NISM Series VIII: Equity Derivatives | Chapter 3 Solved MCQs | Forwards & Futures

Chapter 3: Forwards & Futures - 40 Solved MCQs (Full Options)

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In the exam, options often look similar. Read carefully! Click each question to reveal the correct choice and the math behind it.

1. What is a forward contract?

A) An agreement to buy or sell an asset immediately at the market price
B) A private agreement between two parties to buy/sell an asset on a specific future date
C) A standardized contract traded on a centralized exchange
D) A contract with a variable price set on the delivery date

View Answer & Logic

Answer: B) A private agreement between two parties to buy/sell an asset on a specific future date

Explanation: Forwards are bilateral and not traded on an exchange.

2. In which of these markets are forwards NOT commonly used?

A) Foreign exchange
B) Commodities
C) Personal grocery shopping
D) Interest rates

View Answer & Logic

Answer: C) Personal grocery shopping

3. The risk that a party in a forward contract defaults is:

A) Liquidity risk
B) Price risk
C) Counterparty risk
D) Operational risk

View Answer & Logic

Answer: C) Counterparty risk

4. In a forward contract, the party agreeing to sell the asset is:

A) Long forward
B) Short forward
C) Neutral forward
D) Market maker

View Answer & Logic

Answer: B) Short forward

5. Short futures at Rs. 200. Market price at expiry is Rs. 180. Result?

A) Rs. 20 loss
B) Rs. 180 profit
C) Rs. 20 profit
D) No profit/loss

View Answer & Logic

Answer: C) Rs. 20 profit

Math: 200 (Sold high) - 180 (Bought low) = 20 profit per unit.

6. Who standardizes the terms of a futures contract?

A) The buyer and seller
B) The SEBI chairman
C) The Exchange
D) The individual broker

View Answer & Logic

Answer: C) The Exchange

7. Initial margins are primarily used to:

A) Generate interest for the exchange
B) Reduce the contract price
C) Guarantee settlement of the contract
D) Pay for the delivery of the asset

View Answer & Logic

Answer: C) Guarantee settlement of the contract

8. What is the standard contract cycle on NSE?

A) One-month
B) Six-month
C) Three-month
D) Weekly

View Answer & Logic

Answer: C) Three-month trading cycle (Near, Next, Far month)

9. In futures trading, does the full value of the asset change hands at inception?

A) Yes, always
B) No, only margins are exchanged
C) Only for index futures
D) Depends on the broker

View Answer & Logic

Answer: B) No, only margins are exchanged

10. When do Nifty futures expire?

A) Last Friday of the month
B) Last Thursday of the month
C) First day of the next month
D) 15th of every month

View Answer & Logic

Answer: B) Last Thursday of the month

11. What is Basis?

A) Future Price - Spot Price
B) Spot Price - Future Price
C) Strike Price - Spot Price
D) Premium - Intrinsic Value

View Answer & Logic

Answer: B) Spot Price - Future Price

12. If Futures Price is 510 and Spot Price is 500, the basis is:

A) 10 (Positive)
B) -10 (Negative)
C) 0 (Zero)
D) 1.02 (Ratio)

View Answer & Logic

Answer: B) -10 (Negative)

Explanation: 500 (Spot) - 510 (Future) = -10.

13. Who is required to pay initial margins in a futures contract?

A) Only the buyer
B) Only the seller
C) Both the buyer and the seller
D) Neither, if they have enough collateral

View Answer & Logic

Answer: C) Both the buyer and the seller

14. Short futures at 180, expiry price is 230. Payoff is:

A) Rs. 50 Profit
B) Rs. 410 Loss
C) Rs. 50 Loss
D) Zero

View Answer & Logic

Answer: C) Rs. 50 Loss

Math: 180 (Sold) - 230 (Market price) = -50 loss.

15. Sell futures at 150, lot size 200. Buy back at 140. Total profit?

A) Rs. 2200
B) Rs. 2000
C) Rs. -2000
D) Rs. 10

View Answer & Logic

Answer: B) Rs. 2000

Math: (150 - 140) * 200 = 10 * 200 = 2000.

16. If the last Thursday of the month is a holiday, expiry is on:

A) The next Friday
B) The previous Wednesday
C) The following Monday
D) The contract is cancelled

View Answer & Logic

Answer: B) The previous Wednesday (or previous trading day)

17. Nifty at 22,450, Lot size 50, Margin 12%. Initial Margin = ?

A) Rs. 1,13,750
B) Rs. 1,34,700
C) Rs. 1,82,750
D) Rs. 2,69,400

View Answer & Logic

Answer: B) Rs. 1,34,700

Math: (22450 * 50) = 11,22,500. Then 12% of 11,22,500 = 1,34,700.

