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PASS4SURE PRACTICE QUESTIONS SET NO. 4

Total questions: 58

Worksheet time: 29mins

Name
Class
Date
1.

The mark-to-market margin debits for stock futures are done on a daily basis but the mark-to-market margin credits are done on a weekly basis - State whether True or False?

a)

True

b)

False

2.

Tick size is ________.

a)

Contract Lot size

b)

Average of the high and low prices

c)

The maximum permitted movement in the price of the contract

d)

The minimum permitted movement in the price of the contract

3.

A forward contract is ________.

a)

is a type of Option

b)

is settled and cleared through a Clearing Corporation

c)

a bilateral commitment of trade between two parties

d)

is entered through an Exchange

4.

How many shares should be ideally there in an index?

a)

Depends on the objective of the index

b)

Around 100 to comprehensively cover all sectors

c)

Exactly 50

d)

Below 50

5.

Generally, final decision of inclusion or removal of a security from the index is taken by a specialized committee known as ________.

a)

Index Committee

b)

Audit Committee

c)

Risk Management Committee

d)

Investment Committee

6.

Longer the time to maturity of the PUT option, higher will be the time value - State whether True or False?

a)

True

b)

False

7.

Brokers and dealers of derivative exchanges have also to be registered with SEBI in addition to their registration with stock exchange - State whether

a)

True

b)

False

8.

As a Call option moves more Out-Of-The-Money, the absolute value of Delta will ______.

a)

Increase

b)

Decrease

c)

Not change

d)

None of the above

9.

Counterparty risk can also be called as ________.

a)

Credit Risk

b)

Default Risk

c)

Both 1 and 2

d)

Speculative Risk

10.

A penalty or suspension of registration of a stock broker from derivatives exchange/segment under SEBI (Stock Broker and Sub-broker) Regulations, 1992 can take place if

a)

The stock broker fails to resolve the complaints of the investors

b)

The stock broker indulges in manipulating, or price rigging or cornering of the market

c)

The stock broker does not follow the code of conduct

d)

All of the above

11.

At the time of final settlement, the seller / writer of the option will recognize the adverse difference he paid to the buyer as ____ in his profit and loss account.

a)

B) Loss

b)

A) Income

c)

C) Asset

d)

D) Revenue

12.

Its duty of the Clearing Corporation to continuously analyse and modify the initial margin requirements as the stock markets tend to be very volatile - State whether

a)

True

b)

False

13.

Is the duty of the Clearing Corporation to continuously analyse and modify the initial margin requirements as the stock markets tend to be very volatile?

a)

False

b)

True

14.

Fixed deposits and Bank guarantees are NOT permitted to be offered by Clearing Members to the Clearing Corporation as part of liquid assets - State whether True or False?

a)

True

b)

False

15.

The absolute amount of minimum capital adequacy requirement for derivative clearing member is higher than that of spot (cash) market - State whether True or False?

a)

True

b)

False

16.

At price level of Rs. 6900, what will be the value of one lot of ABC futures contract (contract multiplier 50)?

a)

Rs. 289000

b)

Rs. 690000

c)

Rs. 345000

d)

Rs. 460000

17.

What will be the value of one lot of ABC futures contract if the price is Rs. 3200 and the contract size is 150?

a)

Rs. 240000

b)

Rs. 320000

c)

Rs. 480000

d)

Rs. 345000

18.

In the derivatives market, the mark to market margin is equal to the initial margin?

a)

True

b)

False

19.

Q17. Which of these strategies is not a HEDGE?

a)

Arbitrage

b)

Covered Call

c)

Protective Put

d)

Currency Forward

20.

Which of these strategies is not a HEDGE?

a)

Ms. Agarwal is bullish on the market and so she buys an Out-of-the-money index call and sells an out-of-the-money index put option

b)

A trader with a short index futures position buys an out-of-the-money call on the index so as to limit his loss

c)

An importer is expecting to send dollars after 1 month, takes a long position in one-month USDINR futures to lock in his dollar price

d)

A fund manager is expecting market volatility after RBI policy, buys index put options to limit the loss on his portfolio

21.

