NISM Series VIII – Equity Derivatives

MCQs
Chapter – 1&2
Prepared by Dr K Muthukumar
Associate Professor, Hallmark Business School
1. Which of the following is not a derivative transaction?
a) An investor buying index futures in the hope that the index will go up.
b) A copper fabricator entering into futures contracts to buy his annual requirements of
copper.
c) A farmer selling his crop at a future date
d) An exporter selling dollars in the spot market

2. Derivative is defined under SC(R)A to include : A contract which derives its value from
the prices, or index of prices, of underlying securities.

(a) TRUE
(b) FALSE

3. In which year, foreign currency futures based on new floating exchange rate system
were introduced at the Chicago Mercantile Exchange
(a) 1970
(b) 1975
(c) 1972
(d) 1974

4. Swaps are a type of derivatives. True or False.

(a) True
(b) False

5. Arbitrageurs are one of the participants in the derivatives markets. True or False.
(a) True
(b) False

6. Risk averse investors use derivatives for speculation. True or False.

(a) True
(b) False

7. Speculators use derivatives as Hedging tools. True or False.

(a) True
(b) False

8. _____ are standardized, exchange traded contracts.

(a) Swaps
(b) Forwards
(c) Futures
(d) FRAs
9. An exporter would _____ dollar forwards to lock in an exchange rate.
(2 marks)
(a) sell
(b) buy
(c) hold
(d) exchange

10. An index option is a __________________.

a) Debt instrument
b) Derivative product
c) Cash market product
d) Money market instrument

11. The purchase of a share in one market and the simultaneous sale in a different market to
benefit from price differentials is known as ____________.

a) Mortgage
b) Arbitrage
c) Hedging
d) Speculation

12. 3. Financial derivatives provide the facility for __________.

a) Speculation
b) Hedging
c) Arbitraging
d) All of the above

13. Derivative is a contract or a product whose value is derived from the value of some
underlying assets

a) True
b) False

14. Chicago Board Options Exchange (CBOE) started trading in listed options in

a) 1972
b) 1973
c) 1975
d) 1977

15. All of the following are true regarding futures contracts except

a) they are regulated by RBI

b) they require payment of a performance bond
 c) they are a legally enforceable promise
d) they are market to market

16. An equity index comprises of ______.

a) basket of stocks
b) basket of bonds and stocks
c) basket of tradable debentures
d) None of the above

17. Stock market indices acts as a benchmark for portfolio performance

a) True
b) False

18. Equity indices are managed by independent third party

a) True
b) False

19. Decision on inclusion or removal of a security in the index is taken by

a) NSE
b) SEBI
c) Index Committee
d) Index construction Managers

20. Quantitative and qualitative parameters for Stock selection for index construction is lain
down by

a) NSE
b) SEBI
c) Index Committee
d) Index construction Managers

21. NSE indices are managed by

a) Standard and Poor’s

b) Bloomberg
c) India Index Services and Products limited
d) Thomson Reuters

22.Index funds invest in index stocks in the proportion of stocks in index

a) True
b) False

23. Basket of securities that trade like individual security, on an exchange is

a) OTC Contract
 b) Exchange Traded Funds (ETF)
c) Mutual Funds
d) Fund of Funds

24. Index derivatives are not useful to hedge against market risk

a) True
b) False

25. Index funds give similar returns like index returns

a) True
b) False

26.Index maintenance gets triggered due to

a) Bonus issue, right issue, stock split

b) Consolidation, merger
c) (a)only
d) Both (a) and (b)

27.Nifty is a

a) Market capitalisation weighted index

b) Free-float market capitalisation index
c) Price weighted index
d) Equal weighted index

28. Counter party risk arises due to

a) Default by counter party

b) Price movements
c) Fraud and inadequate documentation
d) Inability to exit from a position

29. Inability to exit from a position is known as

a) Price risk
b) Liquidity risk
c) Operational risk
d) Legal risk

30. Model Risk Disclosure Document is issued by

a) NSE
b) SEBI
c) Broker
d) None of the above