NISM Series VIII - Equity Derivatives Exam Series - 9

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Q 1. The price at which the underlying asset can be bought or sold on the exercise of an option is called ________.

Spot Price

Risk Premium

Strike Price

Option Premium

Q 2. Identify the TRUE statement concerning Option Spreads.

A bullish call spread will result in an initial cash inflow for the trader

A bearish call spread will result in an initial cash inflow for the trader

The bullish spread will result in an initial cash outflow for the trader

A bearish spread will result in an initial cash inflow for the trader

Q 3. ______ is a deal that produces profit by exploiting a price difference in a product in two different markets.

Hedging

Trading

Speculation

Arbitrage

Q 4. The contract size in the futures market is defined by ____________

Stock Brokers

The Stock Exchange

Parties to the contract

SEBI

Q 5. Operational risks include losses due to______

natural calamities

inadequate contingency planning

power failure

all of the above

Q 6. The Strangle strategy is similar to the straddle strategy in outlook but different in _______________.

implementation

aggression

cost

All of the above

Q 7. An exchange-traded option after maturity _______.

Can be traded after 2 days i.e. after pay in / pay out.

Can be traded in the spot market

Cannot be traded

None of the above

Q 8. OTC derivative market is a less regulated market because these transactions occur in private among qualified counterparties, who are supposed to be capable enough to take care of themselves. True or False

FALSE

TRUE

Q 9. Derivative markets mostly comprise of –

Long term investors

Hedgers

Speculators

Both 2 and 3

Q 10. A ______ is not a Trading Member but clears and settles the trades of Trading Members and institutional clients.

Trading cum clearing member

Custodial participant

Self-clearing member

Professional clearing member

Q 11. If the futures price of a stock is ______ and the open interest of the futures contract of that stock is ______, then it signals a bullish trend.

Falling, Rising

Rising, Falling

Rising, Rising

Falling, Falling

Q 12. In futures trading, the margin is paid by ________

Buyer only

Seller only

Both Buyer and Seller

The Clearing Corporation

Q 13. What does hedging do?

It maximizes business profits

It minimizes business losses

It produces a clearer outcome

Hedging can only be used in currency markets and not in equity markets

Q 14. Mr. P and Mr. Q are brokers of a stock exchange. Both of them have maintained Rs 7 crores of liquid assets consisting of equity shares and other assets. Both have the same exposure limits on day one. Based on this, which of the following statements is true?

The minimum exposure possible for the two brokers may change from time to time based on the changes in those asset valuations, even if they do not withdraw the assets deposited

The minimum exposure possible for the two brokers will remain the same forever, even if they withdraw the assets deposited subsequently

The minimum exposure possible for the two brokers will remain the same forever as long as they do not withdraw the assets deposited

None of the above

Q 15. Hedgers and speculators are two important participants of a securities market and they strike a balance due to their needs as _______.

Hedger wants to avoid risk while the speculator wants to take risk

Hedger wants to take risks while speculators want to avoid the risk

Both hedgers and speculators want to avoid risk

Both hedgers and speculators want to take risks

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