In this blog, we have discussed about 50 Most Important MCQs NISM equity derivatives mock test.
NISM Equity Derivatives: 50 MCQs NISM equity derivatives mock test with Answers and Explanations
Chapter 1: Basics of Derivatives
1. What is a derivative?
a) A physical asset traded on the stock exchange
b) A financial contract whose value is derived from an underlying asset
c) A type of equity share
d) A fixed-income security
a) A physical asset traded on the stock exchange
b) A financial contract whose value is derived from an underlying asset
c) A type of equity share
d) A fixed-income security
Correct Answer: b) A financial contract whose value is derived from an underlying asset
Explanation: A derivative is a financial instrument whose value depends on the price of an underlying asset, such as stocks, indices, or commodities. It is not a physical asset, equity share, or fixed-income security. Derivatives are used for hedging, speculation, or arbitrage.
Explanation: A derivative is a financial instrument whose value depends on the price of an underlying asset, such as stocks, indices, or commodities. It is not a physical asset, equity share, or fixed-income security. Derivatives are used for hedging, speculation, or arbitrage.
2. Which of the following is NOT a type of derivative market?
a) Over-the-Counter (OTC)
b) Exchange-Traded
c) Spot Market
d) Forward Market
a) Over-the-Counter (OTC)
b) Exchange-Traded
c) Spot Market
d) Forward Market
Correct Answer: c) Spot Market
Explanation: Derivative markets include OTC and exchange-traded markets. The spot market involves immediate delivery of assets and is not a derivative market. Forwards are a type of OTC derivative.
Explanation: Derivative markets include OTC and exchange-traded markets. The spot market involves immediate delivery of assets and is not a derivative market. Forwards are a type of OTC derivative.
3. What is a key factor driving the growth of derivatives markets globally?
a) Low transaction costs
b) Increased market volatility
c) Lack of regulation
d) Reduced liquidity
a) Low transaction costs
b) Increased market volatility
c) Lack of regulation
d) Reduced liquidity
Correct Answer: b) Increased market volatility
Explanation: Market volatility increases the need for derivatives to hedge risks or speculate on price movements. Low transaction costs and liquidity support growth but are not primary drivers, while lack of regulation is not a positive factor.
Explanation: Market volatility increases the need for derivatives to hedge risks or speculate on price movements. Low transaction costs and liquidity support growth but are not primary drivers, while lack of regulation is not a positive factor.
4. Who is NOT typically a participant in the derivatives market?
a) Hedgers
b) Speculators
c) Arbitrageurs
d) Retail equity investors
a) Hedgers
b) Speculators
c) Arbitrageurs
d) Retail equity investors
Correct Answer: d) Retail equity investors
Explanation: Hedgers, speculators, and arbitrageurs are key participants in derivatives markets, using derivatives for risk management, profit, or price discrepancy exploitation. Retail equity investors may participate but are not a primary category.
Explanation: Hedgers, speculators, and arbitrageurs are key participants in derivatives markets, using derivatives for risk management, profit, or price discrepancy exploitation. Retail equity investors may participate but are not a primary category.
5. What is the primary significance of derivatives?
a) Price discovery
b) Wealth creation
c) Dividend distribution
d) Tax avoidance
a) Price discovery
b) Wealth creation
c) Dividend distribution
d) Tax avoidance
Correct Answer: a) Price discovery
Explanation: Derivatives help in price discovery by reflecting market expectations of future asset prices. They also aid in risk management but are not primarily for wealth creation, dividends, or tax avoidance.
Explanation: Derivatives help in price discovery by reflecting market expectations of future asset prices. They also aid in risk management but are not primarily for wealth creation, dividends, or tax avoidance.
Chapter 2: Understanding Index
6. What does a stock market index represent?
a) The total market capitalization of all listed companies
b) A weighted average of selected stock prices
c) The total number of shares traded daily
d) The average dividend yield of companies
a) The total market capitalization of all listed companies
b) A weighted average of selected stock prices
c) The total number of shares traded daily
d) The average dividend yield of companies
Correct Answer: b) A weighted average of selected stock prices
Explanation: A stock market index tracks the performance of a group of stocks, calculated as a weighted average (e.g., market-cap weighted) of their prices. It does not represent total market cap, shares traded, or dividend yields.
