strike price by an amount greater than the premium paid for the
option.
c) A put option when the price of the underlying increases above the
option’s strike price by an amount greater than the premium paid for the options.
d) An out-of-the-money option
187. The strategy of buying a put option on a stock that you posses is called
a) Writing a naked option b) Writing a covered call
c) Protective put strategy d) None of the above
188. Strike price is the for which the underlying may be purchased (in case of a call)
or sold (in case of put) by the option writer upon exercise of the option.
a) True b) False
189. In exercising call option on a stock, the option holder acquires long position ion
the underlying from the option writer (where settlement is effected by delivery)
a) True b) False
c) The only in USA d) True only in Japan
190. Holders of Over The Counter Option (i.e., those options not traded on any stock
exchange)
a) Have to pay mark-to-market margins daily
b) Have to pay mark-to-market margins once a week
c) Do not have to pay mark-to-market margins
d) Have to pay margins only for out-of the-money options
191. The purchase of a share in one market and the simulataneous sale in a different
market to benefit from price differentials is known as

a) Mortgage b) Arbitrage
c) Garbage d) Bandage
192. If a trading member exceeds his prescribed position limit

a) He would be able to only close his own contracts
b) He would be able to open new positions
c) All his dealers will be disqualified
d) None of the above
193. In case of a clearing member default, the margin paid by such member on
his9own account only would be allowed to be used by the clearing corporation

for
realizing its own dues from the member clients margins will remain unaffected.
a) True c) False
b) True only in 2001 d) True only in 2002
194. You are a trading Member. One of you clients a has purchased 10 contracts (50
units each) of December series index futures and another clients B has sold 15
contracts of January series index futures. Your exposure will be
a) Grossed up at 25 contracts b) Netted out at 5 contracts
c) Grossed up at 5 Contracts d) None of the above.
195. According to the J.R. Varma Committee Recommendations. The Margining for
the derivatives is based on :
a. Profit-at-risk method b. Volume-at-risk method
c. Value-at-risk method d. Variable-at-risk method
196. for the derivatives exchange, the trading member’s net-worth shall be fixed by
a) SEBI b) The Stock exchange
c) SCRA d) The clearing member
197. On which of the following can you have a futures contract?

a) Share-Index b) Commodities
c) Currency d) All of the above
198. If the price of the underlying asset rises sharply after the initiation of a futures
contract:
a. The value of a long position in the futures contract becomes positive
b. The value of a long position in the futures contract become negative
c. The value of a short position in the futures contract becomes positive
d. None of the above.
199. Which of the following items in a futures contract is standardized ?

a. Total number of contracts available for sale and purchase
b. Size - the amount of the underlying covered by the contract
c. Price of the underlying asset
d. All of the above.
200. An investor is bulish on a particular stock, but does nor possess liquid cash to
buy the scrip. What should he do ?
a) buy an index future
b) wait till he saves enough money
c) do nothing
d) buy an option of the particular stock
201. A call option gives the holder the right but not the obligation of buying from the
writer an underlying asset at a specified price on or before the expiry date.
a) True b) false
c) True only in Mumbai d) True only in Delhi
202 options are

a) Contract that can be settled in cash or settled by delivery depending on the
choice of the seller of the options
b) Contracts that can be settled in cash or settled by delivery depending on the
choice of the buyer of the options
c) Contracts that can be settled in cash or settled by delivery depending on the
terms of the contract as decided by the exchange
203. Clearing and settlement process comprise the following activities.

a) Clearing b) Settlement
c) Risk Management d) All of the above
204. The clearing mechanism essentially involves

a) Working out open positions b) Obligation of clearing members
c) Both a & b d) None of the above
205. Open position mainly considered for ____________

a) Exposure purpose b) Daily margin purpose
206. Futures & options on Individual securities can be delivered as in the spot
market.
207. The most critical component of risk containment mechanism for F & O segment
is __________
a) Margining System b) Online position monitoring
208. Which of the following factor affect the value of option.
a) Underlying Market price b) Strike Price
c) Volatility d) Time of Expiry
e) Intent Rate
f) all of the above
209. The future market is a _________ sum game i.e,. the total number of long in any
contract always _______ the total number of short in any contract
a) Zero, Equal b) Equal, Zero
c) Zero, Unequal d) None of the above
210. the spread / combination contracts in Neat F & O or trade through

a) Spread / combination screen
b) Window watch screen
c) Ticker window
d) Previous Trade screen
211. The spread / combination screen allowed the user to input

simultaneously in the market
a) 4 or 5 b) 2 or 3
c) 1 or 2 d) None of the above
212. The spread / combination orders attached the condition to __________

Ans) it that unless and until the whole batch of order find a counter match. They shall
not be traded.
213. A stock can be eligible for derivatives trading, if the non-promoter holding in the
company is at least
a) 50% b) 75%
c) 30% d) 20%
213. VAR methodology seeks to measure the amount of value that a portfolio may
stand to lose within a certain time horizon due to potential changes in
a) Underlying stock volatility b) Underlying index volatility
c) Underlying asset spot price d) Underlying exposures
214. The open position of a client in futures and options on an underlying security
can not exceed higher of _____ % of free float market capitalization or ___% of open
interest, whichever is higher.
a) 10,50 b) 10,5
c) 1,50 d) 1,5
215. The SEBI committee on derivatives has recommended that every clearing
member shall keep such books of accounts as necessary to show and distinguish ____
a) Funds received from and paid to clearing member’s own account
b) Funds received from and paid to each of his client
c) Funds belonging to the clearing members and clients by maintaining a separate
and distinct account.

d) All of the above
216. Margins are computed on ……………..

a) Net Position of futures contracts
b) The portfolio of futures and option contracts
c) Futures and option contracts on each security separately
a) Net sell positions
217. The Short Option minimum margin equal to _____ % of the value of all short
index options is levied.
a) 3 b) 5
c) 8 d) 2
218. Which of the following is TRUE and the S & P CNX Nifty ?
a) Impact cost can not be calculated
b) Impact cost of the 50 constituent securities is very high
c) Impact cost of the 50 constituent securities is very low
d) All the 50 constituent securities have same impact cost
219. A put option gives the ………. The right but not the obligation to ……… the
underlying asset a specified price.
a) Seller, Buy c) Seller, Sell
b) Owner, Buy d) Owner, Sell
220. Which of the following is a customized contract

a) Forward b) Warrants
c) Swaptions d) All of the Above
221. the following in an example of an order with time condition _______

a) Day order b) stop loss order
c) Limit d) all of the above
221 A. the following in an example of an order with price condition _______

a) Buy limit b) stop loss order
c) Sell Limit d) all of the above
222 A clearing member of F & O segment of NSEIL is required to have a networth of

