NISM Series XIII | Common Derivatives | NISM Series IV: Interest Rate Derivatives | Mock Test 2.1 | Solved MCQs Part 2
NISM Series IV: Interest Rate Derivatives
Mock Test 4.2: Full Solved Question Bank
📌 MODULE 4.2 STUDY GUIDE:
This test covers Reinvestment Risk, Parallel Shifts in Yield Curves, Calendar Spreads, and Taxation rules. Click each question to reveal the correct answer and logic.
Q 1. What is the net payoff in rupees for Ms. Smita, who purchased a Rs 21.50 strike call option for Rs 0.20, if the underlying bond price closes at Rs 21.70 on the expiry date?
A) 0.20
B) 0.40
C) -0.20
D) 0
View Answer & Explanation
Answer: 0
Explanation: Expiry Price (21.70) > Strike (21.50). Gross Payoff = 21.70 - 21.50 = 0.20. Net Payoff = Gross Payoff - Premium = 0.20 - 0.20 = 0.
Q 2. The effect of reinvestment risk on bond returns is _________.
A) Slow and over a period of time
B) Immediate and instant
C) Nil impact
D) None of the above
View Answer
Answer: Slow and over a period of time
Q 3. The key variable(s) affecting an option's price is/are ________.
A) The spot price of underlying asset
B) The time to expiration
C) The strike price of an option
D) All of the above
View Answer
Answer: All of the above
Q 4. Identify the correct statement for 'Clearing Bank Account'.
A) All transactions conducted by the clearing member are routed through this general account
B) This account is solely for processing payments to and from SEBI
C) Payments to clients and receipts from clients must be processed through this account only
D) All payments to and from the Clearing Corporation must be processed through this account only
View Answer
Answer: All payments to and from the Clearing Corporation must be processed through this account only
Q 5. Mrs. Ayushi takes two positions: buying a call option (strike Rs 150, premium Rs 0.30) and buying a put option (strike Rs 150.00, premium Rs 0.20). Determine her net profit or loss if the underlying asset's price at expiry is Rs 149.50.
A) Rs. 0.20
B) Rs. - 0.20
C) Rs. 0.50
D) 0
View Answer & Logic
Answer: 0
Explanation: Call Payoff = 0 (Worthless). Put Payoff = 150 - 149.50 = 0.50. Total Cost (Premiums) = 0.30 + 0.20 = 0.50. Net P/L = 0.50 - 0.50 = 0.
Q 6. Which of the following must be specified when submitting a trade order for it to be executed?
A) Market side - Buy or Sell
B) Whether the trade is Proprietary or Client trade
C) The Quantity to bought or sold
D) All of the above
View Answer
Answer: All of the above
Q 7. A shift where interest rates across all maturities change by the same amount and in the same direction is called a ________.
A) Perpendicular shift
B) Vertical shift
C) Steepening shift
D) Parallel shift
View Answer
Answer: Parallel shift
Q 8. According to the Security Contracts (Regulation) Rules, 1957, what is the minimum age for an individual to become a trading member?
A) 18 years
B) 21 years
C) 20 years
D) 25 years
View Answer
Answer: 21 years
Q 9. To establish a calendar spread in the futures market, two simultaneous trades are executed with which features?
A) Different market side and different underlying's
B) Different market side but same expiry month
C) Same market side but different expiry months
D) None of the above
View Answer & Explanation
Answer: None of the above
Explanation: A calendar spread requires: 1. Opposite market sides (Long/Short), 2. SAME underlying, 3. DIFFERENT expiry months. None of the options A, B, or C fit this criteria correctly.
Q 10. Identify which of these can be considered as a Derivative?
A) Interest Rate Futures
B) Interest Rate Swap
C) Interest Rate Options
D) All of the above
View Answer
Answer: All of the above
Q 11. What is the most significant risk to which banks are exposed?
A) Currency risk
B) Equity risk
C) Interest rate risk
D) Commodity risk
View Answer
Answer: Interest rate risk
Q 12. What is the basis for the final price at which a treasury bill futures contract is settled?
A) The price is linked to the auction price of treasury bill
B) The price is the daily settlement price for that day
C) Fixed by FIMMDA
D) Fixed by FEDAI
View Answer
Answer: The price is linked to the auction price of treasury bill
Q 13. A _________ order is classified as price related condition.