Explanation: A stock market index tracks the performance of a group of stocks, calculated as a weighted average (e.g., market-cap weighted) of their prices. It does not represent total market cap, shares traded, or dividend yields.
7. Which of the following is a major index in India?
a) Dow Jones
b) Nifty 50
c) FTSE 100
d) Nikkei 225
a) Dow Jones
b) Nifty 50
c) FTSE 100
d) Nikkei 225
Correct Answer: b) Nifty 50
Explanation: The Nifty 50 is a major Indian stock market index, representing 50 large-cap companies on the National Stock Exchange (NSE). The others are indices of the US, UK, and Japan, respectively.
Explanation: The Nifty 50 is a major Indian stock market index, representing 50 large-cap companies on the National Stock Exchange (NSE). The others are indices of the US, UK, and Japan, respectively.
8. What is the economic purpose of a stock index?
a) To serve as a benchmark for portfolio performance
b) To determine corporate tax rates
c) To regulate stock exchanges
d) To set interest rates
a) To serve as a benchmark for portfolio performance
b) To determine corporate tax rates
c) To regulate stock exchanges
d) To set interest rates
Correct Answer: a) To serve as a benchmark for portfolio performance
Explanation: Stock indices provide a reference for measuring portfolio performance, market trends, and economic health. They are not used for tax, regulation, or interest rate purposes.
Explanation: Stock indices provide a reference for measuring portfolio performance, market trends, and economic health. They are not used for tax, regulation, or interest rate purposes.
9. What does a beta of 1 mean for a stock?
a) The stock’s price moves twice as fast as the market
b) The stock’s price moves in line with the market
c) The stock’s price is unaffected by the market
d) The stock’s price moves opposite to the market
a) The stock’s price moves twice as fast as the market
b) The stock’s price moves in line with the market
c) The stock’s price is unaffected by the market
d) The stock’s price moves opposite to the market
Correct Answer: b) The stock’s price moves in line with the market
Explanation: A beta of 1 indicates that the stock’s price moves in sync with the market’s percentage changes. Beta > 1 means higher volatility, < 1 means lower, and negative beta means opposite movement.
Explanation: A beta of 1 indicates that the stock’s price moves in sync with the market’s percentage changes. Beta > 1 means higher volatility, < 1 means lower, and negative beta means opposite movement.
10. What is the impact cost in the context of an index?
a) The cost of trading an index fund
b) The cost of price movement due to large trades
c) The cost of index management
d) The cost of regulatory compliance
a) The cost of trading an index fund
b) The cost of price movement due to large trades
c) The cost of index management
d) The cost of regulatory compliance
Correct Answer: b) The cost of price movement due to large trades
Explanation: Impact cost measures the price impact of executing large trades in an index’s constituent stocks, reflecting liquidity. It is not related to fund trading, management, or compliance costs.
Explanation: Impact cost measures the price impact of executing large trades in an index’s constituent stocks, reflecting liquidity. It is not related to fund trading, management, or compliance costs.
Chapter 3: Introduction to Forwards and Futures
11. What is the key difference between a forward and a futures contract?
a) Forwards are standardized; futures are customized
b) Forwards are OTC; futures are exchange-traded
c) Forwards are settled daily; futures are settled at expiry
d) Forwards are riskier for exchanges
a) Forwards are standardized; futures are customized
b) Forwards are OTC; futures are exchange-traded
c) Forwards are settled daily; futures are settled at expiry
d) Forwards are riskier for exchanges
Correct Answer: b) Forwards are OTC; futures are exchange-traded
Explanation: Forwards are customized contracts traded over-the-counter (OTC), while futures are standardized and traded on exchanges, ensuring lower counterparty risk and daily settlement.
Explanation: Forwards are customized contracts traded over-the-counter (OTC), while futures are standardized and traded on exchanges, ensuring lower counterparty risk and daily settlement.