Rs………… crore and keep collateral security deposit of Rs……… lakh
a) 5,10 b) 5,50
c) 3,100 d), 3,50
223. which of the following international exchanges does NOT trade derivatives?
a) LIFFE b) SGX
c) NYSE d) DTB
224. which of the following is true about NCFM (NSE’s Certification in Financial
Markets)
a) NSE launched NCFM to certify personnel with a view to improve quality of
intermediation.
b) NSE launched NCFM to test practical knowledge and skills that are required to
operate financial markets.
c) NCFM is an online testing system d) All of the above.
205. Final settlement of futures contracts takes place at closing price of the …..
a) Futures contract
b) Expiring contract
c) Underlying
d) Near month contract
226. Futures are _________

a) Linear Payoffs
b) Non linear Payoffs
227. Options are _________

a) Linear Payoffs
b) Non linear Payoffs
228. Buying put Options is _________ Insurance

a) Buying
b) Selling
c) Buying & Selling
d) Selling & Buying
229. Buying call option is ___________ Insurance

a) Buying
b) Selling
c) Buying & Selling
d) Selling & Buying
230. LEAPS stands for ___________

a) Long term equity anticipation securities
b) Long term equity application stocks
231. Warrants are ____________

a) Longer dated options
b) short dated options
232. Swaps are ______

a) Private agreement between two parties
b) For exchange cash flow in future
c) According & pre arrange formula of forward contracting
d) All of the above
233. Swaption is an option to buy or sell a ____ at the expiry of the option
a) Swap b) futures
c) Basket Options d) Warrants
234. Current market capitalization equal to _________

a) Sum of (current market price out standing shows)
b) Sum of (market price x Issue size) all securities as on base date.
235. Base market capitalization is equal to ___________

a) Sum of (current market price out standing shows)
b) Sum of (market price x Issue size) all securities as on base date.
236. Movements of the index should represent the return obtain by
portfolios in the country.
a) Typical b) Non typical
c) Average d) none of the above
237. when a client default in making payment in respect of daily settlement, the
contract is ____________
a) Not closed out b) waiting for sometime
c) Closed out d) none of the above
238. when a client default in making payment then amount not paid by client is
adjusted against he __________
a) M.T.M. Margin b) Assignment Margin
c) from Broker Commission d) Initial Margin
239. In an options contract, the option lies with the

a) Buyer b) Both
c) Seller d) Exchange
240. The basis for any adjustment for corporate action shall be such that
a) The value of the position of the market participants on ex-date is higher than
the value of the position on cum-date.
b) The value of the position of the market participants on cum and ex-date for
corporate action shall continue to remain the same as far as possible
c) The value of the position on ex-date will be independent of the value of
position on cum-date as far as possible
d) None of the above
241. In the F&O segment for corporate action shall be carried out on
a) The first day on which a security is traded on a cum basis in the underlying
cash market
b) The first day on which a security is traded on an ex-dividend basis in the
underlying market
c) The Last day on which a security is traded on a cum basis in the
underlying cash market
242. Which of the following is true ?
a) NSE Trades in futures b) NSE trades in Forwards
c) NSE trades both futures and forwards
d) Forwards are traded only in stock at NSE
243. Futures trading first emerged in the exchanges located in ________.

a) ) London b) UP
c) Chicago d) Annual requirements of copper
244. What is the strike price interval when the security is trading Rs.2800/-?
a) Rs.100 b) Rs.50
c) Rs.30 d) Rs.20
245. Weekly options traded on NSE follow an ____________

a) European Style Settlement b) American Style settlement
c) Asian Style Settlement
d) Weekly options are not traded at NSE
246. Equity Index Option are a form of _________

a) Options on Futures b) Basket Options
c) Swaptions d) Warrants
247. ___________ is one of the uses of Derivatives ?
a) Forecasting b) Risk Taking
c) Arbitrage d) All of the above
248. To be eligible for option trading, the _______________ of a stock is taken into
account.
a) Price Limit b) Trading member Position Limit
c) Client Wise position Limit d) Market Wide Position Limit
249. The theoretical futures price is considered for ______________ in case a futures
contract is not traded during the day ?
a) Opening Price b) Last traded Price
c) Premium Settlement d) Daily mark to market settlement
250. An unique user ID is assigned to each _______________________ in F & O

segment of NSEIL.
a) User of the trading member b) director of the trading member
c) branch d) exchange
251. _____________ facility is available on the F & O segment of NSEIL.

a) Stock Trading Facility b) Commodity Trading
c) Carry forward d) Basket trading facility
252. Institutional investors world wide are major users of ______________

a) Stock futures b) Stock Options
c) Index Linked derivatives d) Equity linked derivatives
253. An ‘authorized person in the Futures & Options segment is __________

a) The client of the broker b) a clearing member
c) An approved user of a participant d) all of the above
254. All trading members’ positions are monitored on a real time basis by the
a) Clearing member only b) Trading member only

c) NSCCL d) NSE
255. _____________ contracts are not settled on exercise date ?

a) In the money option contracts b) deep in the money option contracts
c) Both in the money and deep in the money option contracts
d) Out of the money option contracts e) at the money contract
256. _____________ can be bought and sold on an exchange like shares.

a) Index Funds b) Fixed Deposits
c) ETFs d) None of the above
257. Which of the following is the duty of the trading members

a) Giving tips to clients to buy and sell
b) Funding losses of the clients
c) Ensuring timely pay-in and pay-out of funds
258. Futures and forwards are similar in the following respects _____________
a) Settlement of contract takes place in the future
b) They have settlement guarantee
c) Positions are market-to-market everyday
d) Contracts are custom designed
259. Which of the following is required for personnel working in the industry in
order to dispense quality intermediation?
a) To follow certain code of conduct.
b) to give frequent buy and sell recommendations to clients.
c) To have good contacts with institutional clients.
d) All of the above
260. Hedging with stock futures means

a) Long security, short security
b) Long index futures, short index futures
c) Long security, short stock futures
d) Long security, long index futures
261. Which of the following is the duty of the trading member ?

a) Filling of ‘know Your Clients’ form
b) Execution of client Broker Agreement
c) Bringing risk factors to the knowledge of client
262. The _____________ applies to SEBI for the trading member registration.
a) Stock exchange, of which he or she is admitted as a member.
b) Stock broker c) Association of Trading Members
d) association of National Trading members
263. Stock options on ICICI Bank Ltd., can be exercised ______________

a) Any time on or before maturity b) Upon maturity
c) Any time upto maturity
d) On a date pre-specified by the trading member.
264. ________________ is allowed to only clear trades of other but not trade
themselves.
a) Trading member - clearing member
b) Trading member are not allowed to clear their own trades
c) Professional clearing member
d) Self clearing member
Q1. Assume that the base value of a market capitalization weighted index were 1000 the base
market capitalization were Rs. 35,000 Crores. If the current market capitalization is Rs. 42,000
crore, the index is at.
1. 1200 2. 1110
3. 1250 4. 1350
Base market capitalization = 35000 Crore

