NISM Series XIII: Common Derivatives Certification Examination – NISM 13

Who Should Prepare NISM Common Derivatives Certification Examination?

NISM Series 13 is also known as NISM Common Derivatives Certification Examination. As Derivative Market is huge topic. There are three NISM Modules related to Derivative Market. NISM 13 is combination of all those modules covering Equity Derivatives, Currency Derivatives and Interest Rate Derivatives in just one module.

As previously discussed must course for  those who work in Indian derivatives market. As SEBI has made few NISM Certification compulsory to work legally in India.

There are many segments in Stock Market like: (Cash) Equity segment and Derivative segment. Futures And Options are segment of Derivative market. Derivative market is an financial market just like Equity market but consist of Futures and option contracts that are derived from other Instruments like Stocks, bonds, commodities, etc

Study Material For NISM 13:

You can buy NISM Series 10 B: Investment Advisors (Level 2) Certification Examination workbook from Amazon or you can get previous edition of Ebook of NISM 10b from here free of cost.

We also provide free mock test. We have covered all NISM Series 13: NISM Common Derivatives Certification Examination questions and answers with detailed explanation for each question. This mock test also includes real life word problems and numericals as they also very important part of this modules.

There Are About 7 Units / Chapters In NISM Series 13:

UNITSChapters
1Basics of Derivatives 
2Introduction to the Underlying Markets 
3Introduction to Forwards and Futures 
4Strategies Using Futures 
5Introduction to Options 
6Option Trading Strategies
7Introduction to Trading, Clearing, Settlement & Risk Management
8Legal and Regulatory Environment 
9Accounting and Taxation 
10Sales Practices, Code of Conduct and Investor Protection Measures

Before preparing for this module , I must advise you to check Equity derivatives study material, as this certification is very similar to equity derivative module of NISM.

Option Trading Strategies, Introduction to Forwards and Futures are the most important chapters in NISM 13 Certification Examination and have most Weightage.

As you can see their are only 10 chapters in NISM Common Derivatives exam. And all of them have significant weightage. All chapters are important.

You should not ignore chapters like Sales Practices, Code of Conduct and Investor Protection Measures, Introduction to Trading, Clearing, Settlement & Risk Management, Accounting and Taxation  despite having lowest weightage because they are very important chapters and can be covered in just few days.

NISM 13 Mock Test (Play And Earn):

This NISM 13 mock test is created by our very experienced teacher who have deep knowledge about various Indian derivatives market.

This is sample mock test of NISM Common Derivatives Exam. These questions are up to date with detailed explanation of every question. The answers are easy to understand and are 100% accurate.

#1. Maximum profit of option seller would be the premium he/she receives

If option seller either sell call or put .His maximum profit would be the premium he receives.IF value of premium is Rs 30. So his maximum profit will be Rs.30

#2. Pranay thinks that the market will go down so he sold 10 lots of Index futures at 4000. But market rises and he bought back the futures contract at Rs.4020. What is his total profit/loss; if one lot of index is of 40

Given: Pranay sold 10 lots at Rs 4000 and bought it back at Rs 4020.

So his profit/loss= 4000-4020 = (-20).

Here negative sign indicate loss.

But there are 10 lots. So, quantity sold = No. of lots x lot size =  10 x 40 =400.

Therefore, Pranay’s total loss = – 20 x 400 = -8000. So. Total Loss is Rs.8000

 

#3. If Robert has  sold a ITC future contract (contract multiplier 1000) at 600 and bought it back at 628. What is Robert's gain/loss?

Here, (contract multiplier 1000) means it have lot size of 1000

Robert sold a ITC future contract at 600 and bought it back ( close the position) at 628

then (600-628) = -28. Here, negative sign indicate loss.

So, total losss= lot size x loss in contract = 1000 shares x (-28) = – 28,000 Rs.

Therefore, Robert’s  loss is of Rs.28,000

More insight: Whenever Robert sold a future contract then the position will fall down as per his expected loss but Robert didn’t put stop loss and after that bought back the sold contract at higher price i.e. 628. Therefore, Robert is at losss. If Robert would have put stop losss then if position would have fall down then he would be profitable.

#4. In Nifty 50 index every stock have same weightage

In Nifty 50 index every stock have different weightage. For example,  Wipro has a weightage of approximately 2% in Nifty 50.

#5. What was the first International Monetory Market ?

In US 1972, Chicago mercantile exchange introduced International Monetary market (IMM), which allowed trading in currency futures for first time ever in history. This is the statement you need to remember for exam. It is theoretical question. It’s just a fact, there is nothing to explain here.