18. Long at 400. Expiry at 470? Payoff is:

A) Rs. 70 Profit
B) Rs. 70 Loss
C) Rs. 870 Profit
D) Rs. 60 Profit

View Answer & Logic

Answer: A) Rs. 70 Profit

19. Daily settlement of profit/losses is known as:

A) Initial Margining
B) Marking to Market (MTM)
C) Final Settlement
D) Squaring off

View Answer & Logic

Answer: B) Marking to Market (MTM)

20. Nifty long gains 82.20 points, Lot 50. MTM gain is:

A) Rs. 82.20
B) Rs. 5,000
C) Rs. 4,110
D) Rs. 7,050

View Answer & Logic

Answer: C) Rs. 4,110

Math: 82.20 * 50 = 4,110.

21. What does Open Interest represent?

A) Total volume traded in a day
B) Total number of outstanding contracts
C) Number of people interested in buying
D) Contracts that were squared off

View Answer & Logic

Answer: B) Total number of outstanding contracts

22. Prev Close 200, Price Band 5%. Range is:

A) 195 to 205
B) 190 to 210
C) 200 to 205
D) 100 to 300

View Answer & Logic

Answer: B) Rs. 190 to Rs. 210

Math: 5% of 200 = 10. Range = 200 +/- 10 = 190 to 210.

23. Short futures at 500. Expiry at 550. Percentage loss?

A) 5%
B) 10%
C) 50%
D) 1%

View Answer & Logic

Answer: B) 10%

Math: Loss = 50. (50 / 500) * 100 = 10%.

24. What is an "open position"?

A) Any trade made during market hours
B) An unsettled long or short position
C) A position held for more than a year
D) A contract that has expired

View Answer & Logic

Answer: B) Either an unsettled long or short position

25. Short near-month and long far-month is a:

A) Naked position
B) Hedged position
C) Calendar spread position
D) Bullish position

View Answer & Logic

Answer: C) Calendar spread position

26. Holding a future without holding the underlying asset is:

A) Spread position
B) Naked position
C) Safe position
D) Cash position

View Answer & Logic

Answer: B) Naked position

27. Portfolio Beta 1.2, Value 100L, Contract Value 10L. No. of contracts = ?

A) 10
B) 15
C) 12
D) 8

View Answer & Logic

Answer: C) 12

Math: (100L * 1.2) / 10L = 12.

28. Inter-commodity spread involves:

A) Same maturity, same product
B) Same product, different maturity
C) Related products (e.g., Soybean and Soybean oil)
D) Buying stocks and selling bonds

View Answer & Logic

Answer: C) Related products/commodities

29. Payoff graph: Asset price is on X-axis, what is on Y-axis?

A) Time to expiry
B) Volatility
C) Profit/Loss (Payoff)
D) Strike price

View Answer & Logic

Answer: C) Profit/Loss (Payoff)

30. Fair Price = Spot + Carry is the formula for:

A) Black-Scholes Model
B) Cost of Carry Model
C) Expectations Hypothesis
D) Binomial Model

View Answer & Logic

Answer: B) Cost of Carry Model

31. In an efficient market, arbitrage opportunities:

A) Last for many days
B) Are eliminated quickly by traders
C) Are only for institutional investors
D) Do not require any capital

View Answer & Logic

Answer: B) Are eliminated quickly by traders

32. Annual Int 5%, Div Yield 2%, Spot 500. Six-month Future Price = ?

A) 512.50
B) 505.00
C) 507.50
D) 500.00

View Answer & Logic

Answer: C) Rs. 507.50

Math: Net carry = 5% - 2% = 3%. For 6 months: 500 * (3% * 0.5) = 7.5. Total = 507.50.

33. Reverse cash and carry arbitrage occurs when:

A) Future price > Fair price
B) Future price < Fair price
C) Future price = Spot price
D) Spot price < Intrinsic value

View Answer & Logic

Answer: B) Future price is lower than the fair futures price

34. "Contango" means:

A) Future Price < Spot Price
B) Future Price > Spot Price
C) Basis is zero
D) Market is closed

View Answer & Logic

Answer: B) Future Price is higher than the spot price

35. Expectations hypothesis says futures price is the market's expectation of:

A) Previous year's profit
B) Dividend yield
C) Future spot price
D) Inflation rate

View Answer & Logic

Answer: C) Future spot price

36. Primary objective of a speculator:

A) Minimize risk
B) Predict price moves to earn profit
C) Collect dividends
D) Maintain index stability

View Answer & Logic

Answer: B) Predict future price movements and profit from them

37. Index futures are best for hedging:

A) Unsystematic risk
B) Systematic risk
C) Company-specific risk
D) Operational risk

View Answer & Logic

Answer: B) Systematic risk

38. Convenience yield is usually found in:

A) Equities
B) Bonds
C) Commodities (Consumption assets)
D) Real estate

View Answer & Logic

Answer: C) Commodities (Consumption assets)

39. Tick size for Nifty futures is:

A) 0.01
B) 0.05
C) 0.10
D) 1.00

View Answer & Logic

Answer: B) 0.05 (5 Paisa)

40. As expiry approaches, future price and spot price:

A) Move further apart
B) Converge to the same value
C) Remain constant
D) Flip their relationship

View Answer & Logic

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Dhaval Visariya

AMFI Registered Distributor (ARN-327925) | Software Developer & Finance Enthusiast

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