Index for 35000 Crore = 1000
Now we have to find 42000 Core index?
Capitalization index
35000C 1000
42000C ?
42000/35000*1000
=1.2*1000
=1200
Q2. The impact cost on a trade of Rs. 3 million of the fully nifty works out to be about 0.2%.
This means that if Nifty is at 2000, a buy order will go through at roughly.
1. 2004 2. 2400
2. 2040 4. None of the above
Impact cost on index =0.2%

Nifty at 2000
So
2000*0.2%
2000*0.2/100
4
We need buy order
So add 4 to nifty
i.e =2000+4
=2004
Q3. The Market impact cost on a trade of Rs. 3 million of the full Nifty works out to be about
0.3%. This means that if Nifty is at 2000, a sell order will go through at roughly.
1. 1994 2. 2060
3. 2006 4. None of the above.
Nifty at 2000
So
2000*0.3%
2000*0.3/100
6
We need sell order
So minus 6 from nifty
i.e. =2000-6
=1994
Q4. The market impact cost on a Trade of Rs. 5 million of the Nifty works out to be about
0.05%. This means that if nifty is at 2000; a sell order will go through at roughly.
1. 1999 2. 2001
3. 2005 4. 1995
Nifty at 2000
So
2000*0.05%
2000*0.05/100
1
We need sell order
So minus 4 from nifty
i.e. =2000-1
=1999
Q5. The market impact cost on a Trade of Rs. 5 million of the Nifty works out to be about
0.005%. This means that if nifty is at 2000; a sell order will go through at roughly.
1. 1999.90 2. 2000.10
3. 1999 4. 2000.01

Nifty at 2000
So
2000*0.005%
=2000*0.005/100
=0.1
We need sell order
So add 0.1 to nifty
i.e. =2000-0.1
=1999.9
Q6. On 15 th January Mr. Arvind bought a January Nifty futures contract which cost him Rs.
269,000 for this he had to pay an initial margin of Rs. 21,520 to his broker. Each Nifty
futures contract is for delivery of 100 Nifties. On 25 th
January, the index closed at 2720.
How much profit / loss did he make?
1. +3000 2. -3000
3. -2500 4. +2500
Mr. Arvind bought a January Nifty futures at Rs. 269,000

Nifty lot is 100
Initial margin = 21,520 (un necessary data no need for problem solution)
Each nifty bought value =269000/100=2690 (since nifty lot is 100)
Index closed at 2700 (high compare to bought value)
= 2720-2690=30 for each nifty
= 30*100 for 100 nifty
= 3000
Q7. Kamal sold a January Nifty futures contract for Rs. 269000 on 15 th
January. For this she
had to pay an initial margin of Rs. 21,520 to her broker. Each Nifty futures contract is for
delivery of 100 Nifities. On 25th January, the index closed at 2520. How much profit / loss
did she make?
1. -17,000 2. -15,000
3. -15,000 4. +17,000
Kamal sold a January Nifty futures at 269000

Nifty lot is 100
(un necessary data no need for problem solution)
Each nifty sold value =269000/100=2690
Index closed at 2520
= 2690-2520= 170 for each nifty =
170*100
= 17000 for 100 nifty
Q8. On 15 th January, Raju bought one January Nifty futures contract which cost him Rs.
269,000. For this he had to pay an initial margin of Rs. 21,520 to his broker. Each Nifty
futures contract is for delivery of 100 Nifties. On 25 th
January, the index closed at 2560.
How much profit / loss did he make?
1. +13,000 2. -13,000
3. -12,500 4. + 12,500
Raju bought Nifty futures at 269,000
Nifty lot is 100
Each nifty bought value =269000/100=2690
Index closed at 2560 (low compare to bought valve)
= 2560-2690=-130 for each nifty
= -130*100
= -13000 for 100 nifty
Q9. Krishna Seth sold one January Nifty futures contract for Rs. 269,000 on 15th January. For
this he had to pay an initial margin of Rs. 21,520 to his broker. Each Nifty futures contract
is for delivery of 100 Nifties. On 25th January, the index closed at 2780. How much profit /
loss did he make?
1. -8,000 2. -9,500
3. -9,000 4. + 9,000
Krishna Seth sold Nifty futures at 269,000
Nifty lot is 100
Closed at 2780
Each nifty sold value =269000/100=2690
Index closed at 2700
= 2690-2780= -90 for each nifty =
-90*100
= -9000 for 100 nifty
Q10. A call option at a strike of Rs. 176 is selling at a premium of Rs.18 At what price will it
break even for the buyer of the option?
1. Rs. 196 2. Rs. 187
3. Rs. 204 4. Rs. 194
Call option strike price = 176

Selling premium=18
The price break the buyer option is 176+18
=194
Q11.A stock currently sells at 120. The put option to sell the stock sells at Rs. 134 costs Rs. 18.
The time value of the option is ______
1. Rs. 18 2. Rs. 14
3. Rs. 4 4. Rs. 12
Stock currently sells at 120

Put option, stock sell at 134
Premium is 18
Time value=premium- intrinsic value
Intrinsic value=14 (since 134-120)
=18-14
=4
Q12.An index put option at a strike of Rs. 1176 is selling at a premium of Rs. 36. At what index level
will it break even for the buyer of the option?
1. Rs. 1,870 2. Rs. 1,212
3. Rs. 1,140 4. Rs. 1,940
Put option strike price=1176
Selling premium=36
The price break buyer option is 1176-36
1140
Q13.a) Suppose the tcs spot is at 1000 and two-month futures trade at 1040. Suppose the
transaction costs involved in placing an index trade are 0.25% and the tcs index dividends
over two months are 0.15%. What is the net rate of return?
1. Rs. 1.5% per month 2. Rs. 1.75% per month
3. Rs. 2.25% per month 4. Rs. 1.92% per month.
Spot value (cash) Two months future (future)

1000 1040
Interest rate Transaction

0% 1000‐1040=40
For 1000 40
for100 ? (100/1000 *40=4%)
4%
Transaction charges = 0.25%
Dividend=0.10%
Transaction cost=0.15%
Transaction profit = 4.00%
Transaction cost = 0.15%
3.85% for 2 months
1.92% for 1 month (since 3.85/2)
b) Suppose the nifty spot is at 2000 and two‐month futures trade at 2080. Suppose the
transaction costs involved in placing an index trade are 0.25% and the ITC index dividends
over
two months are 0.10%. What is the net rate of return?