#6. SEBI regulates banks

SEBI regulates Stock market while RBI regulates banks in India.

#7. In options, option buyer needs to pay margin

In case of options, only seller needs to pay the margin not the option buyer. While Both seller and buyer  needs to pay margins in future trading.

#8. Raghav bought call option of HDFC of strike price of Rs 400 of month March. So, it is advisable to buy put option of same strike price to close his position.

The correct answe is false. As we know, when market falls then we get profit onnly if we buy put. Similarly, if we buy call option and when market rises then we get profit. As Raghav bought call option then so to square off his position he needs to sell put option of same strike price.

#9. After maturity one can't trade an exchange traded option

After maturity one can’t trade an exchange traded option as per SEBI rules. You can only trade till the last date of expiry of the contract which is usually last thursday of that month.

#10. Which of the following statement is incorrect ?

offsetting and  squareoff almost have same meaning.

Closing buy transaction: the meaning of this statement is little complicated so i will explain it with an example.

For instance: As we know in futures one can hold the stock for upto one month after selling .

Let say you hold the stock of TCS for few days in futures  and after that put it for selling but suddenly the price of that stock goes down so to take advantage of this situation you need to close the position. This process is known as closing buy transaction. So here we can use closing buy transaction to square off / offset the short position.

As we know, an short position means to sell your asset with a view to buy it back when the price falls.

 

#11. If the future price is lower than equity price then this fall is known

For example : Let say in equity the price of HDFC stock is 4831 but in futures the price is 4833. This expected rise in price is known as Contango and this rising market is called as ” Contango Market”.

But if the future price is lower than equity price then this fall is known as Backwardation.

#12. Write option is a synonym of buy option

Write option means sell option. They mean the same thing

#13. Who can be option seller in Indian Stock Market?

All of them can sell options in Indian Stock Market. Even FII can do this by following all SEBI’s criteria.

#14. if you bought 20 contracts in futures and then sell 5 contracts from the same account , then how many contracts are left?

As you bought 20 contracts in futures and then sell 5 contracts from the same account then (20-5= 15) contracts are left only.

#15. As per theory, if spot price increases then the premium of a put option falls

As we all know, if spot price increases then the premium of a put option falls. As we usually trade in put option when market falls.

#16. The exchange pays to the gainers through the market-to-market margins of loss makers

When we trade in Futures, the daily valuation of future market is done by market-to-market of Index futures.

As we all know derivative market have contract’s with fix maturity of several months. But the valuation of profit/loss was calculated on daily basis by market-to-market of Index future and this settlement of profit/loss is known as Market-to-market selttlement. The exchange pays to the gainers through the market-to-market margins of loss makers on daily basis.

#17. Seller of put option can make a profit when the price rise or if it remain the same.

By theory, when we bought either call or put option our premium should increase in both condition. But in case when we sell either call or put option our premium should decreases to be profitable. The maximum profit of option seller is premium. so a seller of put option can make a profit when the price rise or if it remain the same.

#18. When client exit his position in derivative market. Then client need to pay STT

Whenever client exit his position. He need to pay STT in derivative market. When we purchase any share in equity we need to pay STT.

For instance : If A bought HDFC share in Equity market then he need to pay STT but when A exit his position. he don’t need to pay STT again.

But if A sold HDFC share in Equity market then he don’t need to pay STT but when A exit his position. he need to pay STT in this case. It’s gov rule and STT is generally fixed.

#19. In derivative market we trade in lot size while in cash market we trade for shares.

In derivative market we trade in lot size while in cash market we trade for shares.

#20. In call options, one can't close his contract before expiry or maturity of contract in India

In call options, one can’t close his contract before expiry or maturity of contract. This right was given by European options and India’s derivative market is based on European market. So rules are same for both. But in case of American option, one can close  his contract. ( when we trade in call option, we usually expect the share price will rise.

#21. When we buy call we , we expect the market to fall so that we get profit through it. but when we buy put, we expect the market to rise.

When we buy call we , we expect the market to fall so that we get profit through it. but when we buy put, we expect the market to rise.

For example: One can buy / sell option with less investment. Let say A bought Infosys of call  price of Rs580 and you buy it through 5 Rs premium, so even if market falls, the maximum loss wouldn’t be more than 5rs. profit could be theoretically unlimited. But ion case of selling call and put option, we compulsory need to do big investment compare to optrion buying

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Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please read the Risk Disclosure documents carefully before investing in Equity Shares, Derivatives, Mutual fund, and/or other instruments traded on the Stock Exchanges.

As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment objectives shall be achieved. Past performance of securities/instruments is not indicative of their future performance. This post is only for Educational purpose.

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