12. What is the payoff of a long futures position if the price rises?
a) Loss
b) Profit
c) No change
d) Depends on volatility
a) Loss
b) Profit
c) No change
d) Depends on volatility
Correct Answer: b) Profit
Explanation: In a long futures position, the buyer benefits when the underlying asset’s price rises, as they can sell the contract at a higher price. A price drop would result in a loss.
Explanation: In a long futures position, the buyer benefits when the underlying asset’s price rises, as they can sell the contract at a higher price. A price drop would result in a loss.
13. If far-month futures prices are lower than near-month futures prices, this is known as:
a) Contango
b) Backwardation
c) Delta Hedging
d) Basis
a) Contango
b) Backwardation
c) Delta Hedging
d) Basis
Correct Answer: b) Backwardation
Explanation: Backwardation occurs when futures prices are lower than spot prices or far-month futures are cheaper than near-month futures, indicating expected price declines. Contango is the opposite.
Explanation: Backwardation occurs when futures prices are lower than spot prices or far-month futures are cheaper than near-month futures, indicating expected price declines. Contango is the opposite.
14. How is the futures price determined under the cash-and-carry model?
a) Spot price + Cost of carry
b) Spot price – Cost of carry
c) Spot price × Interest rate
d) Spot price ÷ Lot size
a) Spot price + Cost of carry
b) Spot price – Cost of carry
c) Spot price × Interest rate
d) Spot price ÷ Lot size
Correct Answer: a) Spot price + Cost of carry
Explanation: The cash-and-carry model calculates the futures price as the spot price plus the cost of carrying the asset (e.g., interest, storage) until the contract’s expiry.
Explanation: The cash-and-carry model calculates the futures price as the spot price plus the cost of carrying the asset (e.g., interest, storage) until the contract’s expiry.
15. What is the primary use of futures contracts?
a) Dividend generation
b) Hedging or speculation
c) Tax optimization
d) Portfolio diversification
a) Dividend generation
b) Hedging or speculation
c) Tax optimization
d) Portfolio diversification
Correct Answer: b) Hedging or speculation
Explanation: Futures are primarily used for hedging (risk management) or speculation (profit from price movements). They are not directly used for dividends, taxes, or diversification.
Explanation: Futures are primarily used for hedging (risk management) or speculation (profit from price movements). They are not directly used for dividends, taxes, or diversification.
Chapter 4: Introduction to Options
16. What is the intrinsic value of an out-of-the-money (OTM) option?
a) Zero
b) The premium paid
c) The strike price
d) The spot price
a) Zero
b) The premium paid
c) The strike price
d) The spot price
Correct Answer: a) Zero
Explanation: An OTM option has no intrinsic value because the underlying asset’s price is not favorable for exercise (e.g., a call with a strike price above the spot price). Intrinsic value is zero, but the option may have time value.
Explanation: An OTM option has no intrinsic value because the underlying asset’s price is not favorable for exercise (e.g., a call with a strike price above the spot price). Intrinsic value is zero, but the option may have time value.
17. What happens to an option’s time value at expiration?
a) It increases
b) It becomes zero
c) It remains constant
d) It doubles
a) It increases
b) It becomes zero
c) It remains constant
d) It doubles
Correct Answer: b) It becomes zero
Explanation: At expiration, an option’s time value becomes zero, and the option is worth only its intrinsic value (if any). This applies to both call and put options.
Explanation: At expiration, an option’s time value becomes zero, and the option is worth only its intrinsic value (if any). This applies to both call and put options.
18. If the underlying stock of a put option is highly volatile, what happens to the premium?
a) The premium decreases
b) The premium increases
c) The premium becomes zero
d) No effect on the premium
a) The premium decreases
b) The premium increases
c) The premium becomes zero
d) No effect on the premium
Correct Answer: b) The premium increases
Explanation: Higher volatility increases the expected payout of an option, raising its premium. Vega measures this sensitivity, and it is positive for both calls and puts.
Explanation: Higher volatility increases the expected payout of an option, raising its premium. Vega measures this sensitivity, and it is positive for both calls and puts.