2000 2080
Interest rate Transaction
0% 2000‐2080=80
For 2000 80
For 1000 40(1000/2000 *80=40%)
for100 4 (100/1000 *40=4%)
Transaction charges = 0.25%
Dividend=0.10%
Transaction profit = 4.00%
Transaction cost = 0.15%

3.85% for 2 months
1.92% for 1 month (since 3.85/2)
Q14. Suppose the ITC spot is 1000 and the two month futures are at 1010. Suppose each can be
recklessly invested at 1% per month and the transaction costs involved are 0.4%. Then the
total return that can be obtained in stock lending is
1. 0.61% over two months 2. 1.61% over two months
3. 1.01% over two months 4. 1.0% over two months.
Interest rate=1% per month

1000 1010
Interest rate =1% Transaction
(100)+1= 101 1000‐1010=10
(100+1)+1 1000 10%
100+2 100 1 %(since 100/1000*10)
0.01(interest rate)
2.01= 102.01
,..
Etc like that, we need only for 2months, so interest save for
2months is 2.01
Interest save =2.01
Transaction = 1.00
1.01 (net transaction)
Net transaction=1.01
0.61% for 2 months

Q15. What is the riskless profit that can be earned over two months if the GRASIM spot is at
1000 and the two month futures are at 1010? Suppose cash can be riskless invested at 12%
p.a. and there are no transaction costs.
1. 1.09% 2. 0.9%
3. 0.01% 4. 0.4%
Interest rate=12% per anum
1000 1010
Interest rate =12% =12/100=0.12 Transaction
A=P (1+i)n/12 1000‐1010=10
=1000(1+0.12)2/12 for 1000 10
=1000(1.12)0.1666 100 1%
=1000(1.01906)
=1019
P=1000
Interest=A‐P=1019‐1000=19
So 1000 19
100 1.9(100/1000*19)
So 1.9 - 1=0.9%
Q16. Suppose GRASIM spot is 1100 and the two-month futures are at 1120. Interest save is 3.01
per 2months and there are no transaction costs. Then the total return that can be obtained in
stock lending is
1. 1% over two months 2. 1.55% over two months
3. 1.2% over two months 4. 0.20% over two months.
1100 1120
Interest rate/save Transaction
3.01 1100‐1120=20
1100 20
100 1.81 %( since 100/1100*20)
So 3.01‐1.81=1.2% for 2 months
Q17. Suppose the GTL spot is at 200 and two-month futures trade at 208. Suppose the
transaction costs involved are 0.20% and dividends over two months are 0. What is the rate of
return in loaning money to the market?
1. 1.8% per month 2. 1%per month
3. 1.25% per month 4. 1.75% per month.
5. 2% per month.

200 208
Interest rate/save Transaction
0% 200‐208=8
200 8
100 4(since 100/200*8)
Transaction cost=0.4
Dividend=0%
0.4%
So 4-0.4=3.6% for two months
1.8% for a month (3.6/2)
Q19. What is the fair value of one month future if the spot value of Nifty is 2300. The money
can be invested at 11% p.a. and Nifty gives a dividend yield of 1% per annum.
1. 2324 2. 2350
3. 2318 4. 2309
P=2300(nifty spot)
i=11%
Dividend=1%
Net cost= 10%=10/100=0.10(interest rate)
One month future so t=1
A=P (1+i)t/12
2300(1+0.10)1/12
2300(1.10)0.0833
2300(1.0079)
2318.3
Q20. What is the fair value of one month future if the spot value of Nifty is 2300? The money
can be invested at 14% p.a. and Nifty gives a dividend yield of 4% per annum.
1. 2309 2. 2370
3. 2318 4. 2350
P=2300(nifty spot)
i=14%
Dividend=4%
Net cost= 10%=10/100=0.10(interest rate)
One month future so t=1
A=P (1+i)t/12
2300 (1+0.10)1/12
2300(1.10)0.0833
2300(1.0079)
2318.3
Q21. The Nifty spot stands at 2520 and the cost of financing is 12%per year. What is the fair
value of one-month Nifty futures contract?
1. 2540 2. 2550
3. 2544 4. 2555
T=1
P=2520
I=12%=0.12
A=P (1+0.12)1/12
=2520(1.12)0.0833
=2520(1.009484)
=2544
Q22. The Tata Tea trades on the spot market at Rs.177. The cost of financing is 12% per year.
What is the fair value of one-month futures on Tata Tea?.
1. 178.65 2. 180.15
3. 179.90 4. 177.65
T=1
P=177
I=12%=0.12
A=P (1+0.12)1/12
=177(1.12)0.0833
=177(1.009484)
=178.6
Q23. The Tata Tea trades on the spot market at Rs. 177. The cost of financing is 12% per year. If
is expected to pay a dividend of Rs. 10, 30 days later. What is the fair value of three-month
futures on Tata Tea?
1. 173.65 2. 182.05
3. 171.9 4. 177.65
T=3
I=12%=0.12
P=177
A=177(1+0.12)3/12 - 10(1.12)2/12
=177(1.12)0.25 ‐10(1.12)0.166
=177(1.02873) ‐10(1.01899)
=182.08 ‐10.18
=171.90
Q24. The ITC trades on the spot market at Rs. 720. The cost of financing is 15% per year.. What
is the fair value of two-month futures on ITC?
1. 736.73 2. 731.45
3. 728.65 4. 732.55
T=2
P=720
I=15%=0.15
A=P (1+0.15)2/12
=720(1.15)0.166
=720(1.02347)
=736.89
Hedging strategies :
Suppose ‘a’ takes long position and ‘b’ take short position the
following case are
If ‘a’ equals ‘b’ i.e. complete/perfect hedging
‘a’ value nearer to ‘b’ i.e. partial hedging
‘a’ value more than ‘b’ i.e. over hedging
Q25. The beta of SBIBANK is 0.8. A person has a long position of Rs. 200,000 of SBIBANK.
Which of the following gives a complete hedge?.
1. Sell 200,000 of Nifty 2. Buy 160,000 of Nifty
3. Buy 200,000 of Nifty 4. Sell 160,000 of Nifty
Beta=0.8
Long position 200000
So 0.8 * 200000=160000
The person has long so sell/short 160000 for complete perfect hedge
Q26. A speculator hopes that ROLTA is going to rise sharply. He has a long position on the cash
market of Rs. 1 crore on ROLTA.The beta of ROLTA is1.2.Which of the following
position on the index futures gives him a complete hedge;
1. Long Nifty Rs. 1 crore 2. Short Nifty Rs. 1.2 cres
3. Short Nifty Rs. 1 crore 4. Long Nifty Rs. 1.2 crore
5. Do nothing.
Beta=1c
Long position 1.2c
So 1 * 1.2=160000
The person has long so sell/short 1.2 for complete perfect hedge
Q27. The beta of SBI is 0.8. A person has a LONG SBI position of Rs. 200,000 coupled with a
short nifty position of Rs. 100,000. Which of the following is true.
1. He has a partial hedge against fluctuations
2. He is bullish on Nifty and
of Nifty
bearish on SBI
4. This is not a hedge; it is just
3. He has a complete hedge against fluctuations of Nifty
speculations of Nifty
6. He is over hedge.
5. He is bearish on Nifty as well as on SBI
SBI beta=0.8 Nifty short position is 1L

Long position is 200000
So 0.8 *200000=1.6L
SO PARTIAL HEDGE
Q28. A speculator expects that the rupee will depreciate, and hence profits of PENTSFWARE
will rise. Hence he does LONG PENTSFWARE of Rs. 2 Lakhs. The beta of
PENTSFWARE is 1.03. In order to remove his Nifty EXPOSURE. HE DOES short
NIFTY to the tune of Rs. 2.5 Lakh. Which is true?
1. He is Over hedge 2. He is completely hedge
3. He is under hedged 4. None of the above
beta=1.03 Nifty short position is 2.5L

