NCFM DERIVATIVES PART 2

31.You have bought a stock on the exchange. To eliminate the risk arisin g out of the
stock price, you should _____. [ 3 Marks ]
(a) buy index futures
(b) buy stock futures
(c) sell the stock futures
(d) none of the above
(e) I am not attempting the question

32.On 1st January, a three month call option on the Nifty with a strike of 4280 is
available for trading. The `T’ that is used in the Black Scholes formula should be
_______. [ 1 Mark ]
(a) 3
(b) 0.25
(c) 90
(d) None of the above
(e) I am not attempting the question

33.The spot price of ABC Ltd. is Rs. 2000 and the cost of financing is 10%. What is the
fair price of a one month futures contract on ABC Ltd.? [ 2 Marks ]
(a) 2015
(b) 2016.75
(c) 2018.75
(d) 2019
(e) I am not attempting the question

34.Cyrus is short 800 WIPRO July Puts at strike Rs. 1520 for a premium of Rs. 43 each on July 22. On July 25, (the expiration day of the contract), the spot price of WIPRO
closes at Rs.1553, while the July futures on WIPRO close at 1655. Does Cyrus have an
obligation to the Clearing Corporation on his positions, and how much, if any?
[ 2 Marks ]
(a) Yes. Rs.19,800 pay-out
(b) No pay in or pay-out on expiration of contract
(c) Yes. Rs.18,900 pay-out
(d) Yes. Rs.19,800 pay-in
(e) I am not attempting the question

35.On 15th October, Arvind bought a December Nifty futures contract which cost him Rs.325,600. For this he had to pay an initial margin of Rs. 30,100 to his broker. Each
Nifty futures contract is for delivery of 100 Nifties. On 27th December, the index
closed at 3280. How much profit/loss did he make? [ 2 Marks ]
(a) (+) 1400
(b) ( -) 2400
(c) (+) 2400
(d) ( -) 1400
(e) I am not attempting the question

36.Assume that the base value o f a market capitalization weighted index were 1000 and
the base market capitalisation were Rs.70,000 crore. If the current market
capitalisation is Rs.140,000 crore, the index is at Rs. ____. [ 1 Mark ]
(a) 2,110
(b) 2,350
(c) 2,250
(d) 2,000
(e) I am not attempting the question

37.On 1st January, a one month call option on the Nifty with a strike of 4250 is available
for trading. The `T’ that is used in the Black Scholes formula should be _______.
[ 1 Mark ]
(a) 2
(b) 0.08
(c) 20
(d) None of the above
(e) I am not attempting the question

38.If the annual risk free rate is 9%, then the ‘r' used in the Black Scholes formula should
be ______. [ 1 Mark ]
(a) 0.086
(b) 0.099
(c) 1.1
(d) None of the above
(e) I am not attempting the question

39.The beta of ACC is 1.5. A person has a long TELCO position of Rs. 900,000 coupled
with a short nifty position of Rs. 800,000. Which of the following is TRUE? [ 1 Mark ]
(a) He is bearish on Nifty as well as on ACC
(b) He has a complete hedge against fluctuations of Nifty
(c) He has a partial hedge against fluctuations of Nifty
(d) He is bullish on Nifty as well as on ACC
(e) I am not attempting the question

40.If the annual risk free rate is 8%, then the ‘r' used in the Black Scholes formula should
be ______. [ 1 Mark ]
(a) 0.076
(b) 0.096
(c) 1.1
(d) None of the above
(e) I am not attempting the question

41.Hedging with stock futures means ___________. [ 1 Mark ]
(a) shorting stocks
(b) shorting index futures
(c) shorting stock futures
(d) long index futures
(e) I am not attempting the question

42.Which of the following is the duty of the trading member? [ 3 Marks ]
(a) Employing large numbers of research analysts
(b) Executing his own orders prior to client orders
(c) Bringing risk factors to the knowledge of client
(d) None of the above
(e) I am not attempting the question

43.On expiry, the settlement price of a Reliance Industries Ltd. futures contract is
_______. [ 2 Marks ]
(a) opening price of Reliance Industries Ltd.
(b) closing price of Reliance Industries Ltd.
(c) closing price of Reliance Industries Ltd. futures contract
(d) Last traded price of Reliance Industries Ltd.
(e) I am not attemp ting the question

44.On 1st January, a two month call option on the Nifty with a strike of 4250 is available
for trading. The `T’ that is used in the Black Scholes formula should be _______.
[ 1 Mark ]
(a) 3
(b) 0.16
(c) 90
(d) None of the above
(e) I am not attempting the question

45.The NEAT F&O trading system _____________. [ 3 Marks ]
(a) allows spread trades
(b) allows combination trades
(c) allows only a single order placement at a time
(d) (a) and (b) above
(e) I am not attempting the question