A call option gives its holder the right to buy 'any quantity' of the underlying asset from the writer of the call option at a pre-specified price - State True or False?

a)

True

b)

False

22.

Losses incurred on derivative transactions on a 'recognized stock exchange' can be carried forward to ______ subsequent assessment year and set off against any other non-speculative business income of the subsequent year.

a)

8

b)

4

c)

6

d)

10

23.

The price at which the underlying asset can be bought or sold on exercise of an option is called ________.

a)

Strike Price

b)

Market Price

c)

Premium

d)

Settlement Price

24.

In an 'Opening Buy Transaction' the effect will be that of creating or increasing _____

a)

Arbitrage position

b)

Cross position

c)

Long position

d)

Short position

25.

The initial margin in derivatives market depends on the volatility of the underlying market. Usually _______.

a)

higher the volatility, higher the initial margin

b)

higher the volatility, lower the initial margin

c)

lower the volatility, higher the initial margin

d)

volatility does not affect initial margin

26.

The initial margin in derivatives market depends on the volatility of the underlying market. Usually ________.

a)

Higher the volatility, Lower the initial margin

b)

Higher the volatility, Higher the initial margin

c)

Lower the volatility, Higher the initial margin

d)

None of the above

27.

In general terms, if the number of participants in a market are more, the liquidity will be low - State True or False?

a)

True

b)

False

28.

All types of investors should allot some portion of their portfolio to derivative products in order to increase the portfolio returns irrespective of their risk tolerance levels - State True or False?

a)

True

b)

False

29.

If the interest rate increases, the premium on CALL option will also increase - State True or False?

a)

True

b)

False

30.

The Clearing Corporation gives exposure limits to Clearing Members based on the number of Trading Members using the services of that Clearing Member.

a)

True

b)

False

31.

In derivative exchanges, the exposure amount possible for each member broker is linked to the amount of deposits / margins kept by the member with the clearing house?

a)

True

b)

False

32.

In derivative exchanges, the exposure amount possible for each member broker is linked to the amount of deposits / margins kept by the member with the clearing house?

a)

True

b)

False

33.

Which of these is/are true for Unsystematic Risk?

a)

Unsystematic Risk is related to risk in a specific security and not pertaining to overall market

b)

Unsystematic Risk can be reduced through diversification

c)

Both 1 and 2

d)

None of the above

34.

How can risk be controlled in the derivatives segment by the stock exchange?

a)

By implementing a effective margin system

b)

By having a well organized control systems and audit procedures

c)

By periodic evaluation of member positions

d)

All of the above

35.

In the derivative segment, once initial margin requirement is fixed, it cannot be changed by the exchange, during the lifetime of the futures contract.

a)

True

b)

False

36.

What happens to the unmatched portion of the order in an Immediate or cancel (IOC) order?

a)

It will be added to the order book as a limit order

b)

It will be executed on the next trading day

c)

It will be executed in the next one hour

d)

It will be cancelled

37.

What should be the market-wide position limit for a stock for it to be eligible for launch in the futures and options contracts in the exchange traded equity derivatives segment in India?

a)

At least Rs. 100 crores

b)

At least Rs. 500 crores

c)

At least Rs. 1000 crores

d)

At least Rs. 1500 crores

38.

When an investor gives instruction to his broker to buy a certain number of contracts at or below a specific price, the order is called as _________.

a)

Market Order

b)

Arbitrage Order

c)

Spread Order

d)

Limit Order

39.

Under which Act / Regulations is the Suspicious Transaction reporting required?

a)

SEBI Insider Trading Regulations

b)

Foreign Account Tax Compliance Act (FATCA)

c)

Anti-Money laundering (AML) and Combating of Financial Terrorism (CFT) Regulations

d)

Foreign Exchange Management Act (FEMA)

40.

Why are the margins for calendar spreads in index futures low?

a)

Because calendar spreads are not traded on an Exchange

b)

Because calendar spreads are OTC transaction

c)

Because the market risk is low in calendar spreads

d)

Because calendar spreads are special transactions guaranteed by RBI

41.