So 1.03 *200000=2.06L
OVER HADGE
Q29. Hari buys 1000 shares of HPCL at Rs. 380 and obtains a complete hedge by shorting 300
nifities at Rs. 1944 each. He closes out his position at the closing price of the next day; at
this point HPCL has dropped 5% and the Nifty futures have dropped 4%. What is the
overall profit / loss of this set of transaction?
1. Profit of 4328 2. Profit of Rs. 9,500
3. Profit of Rs. 9,500 4. Profit of Rs. 11,664
HPCL NIFTY
Buy: 1000 shares Short: 300 shares
At: 380 At: 1944
-5% dropped -4% dropped
380*(-5%) 1944*(-4)
380*(-5)/100= -19 1944*(-4)/100= -77.76
So 1000 *(-19)= -19000 300*(-77.76)= -23328
Buy-sell
= -19000-(-23328)
=-19000+23328
=4328(profit)
Q30. Hari buys 2000 shares of HLL at Rs. 210 and obtain a complete hedge by shorting 200
Nifties at 2156. He closes out his position at the closing price of the next day, at this point
HLL has dropped 2% and Nifty futures have risen 1%. What is the overall profit / loss of
this set of transactions?.
1. Profit of Rs. 6,356 2. Profit of Rs. 4,200
3. Loss of 4088 4. Loss of Rs. 12,712
HLL NIFTY
Buy: 2000 shares Short: 200 shares
At: 210 At: 2156
-2% dropped 1% UP
210*(-2%) 2156*(1%)
210*(-2)/100= -4.2 2156*(1)/100= 21.56
So 2000 *(-4.2)= -8400 200*21.56=4312
Buy-sell
= -8400-(4312)
= -12712
Q31. The beta of ORIENTBANK is 0.8. A person has a short position of Rs. 200,000 of
ORIENTBANK. Which of the following gives a complete hedge?
1. Sell 200,000 of Nifty 2. Sell 160,000 of Nifty
3. Buy 200,000 of Nifty 4. Buy 160,000 of Nifty
5. Do nothing.
Beta of OBC is 0.8

Short position is 200000
So 0.8 *200000=160000
He has short position so long/buy 160000 nifty for perfect/complete hedge
Q32. The beta of SBI is 0.8. a person has a SHORT SBI position of Rs. 200,000 coupled with a
long Nifty position of Rs. 100,000. Which of the following is true?.
1. He has a partial hedge against 2. He is bullish on Nifty and
Fluctuations of Nifty bearish on SBI
3. He has a complete hedge against 4. This is not a hedge; it is just
Fluctuations of Nifty Speculation
5. He is bearish on Nifty as well on SBI 6. He is over hedged
SBI beta=0.8 Nifty short position is 1L

So 0.8 *200000=1.6L
SO PARTIAL HEDGE
Q33. A speculator expects that the rupee will appreciate and hence profits of PENTSFWARE
will fall. Hence he does short pent software to the tune of Rs. 2 loch. The beta of
PENTSFWARE is 1.03. In order to remove his Nifty exposure, He does LONG NIFTY to
the TUNE OF Rs. 2.5 lakh. Which is true?
1. He is over hedged 2. He is completely hedged
3. He is under hedged 4. None of the above
Beta=1.03 Nifty short position is 2.5L

So 1.03 *200000=2.06L
Over hedge
Q34. Hari sell 2000 shares of HLL at Rs. 210 and obtains a complete hedge by buying 200
Nifties at Rs. 2156 each. He closes out his position at the closing price of the next day; at
this point HLL has risen 2% and the Nifty futures have fallen 1%. What is the overall
profit/loss of this set of transactions?
1. 12612 2. 12800
3. -12712 4. 12912
HLL NIFTY
Sell: 2000 shares buy: 200 shares
At: 210 At: 2156
2% up 1% dropped
210*(2%) 2156*(-1%)
210*(2)/100= 4.2 2156*(-1)/100=- 21.56
So 2000 *(4.2)= 8400 200*-21.56=-4312
Buy-sell
= -4312-8400
= -12712
Q35. The beta of ITC is 1.6 and the total risk OF ITC is 9. The daily σ of Nifty is 1.3. One
complete hedging is done, how much risk are we left with?
1. 4.6 2. 5.4
3. 6.0 4. 5.8
Beta=1.6
σ = 1.3
V=9
A formula is: V - σ2 * B2
9- (1.3)2*(1.6)2
9- (1.69)*(2.56)
9- 4.3264
4.67
Q36. A portfolio is composed of Rs. 1,000 invested in a securities with beta 1.1 and Rs. 1000
invested in a securities with beta 0.8. What is the portfolio beta?.
1. 0.85 2. 0.95
3. 0.90 4. 1.0
Amount beta weighted beta

1000 * 1.1 1100
1000 * 0.8 800
2000 1900
Portfolio beta=weighted beta/total amount
=1900/2000
=0.95
Q37. A portfolio is composed of Rs. 1,000 invested in securities with beta 1.2 and Rs. 2000 in a
security with beta 0.9. What is the portfolio beta?
1. 1.2 2. 1.1
3. 0.9 4. 1.0
Amount beta weighted beta
1000 * 1.2 1200
2000 * 0.9 1800
3000 3000
Portfolio beta=weighted beta/total amount
=3000/3000
=1
Q38. On 1Jan 2001, an investor has a portfolio worth Rs.2 million which has a beta of 0.5. he
needs money in middle February as there is a marriage in the family. So he wants to totally
remove his equity market risk. What is the correct hedging strategy?
1. Short Nifty Futures Rs. 1 Million 2. Buy Nifty Futures Rs. 1
February Expiration Million February Expiration
3. Short Nifty futures Rs. 1.3 Million, 4. Buy Nifty futures Rs. 1.3
March expiration Million, March Expiration.
Buy: 2million
Beta is 0.5
So 2*0.5=1million
He has buy position so short 1 million nifty for perfect/complete hedging
Q39. On 1 January 2001, an investor has a portfolio worth Rs. 1 million which has a beta of 1.3,
He will need money in middle March as there is a marriage in the family. So he wants to
totally remove his equity market risk. The investor wants to be over-cautions so he sells
Rs. 2 million of the Nifty futures. What has he achieved?
1. He is partially hedged.
2. He is over hedged (he has
Effectively become a speculator
betting that Nifty will drop).
3. He is completely hedged
4. None of the above.
Buy:1 million
sell:2 million nifty
Beta is 1.3
So 1*1.3=1.3 million
Over hedge
Q40. When the nuclear bombs go off, an investor with $1 billion invested in India becomes
fundamentally gloomy about India and wants to embark a hedging program for the next
three years. He will sell $1 billion of Nifty futures now, and constantly initiate new futures
position as old one expire. What is the major problem with this strategy?.
1. He suffers from pollover risk of getting into 2. He will suffer market impact
new position on the futures positions. Cost selling $1 billion of the
Nifty futures.
3. He will have to recalculate his beta from time 4. He would just be better off
to time when adopting new futures positions. liquidating his portfolio,
staying out for 3 years, and
then getting back into equity.
Ans:Just read and remember it
Q41. A long position of 10 market lots of Nifty Sep futures is purchase 2200 and held till expiry
when the Nifty closes at expiry in September 25th 2248. What would be the profit on this
position ?.
1. 1,148,000 2. 24,000
3. 1,124,000 4. 48,000
Nifty futures purchase at: 2200