19. What is the maximum gain for the seller of a put option with a strike price of Rs. 375 and a premium of Rs. 50?
a) Unlimited
b) Rs. 50
c) Rs. 325
d) None of the above
a) Unlimited
b) Rs. 50
c) Rs. 325
d) None of the above
Correct Answer: b) Rs. 50
Explanation: The seller of a put option receives the premium (Rs. 50) as their maximum gain, as this is the amount they keep if the option expires worthless. Their potential loss is large if the stock price falls significantly.
Explanation: The seller of a put option receives the premium (Rs. 50) as their maximum gain, as this is the amount they keep if the option expires worthless. Their potential loss is large if the stock price falls significantly.
20. Which derivative contract cannot be used to acquire the underlying asset?
a) Copper futures
b) Gold futures
c) Individual securities futures
d) Stock index futures
a) Copper futures
b) Gold futures
c) Individual securities futures
d) Stock index futures
Correct Answer: d) Stock index futures
Explanation: Stock index futures are cash-settled and cannot be used to acquire the underlying index, as indices are not physical assets. Commodity and individual stock futures can lead to delivery of the underlying.
Explanation: Stock index futures are cash-settled and cannot be used to acquire the underlying index, as indices are not physical assets. Commodity and individual stock futures can lead to delivery of the underlying.
Chapter 5: Option Trading Strategies
21. A long straddle strategy involves:
a) Buying a call and a put with the same strike and expiry
b) Selling a call and a put with the same strike and expiry
c) Buying a call and selling a put
d) Selling a call and buying a put
a) Buying a call and a put with the same strike and expiry
b) Selling a call and a put with the same strike and expiry
c) Buying a call and selling a put
d) Selling a call and buying a put
Correct Answer: a) Buying a call and a put with the same strike and expiry
Explanation: A long straddle involves buying a call and a put with the same strike price and expiry, profiting from large price movements in either direction. It has unlimited profit potential and limited loss (premium paid).
Explanation: A long straddle involves buying a call and a put with the same strike price and expiry, profiting from large price movements in either direction. It has unlimited profit potential and limited loss (premium paid).
22. Nifty is at 4900. An investor sells two Nifty calls (strike 4900, premium Rs. 100, lot size 50). If Nifty rises to 4950, what is the profit/loss?
a) Profit of Rs. 5000
b) Loss of Rs. 5000
c) Profit of Rs. 10000
d) Loss of Rs. 10000
a) Profit of Rs. 5000
b) Loss of Rs. 5000
c) Profit of Rs. 10000
d) Loss of Rs. 10000
Correct Answer: a) Profit of Rs. 5000
Explanation: The investor receives a premium of Rs. 100 × 2 lots × 50 = Rs. 10,000. Nifty rises to 4950, so the calls expire in-the-money by Rs. 50, causing a loss of Rs. 50 × 2 × 50 = Rs. 5000. Net profit = Rs. 10,000 – Rs. 5000 = Rs. 5000.
Explanation: The investor receives a premium of Rs. 100 × 2 lots × 50 = Rs. 10,000. Nifty rises to 4950, so the calls expire in-the-money by Rs. 50, causing a loss of Rs. 50 × 2 × 50 = Rs. 5000. Net profit = Rs. 10,000 – Rs. 5000 = Rs. 5000.
23. What is a butterfly spread?
a) Buying and selling options with different strikes and expiries
b) Buying and selling options to create limited risk and reward
c) Selling a call and a put at the same strike
d) Buying futures and options together
a) Buying and selling options with different strikes and expiries
b) Buying and selling options to create limited risk and reward
c) Selling a call and a put at the same strike
d) Buying futures and options together
Correct Answer: b) Buying and selling options to create limited risk and reward
Explanation: A butterfly spread involves buying and selling options (calls or puts) at different strike prices to create a position with limited risk and reward, often used to profit from low volatility.
Explanation: A butterfly spread involves buying and selling options (calls or puts) at different strike prices to create a position with limited risk and reward, often used to profit from low volatility.