46.Santosh is bearish about ABC Ltd. and sells 10 one -month ABC Ltd. futures contracts
at Rs.3,96,000. On the last Thursday of the month, ABC Ltd. closes at Rs.410. He
makes a _________. (assume one lot = 100) [ 1 Mark ]
(a) profit of Rs. 14,000
(b) loss of Rs. 14,000
(c) profit of Rs. 28,000
(d) loss of Rs. 28,000
(e) I am not attempting the question

47.To be eligible for trading a broker must be _________. [ 1 Mark ]
(a) SEBI registered
(b) highly capitalised
(c) a member of the Association of Trading members
(d) None of the above
(e) I am not attempting the question

48.You are the owner of a 4 million portfolio with a beta 1.0. You would like to insure
your portfolio against a fall in the index of magnitude higher than 12%. Spot Nifty
stands at 4200. Put options on the Nifty are available at three strike prices. Which
strike will give you the insurance you want? [ 2 Marks ]
(a) 3,870
(b) 3,840
(c) 3,696
(d) None of the above
(e) I am not attempting the question

49.A stock is currently selling at Rs. 50. The call option to buy the stock at Rs.45 costs
Rs.9. What is the time value of the optio n? [ 1 Mark ]
(a) Rs. 9
(b) Rs. 7
(c) Rs. 4
(d) Rs. 2
(e) I am not attempting the question

50.An option contract which will not be exercised on the expiry date is ________.
[ 2 Marks ]
(a) an in -the-money option
(b) a deep in-the-money
(c) an out-of-the-money option
(d) None of the above
(e) I am not attempting the question

51.The theoretical futures price is based on the ________. [ 2 Marks ]
(a) strike price
(b) underlying spot price
(c) the price at which a futures contract trades in the market
(d) the price set by the exchange
(e) I am not attempting the question

52.On 1st January, a two month call option on the Nifty with a strike of 4000 is available
for trading. The `T’ that is used in the Black Scholes formula should be _______.
[ 1 Mark ]
(a) 2
(b) 0.16
(c) 20
(d) None of the above
(e) I am not attempting the question

53.Stock options on HDFC Bank Ltd. can be exercised ___________. [ 2 Marks ]
(a) any time on or before maturity
(b) upon maturity
(c) any time upto maturity
(d) on a date pre-specified by the trading member
(e) I am not attempting the question

54.Ms. Shetty has sold 1400 calls on HLL at a strike price of Rs.297 for a premium of
Rs.11 per call on April 1. The closing price of equity shares of HLL is Rs. 300 on that
day. If the call option is assigned against her on that day, what is her net obligation on
April 01. [ 2 Marks ]
(a) Pay-out of Rs.12,300
(b) Pay-in of Rs.12,000
(c) Pay-in of Rs.11,000
(d) Pay-out of Rs.11,200
(e) I am not attempting the question

55._____________is allowed to clear trades of themselves but not of others. [ 1 Mark ]
(a) Trading member - clearing member
(b) Trading members are not allowed to clear their own trades
(c) professional clearing member
(d) self clearing member
(e) I am not attempting the question

56.Index Funds use index futures to reduce _________ [ 2 Marks ]
(a) tracking error
(b) expenses
(c) time to invest in the markets
(d) All of the above
(e) I am not attempting the question

57.Weekly options trading commenced on NSE in _______. [ 1 Mark ]
(a) 02-Jun-2005
(b) 04-Jul-2005
(c) NSE does not trade in Weekly options
(d) 04-Jun-2005
(e) I am not attempting the question

58.The market impact cost on a trade of Rs. 5 million of the S&P CNX Nifty works out to be about 0.05%. This means that if S&P CNX Nifty is at 4200, a buy order of that
value will go through at a price of Rs. _______. [ 1 Mark ]
(a) 4202.10
(b) 4200
(c) 4210
(d) 4211
(e) I am not attempting the question

59.What is the outstanding position on which initial margin will be levied if no proprietary trading is done and the details of client trading are: one client buys 2000 units @1260. The second client buys 2000 units @Rs.1255 and sells 1000 units @Rs.1260.?
[ 2 Marks ]
(a) 4000 units
(b) 5000 units
(c) 3000 units
(d) None of the above
(e) I am not attempting the question

60. In the F&O segment of NSEIL, obligations of client's positions are calculated on a
________ basis. [ 2 Marks ]
(a) cumulative
(b) gross
(c) net
(d) portfolio
(e) I am not attempting the question




31 (c) 51 (b)
32 (b) 52 (b)
33 (b) 53 (a)
34 (b) 54 (d)
35 (c) 55 (d)
36 (d) 56 (a)
37 (b) 57 (c)
38 (a) 58 (a)
39 (c) 59 (c)
40 (a) 60 (c)

41 (c)
42 (c)
43 (b)
44 (b)
45 (d)
46 (b)
47 (a)
48 (c)
49 (c)
50 (c)