A hedger wants to offset the price risk on his equities, so he will take _________.

a)

A long positions in futures

b)

A short positions in futures

c)

A long position in short position in futures

d)

Both a long or short position in futures

42.

In the Option segment, if you buy a CALL at a premium of Rs 36 at the Strike Price of Rs 400, lot is of 200 shares, then the maximum possible profit is _______.

a)

Rs 400

b)

Rs 7000

c)

Rs 43000

d)

Unlimited

43.

Who can trade in derivative products?

a)

Any broker who is registered with SEBI can trade in derivative products

b)

Any broker who is registered with SEBI for trading in derivatives products can trade in derivatives

c)

Any member of a registered Stock Exchange

d)

All of the above

44.

A Call Option will give the holder of the option a right to buy how much of the underlying from the writer of the option?

a)

The specified quantity or more than the specified quantity

b)

The specified quantity or less than the specified quantity

c)

Only the specified quantity

45.

Those contracts which have been initiated but are not yet offset by a subsequent sale or purchase or by making or taking delivery are considered as _______.

a)

Offsetting Positions

b)

Clear Positions

c)

Open Positions

d)

Squared-off Positions

46.

As per SEBI's guidelines, derivatives trading takes place through _______.

a)

Online screen based trading system

b)

Kerb trading

c)

Auction public amts

47.

As per SEBI's guidelines, derivatives trading takes place through ______.

a)

Online screen based trading system

b)

Kerb trading

c)

Auctions at public mandis

d)

Open outcry method in the trading ring

48.

Ms. Seema, a stock market trader, is very bearish on specific companies. However she is bullish on the market as a whole. Identify the most appropriate strategy to take advantage from this view?

a)

She should sell shares of those specific companies and buy index futures

b)

She should buy the shares of those specific companies and also sell index futures

c)

She should buy the shares of those specific companies and sell index futures

d)

She should not do anything

49.

Why is the Clearing Corporation considered very important in the derivatives market?

a)

Clearing Corporation deals with exchanges

b)

Clearing Corporation related with stocks

c)

Clearing Corporation provides settlement guarantee and assumes role of counterparty for each trade

d)

Clearing Corporation collects margins from members

50.

A client has asked for a quarterly settlement of his running account. In this connection, identify the INCORRECT statements.

a)

Both B and C are incorrect

b)

Both A and B are incorrect

c)

The settlement will be done on any trading day of the quarter

d)

The settlement will be done on last Friday of the quarter

e)

The settlement will be done on first Friday of the quarter

51.

Identify the CORRECT statement.

a)

Penny stocks are good investment options for senior citizens

b)

Brokers of a stock exchange are not expected to disclose the investment risks to their clients

c)

Low income families can use derivatives instruments to get rich quickly

d)

Sales agents of the brokers should not use high pressure luring tactics

52.

Complete the sentence: Shorter the time to expiry of a PUT Option, lesser will be its _______.

a)

Assignment Value

b)

Time Value

c)

Intrinsic Value

d)

Settlement Value

53.

A derivatives market would primarily have which of the following participants?

a)

Speculators

b)

Long-term investors

c)

Hedgers

d)

Both Speculators and Hedgers

54.

Which of these is NOT included in the Indian equity derivatives market?

a)

Options on individual stocks

b)

Options on equity market indices

c)

Futures on individual stocks

d)

Interest rate futures

55.

For calculating the net worth of a clearing member, which of these is/are NOT considered?

a)

His Fixed Assets

b)

His pledged securities

c)

His membership card

d)

All of the above

56.

Which of these is NOT included in the Indian equity derivatives market?

a)

Options on individual stocks

b)

Options on equity market indices

c)

Futures on individual stocks

d)

Interest rate futures

57.

For calculating the net worth of a clearing member, which of these is/are NOT considered?

a)

His Fixed Assets

b)

His pledged securities

c)

His membership card

d)

All of the above

58.

In ________, the strike price and market price are equal.

a)

Out-of-the-money option

b)

Same-the-money option

c)

At-the-money option

d)

In-the-money option