24. A trader sells a put contract (strike Rs. 200, premium Rs. 50, lot size 1500) and buys it back at Rs. 28. What is the profit/loss?
a) Profit of Rs. 33,000
b) Loss of Rs. 33,000
c) Profit of Rs. 22,000
d) Loss of Rs. 22,000
a) Profit of Rs. 33,000
b) Loss of Rs. 33,000
c) Profit of Rs. 22,000
d) Loss of Rs. 22,000
Correct Answer: a) Profit of Rs. 33,000
Explanation: The trader receives Rs. 50 × 1500 = Rs. 75,000 (premium) and pays Rs. 28 × 1500 = Rs. 42,000 to buy it back. Profit = Rs. 75,000 – Rs. 42,000 = Rs. 33,000.
Explanation: The trader receives Rs. 50 × 1500 = Rs. 75,000 (premium) and pays Rs. 28 × 1500 = Rs. 42,000 to buy it back. Profit = Rs. 75,000 – Rs. 42,000 = Rs. 33,000.
25. What is the risk profile of a long call option?
a) Limited loss, unlimited profit
b) Unlimited loss, limited profit
c) Limited loss, limited profit
d) Unlimited loss, unlimited profit
a) Limited loss, unlimited profit
b) Unlimited loss, limited profit
c) Limited loss, limited profit
d) Unlimited loss, unlimited profit
Correct Answer: a) Limited loss, unlimited profit
Explanation: A long call option’s maximum loss is the premium paid, while the profit is theoretically unlimited if the stock price rises significantly.
Explanation: A long call option’s maximum loss is the premium paid, while the profit is theoretically unlimited if the stock price rises significantly.
Chapter 6: Trading
26. How is the potential exposure calculated by the clearing corporation?
a) On the last trading day of the contract month
b) On the last trading day of the week
c) At the end of the trading day
d) On a real-time basis
a) On the last trading day of the contract month
b) On the last trading day of the week
c) At the end of the trading day
d) On a real-time basis
Correct Answer: d) On a real-time basis
Explanation: The clearing corporation monitors open positions and calculates exposure in real-time to manage risks, including initial margin and exposure margin violations.
Explanation: The clearing corporation monitors open positions and calculates exposure in real-time to manage risks, including initial margin and exposure margin violations.
27. What is the initial margin in derivatives trading based on?
a) The lot size of the contract
b) The volatility of the underlying market
c) The broker’s commission
d) The trader’s credit rating
a) The lot size of the contract
b) The volatility of the underlying market
c) The broker’s commission
d) The trader’s credit rating
Correct Answer: b) The volatility of the underlying market
Explanation: Initial margin is set based on the volatility of the underlying asset to cover potential price fluctuations, ensuring risk management.
Explanation: Initial margin is set based on the volatility of the underlying asset to cover potential price fluctuations, ensuring risk management.
28. Can clients’ positions be netted off against each other for initial margin calculation?
a) Yes
b) No
c) Only for hedged positions
d) Only for speculative positions
a) Yes
b) No
c) Only for hedged positions
d) Only for speculative positions
Correct Answer: b) No
Explanation: In the derivatives segment, clients’ positions cannot be netted off against each other for initial margin calculations to ensure individual risk coverage.
Explanation: In the derivatives segment, clients’ positions cannot be netted off against each other for initial margin calculations to ensure individual risk coverage.
29. What does the SPAN system select after scanning 16 scenarios of price and volatility changes?
a) Average loss
b) Smallest loss
c) Largest loss
d) Medium loss
a) Average loss
b) Smallest loss
c) Largest loss
d) Medium loss
Correct Answer: c) Largest loss
Explanation: The SPAN (Standard Portfolio Analysis of Risk) system evaluates 16 scenarios and selects the largest potential loss to determine the margin requirement, ensuring sufficient coverage.
Explanation: The SPAN (Standard Portfolio Analysis of Risk) system evaluates 16 scenarios and selects the largest potential loss to determine the margin requirement, ensuring sufficient coverage.