Expiry : 2248
48
Long position in 10 lots
So 48*10 lots
48*10*100 (since one lot=100 shares)
48000
Q42. Babbanseth expects a bumper agricultural harvest. He is highly optimistic about the
performance of the economy. He hopes the market will go up and buys 10 market lots of
the Nifty December futures. Nifty December futures trade at 2300. His forecasts come true
and he closes his position at maturity at 2354. How much profit does he make?
1. 2,300,000 2. 54,000
3. 2,348,000 4. 480,000
Nifty futures at: 2300

Expiry : 2354
54
So 54*10 lots
54000
Q43. Ravi expects a sluggish Industrial growth. He is pessimistic about the performance of the
economy. He hopes the market will go down and sells 10 market lots of the Nifty Dec
futures. Nifty December futures trade at 2300. His forecasts comes true and he closes his
position at maturity at 2252 . How much profit does he make?.
1. 1,150,000 2. 48,000 .
3. 1,174,000 4. 480,000
Nifty futures purchase at: 2300
Expiry : 2252
48
So 48*10 lots
48000
Q44. Mohan owns a thousand shares of Reliance. Around budget time, he get uncomfortable
with the price movements. Which of the following will give him the hedge he desires?.
1. Buy 10 Reliance futures contract 2. Buy 5 Reliance futures contracts
2. Sell 10 Reliance futures contracts 4. Sell 5 Reliance futures contracts.
Ans: just read and remember it
Q45. Santosh is bullish about Reliance and buys ten one month Reliance futures contracts at Rs.
2,96,000. On the last Thursday of the month, Reliance closes at Rs. 271. He makes a
……….
1. Profit of Rs. 15000 2. loss of Rs. 15000
2. Profit of Rs. 25000 4. Loss of Rs. 25000
Reliance futures at: 296000

Buy 10 lots of one month futures
So, 296000/1000=296 (since one lot=100 shares)
10 lots=1000 shares
Expiry at: 271
271- 296= -25
Calculations on 10 lots so -25*1000= -25000
Q46. Rajiv is bearish about ACC and sells twenty one-month ACC futures at Rs. 3,04,000. On
the last Thursday of the month. ACC closes at Rs. 134. He makes a …….
Acc futures at 304000
Sell 20 lots so 134*2000=268000
304000-268000=36000
Q47. You are the fund manager with a 1 million portfolio of beta 1.0 you would like to insure
your portfolio against a fall in the index of magnitude higher than10%, Spot Nifty stands at
2500.Put options on the Nifty are available at three strike prices. Which strike will give
him the insurance he seeks?.
1. 2240 2. 2250
2. 2260 4. None of the above.
Nifty stands at 2500
Index falling 10%
So 2500*(-10%)
2500*(-10)/100
250
2500 - 250=2250
Q48. You own a 1 million portfolio with a beta of 1.0 Current Nifty level is 2500. Three-month
puts at a strike of 2400 available. How many put contracts should you buy for insuring
your portfolio against an index fall below 2400.
1. Four 2. Eight
2. Five 4. Ten.
Currently nifty 2500

Strike rate 2400
So 2500-2400=100
For 2500 100
100 4 (since 100/2500*100)
Q49. You own a 1 million portfolio with a beta of 1.25 Current Nifty level is 2500. Three-month
puts at a strike of 2300 available. How many put contracts should you buy for insuring
your portfolio against an index fall below 2300.
1. Four 2. Eight
2. Five 4. Ten
Currently nifty 2500
Strike rate 2300
So 2500-2300=200
For 2500 200
100 8 (since 100/2500*200)
Q50. You own a fund manager managing a 5 million portfolio having a beta of 1. The spot Nifty
stands at 2500. you would like to insure your portfolio against a 10% fall in the index and
hence you buy 25 contracts of January 2250 Nifty puts. Now your portfolio is
1. Partially insured against a 10% drop in the 2. Under-insured against a 10%
index. Drop in the index.
2. Over-insured against a 10% drop in the4. Adequately insured against a 10%
index. Drop in the index.
Q51. You own a fund manager managing a 5 million portfolio having a beta of 1.4 The Spot
Nifty stands at 2500. you would like to insure your portfolio against a 10% fall in the index
and hence you buy 20 contracts of January 2250 Nifty puts. Now your portfolio is
1. Partially insured against a 10% drop in the 3. Adequately insured against a 10%
index. Drop in the index
2. Over-insured against a 10% drop
in the index.
Nifty spot 2500

Up to 10% loss is bearable loss
2250
Exceeding 10% unbearable or over insured
So over insured 10% drop in index
Q52. Anand is bullish about the index. Spot Nifty stands at 2400. He decides to buy one three-
month Nifty call option contract with a strike of 2520 at a premium of Rs. 15 per call.
Three month Later, the index closes at 2590. His payoff on the position is
1. Rs. 5500 2. Rs. 12000
3. Rs. 19,000 4. None of the above.
Colses at 2590
70
Strike price 2520 15% premium paid
Spot 2400
Pay out=2590-2520=70
Premium paid=-15
Pay off=55*100=5500 (since 70-15=50)
Q53. Chetan is bullish about the index. Nifty stands at 2400. He decides to buy one three month
Nifty call option contract with a strike of 2520 at Rs. 20 a call. Three month later the index
closes at 2480. His pay off on the position is
1. -7,000 2. -4,000
3. -2,000 4. -6,000
2520(strike price) 20% premium
2480(closing)
2400(spot)
Pay out=0
Premium paid=-20
Pay off=-20*100=2000
Q54. Depak is bullish about the index. Spot Nifty stands at 2600. He decides to sell one three-
month Nifty put option contract with a strike of 2545 at Rs. 20 per put . Three months later
the index closes at 2520. His payoff on the position is.
1.Rs. 7,000
2. Rs. - 500
3. Rs. 19,000
4. None of the above.
2600(spot)
2545(strike price) 20% premium received
2520(closing)
Pay in =25(2545-2520)
Premium received=20
Pay off=-5*100=-500
(since 20-25)
Q55. Anish is bearish about the index. Spot Nifty stands at 2500. He decides to buy one three-
month Nifty put option contract with a strike of 2550 at Rs. 60. Three months later the
index closes at 2450. His payoff on the position is.
1. Rs. 6,000 2. Rs. 7, 500
Strike price 2550

