NISM Series VIII - Equity Derivatives Exam Series -4

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Q 1. The Derivatives market helps in _________.

Transfer of risk from those who are exposed to risk but have a low-risk appetite to participants with a high-risk appetite

Reallocation of risk among market participants

Both of the above

None of the above

Q 2. In the derivatives segment, who has to pay the margins as specified by the Clearing Corporation?

Clients

Arbitrageurs

Financial Institutions

All of the above

Q 3. If the volatility of the underlying stock is decreasing, the premium of the call option would _______.

Increase

Decrease

will not change

None of the above

Q 4. Why is the Clearing Corporation considered very important in the derivatives market?

Clearing Corporation deals with exchanges

Clearing Corporation related to stocks

Clearing Corporation provides settlement guarantees and assumes the role of counterparty for each trade

Clearing Corporation collects margins from members

Q 5. Even if you do not own the underlying stock, you can sell the stock option for that stock - State whether True or False.

TRUE

FALSE

Q 6. If the clearing/trading member fails to pay the dues, can the clearing corporation disable the clearing/trading members from trading - State True or False?

TRUE

FALSE

Q 7. _______ is an order with a Time Condition.

Stop-Loss order

Good until the canceled order

Market order

Limit order

Q 8. Mr A sold a put option of strike Rs.400 on PQR stock for a premium of Rs.32. The lot size is 500. On the expiry date, PR stock closed at Rs. 350. What is his net profit or loss?

-25000 (Loss)

-9000 (Loss)

9000 (Profit)

25000 (Profit)

Q 9. ___________ risk is the component of price risk that is unique to particular events of the company and/or industry and this risk could be reduced to a certain extent by diversifying the portfolio.

Unsystematic Risk

Systematic Risk

Arbitrage Risk

Interest Rate Risk

Q 10. When you buy a put option on a stock you are owning, this strategy is called _____________.

Straddle

writing a covered call

calendar spread

protective put

Q 11. When a person sells a call option, he has a –

Bullish view

Bearish view

Long term view

None of the above

Q 12. A CALL OPTION will give the buyer the _______.

Right to sell the underlying asset

Right to buy the underlying asset

Obligation to sell the underlying asset

Obligation to buy the underlying asset

Q 13. As the strike price of a put option is taken down, its intrinsic value ______.

Goes up

Goes down

Do not change

None of the above

Q 14. Mr. Deepak wants to buy 20 contracts for the October series at Rs. 3500 and Mr. Suraj intends to buy 12 contracts for the November series at Rs. 3600. Lot size is 50 for both these contracts. The initial margin is fixed at 8%. What initial margin is required to be collected from both these traders by the broker?

Rs. 5,84,500

Rs. 3,75,200

Rs. 6,12,600

Rs. 4,52,800

Q 15. The initial margin to be paid in derivatives is set to take into account the volatility of the underlying market. Generally ___

Lower the volatility, higher the initial margin

The higher the volatility, the lower the initial margin

The higher the volatility, the higher the initial margin

None of the above

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