30. What is the value of one lot of ABC futures at Rs. 6900 with a contract multiplier of 50?
a) Rs. 289,000
b) Rs. 690,000
c) Rs. 345,000
d) Rs. 460,000
a) Rs. 289,000
b) Rs. 690,000
c) Rs. 345,000
d) Rs. 460,000
Correct Answer: c) Rs. 345,000
Explanation: The value of the futures contract is Price × Lot Size = Rs. 6900 × 50 = Rs. 345,000.
Explanation: The value of the futures contract is Price × Lot Size = Rs. 6900 × 50 = Rs. 345,000.
Chapter 7: Clearing, Settlement, and Risk Management
31. What is the role of the clearing corporation in derivatives trading?
a) To execute trades
b) To guarantee settlement of trades
c) To set trading hours
d) To issue dividends
a) To execute trades
b) To guarantee settlement of trades
c) To set trading hours
d) To issue dividends
Correct Answer: b) To guarantee settlement of trades
Explanation: The clearing corporation ensures trade settlement by acting as a counterparty to both buyers and sellers, reducing counterparty risk.
Explanation: The clearing corporation ensures trade settlement by acting as a counterparty to both buyers and sellers, reducing counterparty risk.
32. What happens if a trader fails to meet a margin call?
a) The position is automatically squared off
b) The trader is fined
c) The contract is extended
d) The exchange pays the margin
a) The position is automatically squared off
b) The trader is fined
c) The contract is extended
d) The exchange pays the margin
Correct Answer: a) The position is automatically squared off
Explanation: If a trader fails to meet a margin call, the clearing corporation may square off the position to limit losses and protect the market.
Explanation: If a trader fails to meet a margin call, the clearing corporation may square off the position to limit losses and protect the market.
33. What is mark-to-market (MTM) margin?
a) A fixed deposit with the exchange
b) Daily settlement of gains/losses based on price changes
c) A penalty for late payments
d) A commission paid to brokers
a) A fixed deposit with the exchange
b) Daily settlement of gains/losses based on price changes
c) A penalty for late payments
d) A commission paid to brokers
Correct Answer: b) Daily settlement of gains/losses based on price changes
Explanation: MTM margin involves daily settlement of gains or losses based on the closing price of the derivative contract, ensuring risk management.
Explanation: MTM margin involves daily settlement of gains or losses based on the closing price of the derivative contract, ensuring risk management.
34. Money and securities deposited by clients can be used for:
a) The broker’s proprietary account
b) Meeting the broker’s obligations
c) Only the client’s obligations
d) Exchange operations
a) The broker’s proprietary account
b) Meeting the broker’s obligations
c) Only the client’s obligations
d) Exchange operations
Correct Answer: c) Only the client’s obligations
Explanation: Client funds and securities cannot be used for the broker’s proprietary account or obligations, ensuring client protection.
Explanation: Client funds and securities cannot be used for the broker’s proprietary account or obligations, ensuring client protection.
35. What is the purpose of the exposure margin?
a) To cover broker fees
b) To protect against extreme price movements
c) To fund exchange operations
d) To calculate dividends
a) To cover broker fees
b) To protect against extreme price movements
c) To fund exchange operations
d) To calculate dividends
Correct Answer: b) To protect against extreme price movements
Explanation: Exposure margin is an additional margin to cover potential losses from unexpected price movements, beyond the initial margin.
Explanation: Exposure margin is an additional margin to cover potential losses from unexpected price movements, beyond the initial margin.
Chapter 8: Legal and Regulatory Environment
36. Under which act is the derivatives market regulated in India?
a) Companies Act, 2013
b) Securities Contracts (Regulation) Act, 1956
c) Banking Regulation Act, 1949
d) Income Tax Act, 1961
a) Companies Act, 2013
b) Securities Contracts (Regulation) Act, 1956
c) Banking Regulation Act, 1949
d) Income Tax Act, 1961
Correct Answer: b) Securities Contracts (Regulation) Act, 1956
Explanation: The Securities Contracts (Regulation) Act, 1956, governs the trading of derivatives and other securities in India, ensuring market integrity.