50
Spot 2500 100
closing 2450
pay out=100
premium paid=-60
pay off=40*100=400
note:intrinsic value=50
time value=premium paid - intrinsic value
=60-50=10
Q56. Anant is bearish about the index. Spot Nifty stands at 2500. He decides to buy one
threemonth Nifty put option contract with a strike of 2450 at Rs. 10 per put. Three months later the
index closes at 2520. His payoff on the position is.
1. -1,000 2. - 4,000
3. -2650 4. -12,000
2520 (closing)
2500 (spot)
2450 (strike price) 10% premium paid

Pay out=0
Premium paid =-10
Pay off=-10*100=-1000
Q57. Anand is bearish about the index. Spot Nifty stands at 2500. He decides to sell one three-
month Nifty call option contract with a strike of 2550 at Rs. 28.60 per call. Three months
later the index closes at 2450. His payoff on the position is.
1.Rs. 2,860 2. Rs. 7,500
Strike price 2550 premium received 28.60
spot 2500
2450(closing)
Pay in =0
Premium recived=28.60
Pay off=28.60*100=2860
Q58. Anish is bearish about the index. Spot Nifty stands at 2500. He decides to sell one three-
month Nifty call option contract with a strike of 2550 at Rs. 28.60 per call. Three months
later the index closes at 2582. His payoff on the position is.
1.-1,720 2. 3,400
3. -4,000 4. - 340
2582(closing)
(-32)
2550(strike price) 28.60 premium received
2500(spot)
Pay in=-32
Premium received=28.60
Pay off=-3.4*100=-340
Q59. You are a speculator. You predict that the market will be volatile in the next three months.
However you have no idea if it will move upwards or downwards. To take advantage of
this volatility you would buy.
1. Three months calls 2. with the same strike
3. Three-months puts 4. A three-month calls and sell a three
5. A three-month call and a three-month put months put with the same
strike.
Just read it
Q60. What is the outstanding position on which initial margin will be calculated if Mr. Madanlal
buys 800 which @ 1060 and sells 400 units @ 1055?
1. 1250 units 2. 450 units
3. 800 units 4. 400 units
Outstanding/open position=buy-sell
=800-400
=400
Q61. A Trading member Monojbhai took proprietary positions in a November 2000 expiry
contract. He bought 3000 trading units at 1210 and sold 2400 at 1220. The end of day
settlement price for November 2000 expiry contract is 1220. if the initial margin per unit
for the November 2000 contract is Rs. 100 per unit, then the total initial margin payable by
Manojbhai would be
1.Rs. 60,000 2. Rs.3,00,00
3. Rs. 30,000 4. Rs. 5,40,000
He bought=3000
Sold=2400
600
Initial margin=100
=600*100=60000
Q62. What will be MTM profit /loss of Mr. Ramesh if he buys 800 @1040 and sells 600 @
1045? The settlement price of the day was 1035.
1. -4000 2. +6000
2. -6000 4. +2000
Buy 800 units @1040 -5*800= -4000

Sell 600 units @1045 10*600= 6000
Settlement price 1035 2000
Q63. The following are the details of trading member Ratanlal’s proprietary and client position.
Proprietary: he buys 600 units @ 1020 and sells 1800 units @1025.
Client A: he buys 2000 units @ 1015
Client B: he buys 1600 units @ 1016 and sells 800 units @ 1022.
The settlement price of the day is 1023. what is MTM profit/loss for Ratanlal?
1.Rs. 31,800
2. Rs.26,600
3. Rs. 28,400
4. Rs. 31,200
Buy 600 units @1020

3*600= 1800
Sell 1800units@1025
2*1800= 3600
Client A buy 2000 units@1015
8*2000=16000
B buys 1600units@1016
7*1600=11200
C sells 800 units@1022
- 1*800= -800
Settlement price 1032
31800
Q64. Ramesh is bullish about cipla which trades in the spot market at Rs. 1025. he buys two
one-month call option contracts on CIPLA what strike of 1050 at a premium of Rs. 10 per
call. One month later, CIPLA closes at Rs. 1080. his profit (payoff) on the position is
1. Rs. 6000 3. Rs. 4500
2. Rs.1500 4. Rs. 4000
1080(closing)
(30)
1050(strike price) premiumpaid 10%
He buy 2 lots (since 1lot=100 shares,2lot=2*100=200)
=20*200 (since30-10)
=4000
Q65. The May futures contract on INFOSYSTCH closed at Rs. 3940 yesterday. It closes today
at Rs. 3898.60. The spot closes at Rs3800. Raju has a short position of 3000 in the May
futures contract. He sells 2000 units of may expiring put options on INFOSYSTCH with a
strike price of Rs. 3900 for a premium of Rs. 110 per unit. What is his net obligation to/
from the clearing corporation today?
1. Paying of Rs. 344200 3. Payout of Rs. 344200
2. Payout of Rs.640000 4. Payin of Rs. 95800
Infosys closed yesterday=3940
Today=3898.60
41.40
Short position in may future=3000

So 3000*41.40=124200 1
Infosys strike price 3900 premium 110

Put sells
2000
110*2000=220000 2
Add 1and 2=344200

Q66. A member is short 400 March futures contracts and long 200 April futures contracts. A
calendar spread in this case will be
1. Long 200 futures contracts 3. Long 400 futures contracts
2. Short 200 futures contracts 4. Short 400 futures contracts
Simple 400 -200=200 short

Q67. If the daily volatility of Nifty is 1.92, the sigma figure used in the Black-scholes formula
should be
1. 30% 3. 1.38%
2. 1.92% 4. 35%
V=1.92
Here no. working days not given, consider 250 days
Black‐scholes formulae=V *√ no working days in a
year
=1.92*√250
=1.92*15.85
=30.35
Q68. assume that the daily volatility of Nifty is 1.75, and trading happens on 256 a year. The
sigma figure
1. 30% 3. 1.38%
2. 1.92% 4. 28%
V=1.75
No working days=256
i.e. 1.75*√256
1.75 * 16
28
Q69. If the annual risk-free rate is 12% then the ‘r’ used in the Black-scholes formula should be
1. 0.1133 3. 1.12
2. 0.12 4. none of the above
Interest rate i=1+r

= 1+12%
=1+0.12 (12%=12/100)
=1.12
In calculator, click the button “ln” first, after clicking enter the value 1.12
Now u gets answer 0.113
Q70. If the annual risk-free rate is 10% then the ‘r’ used in the Black-scholes formula should be
1. 0.095 3. 1.12
2. 0.12 4. none of the above
Interest rate i=1+r