A) Day
B) Market
C) IOC
D) None of the above
View Answer
Answer: Market
Q 14. Execution of Power of attorney by the client in favour of stock broker is ________.
A) Mandatory at the time of placing an order
B) Mandatory at the time of KYC
C) Optional
View Answer
Answer: Optional
Q 15. Loss on derivative transactions carried out in a "recognized stock exchange" can be carried forward for a period of ________ assessment years.
A) 5
B) 6
C) 7
D) 8
View Answer
Answer: 8
Q 16. Limitation of Interest Rate Derivatives for Hedgers is mainly due to _________.
A) Standardised Contract
B) Non availability on all kind of underlying instruments
C) Both of the above
D) None of the above
View Answer
Answer: Both of the above
Q 17. If you expect the interest rate will go up in future, today you should ________.
A) Buy GOI bond futures
B) Sell GOI Bond futures
C) Buy underlying bond
D) None of the above
View Answer & Logic
Answer: Sell GOI Bond futures
Explanation: Inverse Relationship: Rates Up = Bond Prices Down. To profit from a price drop, you must Sell (Short) futures.
Q 18. Insurance companies are allowed to participate in interest rate futures only for ________.
A) Long Hedge
B) Short Hedge
C) Both of the above
D) None of the above
View Answer
Answer: Long Hedge
Q 19. If the price of a Govt. bond future is Rs 111.75, what will the market value of one contract?
A) Rs 111750
B) Rs. 223500
C) Rs. 142300
D) Rs. 411000
View Answer & Calculation
Answer: Rs. 223500
Explanation: The standard contract size for GOI bond futures in India is a face value of Rs 2,00,000. Market Value = (Price/100) * Face Value = (111.75 / 100) * 2,00,000 = 111.75 * 2000 = 2,23,500.
Q 20. Repo transaction means ________ .
A) Borrowing security and lending money
B) Borrowing money and lending security
C) Both 1 and 2
D) None of the above
View Answer
Answer: Borrowing money and lending security
Q 21. Which among the following options is /are eligible to open a Constituent Subsidiary General Ledger (CSGL) Account?
A) NABARD
B) Stock Holding Corporation of India Ltd (SHIL)
C) NSDL and CDSL
D) All the above
View Answer
Answer: All the above
Q 24. On which day does the Government of India conducts the auction for Treasury Bills?
A) Monday
B) Wednesday
C) Friday
D) Sunday
View Answer
Answer: Wednesday
Q 25. The derivative(s) traded in the exchange market is/are ________ .
A) Options
B) Futures
C) Both 1 and 2
D) None of the above
View Answer
Answer: Both 1 and 2
Q 26. Assume two bonds are issued by an issuer which have same maturity but different coupon. Which bond should an investor buy?
A) Bond with a higher market price
B) Bond with a lower market price
C) Bonds cannot be judged based on their prices
D) None of the above
View Answer & Explanation
Answer: Bonds cannot be judged based on their prices
Explanation: Price alone is misleading. Investors must compare the Yield to Maturity (YTM) to determine which bond provides a better return for the risk.
Q 27. Assume that the regulator has stipulated a minimum margin of Rs 200, the clearing corporation can change it to ________ .
A) Any amount above Rs 200
B) Any amount below Rs 200
C) Either 1 or 2 as it sees fit
D) Any amount between Rs. 150 to 200
View Answer
Answer: Any amount above Rs 200
Q 28. When securities are delivered short, the auction is conducted on ________ .
A) First business day after the day of intention
B) Second business day after the day of intention
C) On the settlement day
D) seven days after the day of intention
View Answer
Answer: On the settlement day
Q 29. For the Open Position on the Last Trading Day, the seller must notify the Clearing Corporation his intention to deliver by the close of ________ .
A) Last Trading Day
B) Two business days prior to the last business day (expiry day)
C) Both 1 and 2 are same
D) None of the above
View Answer
Answer: Last Trading Day
Q 30. From the given options, which is the most liquid tenor in Money Markets?
A) 10 month
B) 6 month
C) 2 month
D) 1 month
View Answer
Answer: 1 month
Explanation: In the Money Market, the 1-month and 3-month tenors typically enjoy the highest liquidity compared to others.
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