Explanation: The Securities Contracts (Regulation) Act, 1956, governs the trading of derivatives and other securities in India, ensuring market integrity.
37. A stock broker can be penalized or suspended under SEBI regulations for:
a) Violating registration conditions
b) Failing to pay fees
c) Suspension by the stock exchange
d) All of the above
a) Violating registration conditions
b) Failing to pay fees
c) Suspension by the stock exchange
d) All of the above
Correct Answer: d) All of the above
Explanation: SEBI can penalize or suspend a broker for violating registration conditions, failing to pay fees, or being suspended by the exchange, as per SEBI (Stock Broker and Sub-broker) Regulations, 1992.
Explanation: SEBI can penalize or suspend a broker for violating registration conditions, failing to pay fees, or being suspended by the exchange, as per SEBI (Stock Broker and Sub-broker) Regulations, 1992.
38. What is the eligibility criterion for membership in the derivatives segment?
a) Minimum net worth requirement
b) Maximum trading volume
c) Minimum number of clients
d) Maximum employee count
a) Minimum net worth requirement
b) Maximum trading volume
c) Minimum number of clients
d) Maximum employee count
Correct Answer: a) Minimum net worth requirement
Explanation: Membership in the derivatives segment requires a minimum net worth to ensure financial stability, as specified by the exchange.
Explanation: Membership in the derivatives segment requires a minimum net worth to ensure financial stability, as specified by the exchange.
39. What happens in case of a default by a trading member (TM)?
a) The exchange absorbs the loss
b) A standard operating procedure (SOP) is followed
c) The client pays the loss
d) The contract is canceled
a) The exchange absorbs the loss
b) A standard operating procedure (SOP) is followed
c) The client pays the loss
d) The contract is canceled
Correct Answer: b) A standard operating procedure (SOP) is followed
Explanation: In case of a TM default, a standard operating procedure is followed to manage the default, protect clients, and ensure market stability.
Explanation: In case of a TM default, a standard operating procedure is followed to manage the default, protect clients, and ensure market stability.
40. Can a candidate request re-evaluation of the NISM exam?
a) Yes, for all questions
b) No, re-evaluation is not permitted
c) Only for subjective questions
d) Only for incorrect questions
a) Yes, for all questions
b) No, re-evaluation is not permitted
c) Only for subjective questions
d) Only for incorrect questions
Correct Answer: b) No, re-evaluation is not permitted
Explanation: NISM does not permit re-evaluation of certification exams, as answers are objectively assessed by an automated system with no human intervention.
Explanation: NISM does not permit re-evaluation of certification exams, as answers are objectively assessed by an automated system with no human intervention.
Chapter 9: Accounting and Taxation
41. How are anticipated profits from a credit balance in the MTM account treated?
a) Credited to the profit and loss account
b) Ignored in the profit and loss account
c) Used to offset taxes
d) Paid as dividends
a) Credited to the profit and loss account
b) Ignored in the profit and loss account
c) Used to offset taxes
d) Paid as dividends
Correct Answer: b) Ignored in the profit and loss account
Explanation: Anticipated profits (credit balance in the MTM account) are not credited to the profit and loss account, as they are unrealized until the position is closed.
Explanation: Anticipated profits (credit balance in the MTM account) are not credited to the profit and loss account, as they are unrealized until the position is closed.
42. How are derivative transactions taxed in India?
a) As capital gains
b) As business income
c) As dividend income
d) As interest income
a) As capital gains
b) As business income
c) As dividend income
d) As interest income
Correct Answer: b) As business income
Explanation: Derivative transactions are treated as business income under Indian tax laws, subject to applicable tax rates, not as capital gains or other income types.
Explanation: Derivative transactions are treated as business income under Indian tax laws, subject to applicable tax rates, not as capital gains or other income types.
43. What is the accounting treatment for the initial margin paid?
a) Recorded as an expense
b) Recorded as an asset
c) Recorded as a liability
d) Ignored in accounting
a) Recorded as an expense
b) Recorded as an asset
c) Recorded as a liability
d) Ignored in accounting
Correct Answer: b) Recorded as an asset
Explanation: Initial margin paid is treated as a deposit and recorded as an asset in the books, refundable upon closing the position.