= 1+10%
=1+0.10 (10%=10/100)
=1.10
In calculator, click the button “ln” first, after clicking enter the value 1.10
Now u gets answer 0.095
Q71. On 1st February, a call option on the Nifty with a strike of 2550 is available for trading.
Expiration date is 22nd February, The “T” that is used in the Black-Scholes formula should
be.
1. 0.06 3. 22
2. 0.09 4. None of the above
Expiry date is 22
Taking full one year days so22/365=0.06
Q72. On 1st January, a three-month call option on the Nifty with a strike of 2520 is available for
trading. The “T” that is used in the Black-Scholes formula should be
1. 0.25 3. 90
2. 3 4. None of the above
Three months call option

one year means 12 months so 3/12=0.25
Q73. Mr X short 500 Satyam Comp.on 10th July 2002 put at strike price Rs.210 for premium of
Rs.14/- each. On 22 nd July 2002(the expiration day of the contract) the spot price of
Satyam comp. closed on Rs.224. while July future of Satyam comp. closed at Rs.222. Does
Mr X have an obligation to the clearing corporation on his position and how much?
If
any?
1. Yes, Rs 7000 pay-out 3. Yes, Rs 7000 pay-in
2. No pay-in or payout on expiration contract 4. Yes, Rs 70000 pay-out.
Read question careful and remember answer
Q74. In two stock index, the current market capitalization of stock A is Rs.1750 million and the
Stock B is Rs.2400 million . If the Base market capitalization of two stock index was
Rs.4500 million and base index was 1000 points, the current level of the two stock Index is
______ points
1. 922.2 3. 1458.3
2. 984.3 4. 1084.3
Capitalization of A=1750
Capitalization of B=2400
4150
Base capitalization of A and B=4500
Both base index=1000
Two stocks index point?
4150/4500*1000
922.2
Q75. In two stock index, the current market capitalization of stock A is Rs.1750 million and the
Stock B is Rs.2400 million . If the Base market capitalization of two stock index was
Rs.3500 million and base index was 1000 points, the current level of the two stock Index is
______ points
1. 1452.5 3. 1185.7
2. 1458.3 4. 843.3
Capitalization of A=1750
Capitalization of B=2400
4150
Base capitalization of A and B=3500
Both base index=1000
Two stocks index point?
4150/3500*1000
1185.71
Q76. Transaction tax is payable by the __________ of the derivative instrument (option Seller &
futures seller) at ____________ rate
1. Buyer, 0.017% 3. Designer, 0.125%
2. Seller, 0.017% 4. Originator, 0.125%
Q77. Mr. A Sells 10 lots of futures contract of M/s. XYZ Ltd. (1 Lot : 100 shares) expiring on
25th January, 2006 for Rs. 300. The spot price of the share is Rs. 290. The securities
transaction tax thereon would be _______.
1. Rs. 10 3. Rs. 80
2. Rs. 20 4. Rs. 51
A sells 10 lots
Strike price is 300, so 300*10 lots=300000 (since10 lots=1000)
Transaction tax=0.017% u have to remember
Security transaction tax=300000*transaction tax
=300000*0.017%
=300000*17/100000 (0.017%=0.017/100=17/100*1000)
=51
Q78. Ms. Asha sells 10 lots of options contract of M/s. XYZ Ltd. (1 Lot : 100 shares) expiring
on 25th January, 2006 for Rs. 10. The strike price of the contract is Rs. 300. The spot price
of the share is Rs. 290. the securities transaction tax thereon would be _________
1. Rs. 10 3. Rs. 40
2. Rs. 53 4. Rs. 11
Asha sells 10 lots
Strike price 300,here premium received is 10,so add it to strike
price i.e. 310 310*10 lots
310000
Security transaction
charge/tax=310000*transaction tax
=310000*0.017%
=310000*17/100000 (since above problem)

=31*17/10
=31*1.7
=52.7

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DERIVATIVE INTRODUCTION

Note : NCFM is the Trademark, Registered by NSE

1) A security derived from a Debt Instrument, share, Loan whether secured or un

Participants in Derivative Market

FUTURES AND OPTIONS TRADING SYSTEM

INDEX ( S&P CNX NIFTY 50 STOCKS)

Index used for the following advantages:-

 Barometer of the Market Behavior

Good Index Attributes (Characteristics)

 Large variety of Different portfolios

IISL (Indian Index Service & Products Ltd)

 Impact cost is measure the liquidity of the market.

ETF ( Exchange Traded Fund )

SPRD (Spider) - S & P 500 Index ETF.

DIFFERENCE BETWEEN FUTURE MARKET & OPTION MARKET  A

(Buyer = Holder = Owner)

1) Equity Derivatives (Security Derivatives):-

3) Under lying Asset or Derivative:-

 At the inception (beginning) of a contract every client is required to pay initial

OPEN POSITION CALUCATION

Trading Member Total Open position = 700 Long + Short

OPEN INTEREST CALULATION

INITIAL MARGINS CHARGED ON F & O MARKET

Note: in option market initial Margin paid by seller Only

EXPOSURE LIMITS IN DERIVATIVE MARKET

For Index Futures & Options

For stock Futures & Options

Liquid Net worth x 20 times = Notional value of gross open position

For Calendar Spread

For month MTM value (Profit) x 1/3 = open position

SELF DISCLOSING OBLIGATION TO CLEARING CORPORATION

Index F & O : 15% of the open position (not exceeding)

Stock F & O : 1% of Free float market capitalization or 5% of the

FIIS & Mutual Funds

Same as Trading Member Rules

MARK TO MARKET (MTM) MARGINS

 Nation wide, online & Automatic Exam and Non-Conventional

FUTURE AND OPTION CONTRACT SPECIFICATIONS

 Nifty and security F & O Contract value Rs. 2,00,000/- (minimum)

Nifty Index Levels Strike Interval ITM - ATM - OTM

 Nifty future & option daily settlement : Nifty future closing

ELIGIBILITY OF ANY EXCHANGE TO ENTER IN DERIVATIVE MARKET

 Fulfill the eligibility condition of Dr.LC. Gupta committee

ELIGIBILITY OF ANY STOCK TO ENTER IN DERIVATIVE MARKET

SECURITIES INCLUDE ACCORDING TO SECURITY CONTRACT

 Shares, Scrips, Stocks, Bonds, Debentures and any marketable securities of

OBJECTIVES OF SEBI ACT 1992

 Protect the Interest of Investors

POWERS OF SEBI ACT 1992

OBJECTIVES OF SECURITIES CONTRACT (REGULATION ACT 1956)

1. Regulations of Transactions in Securities

SEBI AND STOCK EXCHANGE RELATIONS

 Every stock exchange must be registered in SEBI

PROBLEMS IN CUSTOMIZED (Forward) CONTRACTS

Note. 1) Example to customized contract is forward contract.

TYPES OF OPTION CONTRACTS

Intrinsic value - In the money amount of the auction

 Management of the company ( Chairman, MD and Directors)

 Merchant Banker, Share Transfer Agent, Registrar, debenture trustee, broker

 Maximum penalty of insider Information Rs. 5 lakhs

 Dividend declaration information.

 Issue and buy back information

 Major expansion & New projects expansions.