Explanation: Initial margin paid is treated as a deposit and recorded as an asset in the books, refundable upon closing the position.
44. What is the tax treatment for losses in derivative trading?
a) Cannot be set off
b) Can be set off against business income
c) Can be set off against capital gains only
d) Exempt from tax
a) Cannot be set off
b) Can be set off against business income
c) Can be set off against capital gains only
d) Exempt from tax
Correct Answer: b) Can be set off against business income
Explanation: Losses from derivative trading, treated as business income, can be set off against other business income as per tax regulations.
Explanation: Losses from derivative trading, treated as business income, can be set off against other business income as per tax regulations.
45. What is the purpose of a risk disclosure document (RDD)?
a) To disclose broker fees
b) To inform clients about risks in derivatives
c) To calculate taxes
d) To set margin requirements
a) To disclose broker fees
b) To inform clients about risks in derivatives
c) To calculate taxes
d) To set margin requirements
Correct Answer: b) To inform clients about risks in derivatives
Explanation: The RDD outlines the risks associated with derivatives trading, ensuring clients are aware before participating.
Explanation: The RDD outlines the risks associated with derivatives trading, ensuring clients are aware before participating.
Chapter 10: Sales Practices and Investor Protection
46. Why is profiling clients important in the sales process?
a) To determine their tax bracket
b) To assess their risk profile
c) To calculate their net worth
d) To set trading limits
a) To determine their tax bracket
b) To assess their risk profile
c) To calculate their net worth
d) To set trading limits
Correct Answer: b) To assess their risk profile
Explanation: Client profiling helps assess their risk tolerance and investment objectives, ensuring suitable product recommendations.
Explanation: Client profiling helps assess their risk tolerance and investment objectives, ensuring suitable product recommendations.
47. A risk-averse investor would prefer:
a) Equity derivatives
b) Fixed deposits
c) Stock index futures
d) Options trading
a) Equity derivatives
b) Fixed deposits
c) Stock index futures
d) Options trading
Correct Answer: b) Fixed deposits
Explanation: A risk-averse investor prefers secure investments like fixed deposits over volatile instruments like derivatives.
Explanation: A risk-averse investor prefers secure investments like fixed deposits over volatile instruments like derivatives.
48. What is the purpose of anti-money laundering (AML) procedures?
a) To monitor trading volumes
b) To prevent illegal funds in the market
c) To calculate margins
d) To set exchange fees
a) To monitor trading volumes
b) To prevent illegal funds in the market
c) To calculate margins
d) To set exchange fees
Correct Answer: b) To prevent illegal funds in the market
Explanation: AML procedures ensure that funds used in trading are not from illegal sources, maintaining market integrity.
Explanation: AML procedures ensure that funds used in trading are not from illegal sources, maintaining market integrity.
49. Who can take the NISM Series VIII: Equity Derivatives exam?
a) Only stockbrokers
b) Approved users and sales personnel of trading members
c) Only exchange employees
d) Only regulators
a) Only stockbrokers
b) Approved users and sales personnel of trading members
c) Only exchange employees
d) Only regulators
Correct Answer: b) Approved users and sales personnel of trading members
Explanation: The exam is designed for approved users, sales personnel, students, professionals, and anyone interested in equity derivatives.
Explanation: The exam is designed for approved users, sales personnel, students, professionals, and anyone interested in equity derivatives.
50. What is the passing score for the NISM Series VIII exam?
a) 50%
b) 60%
c) 75%
d) 80%
a) 50%
b) 60%
c) 75%
d) 80%
Correct Answer: b) 60%
Explanation: The passing score for the NISM Series VIII exam is 60%, with a negative marking of 25% for incorrect answers.
Explanation: The passing score for the NISM Series VIII exam is 60%, with a negative marking of 25% for incorrect answers.
Note:- We have shared MCQs as per our research, still, we recommend students to follow the Equity Derivative book for more knowledge.
Also Read:- NISM Mutual Funds Distributors Exam Mock Test
