NISM Series IV: Interest Rates Derivatives Certification Examination

Who Should Prepare NISM 4A Interest Rates Derivatives Certification Examination?

This NISM Certification mostly covers concepts related to Interest Rate Derivatives. After preparing for NISM Series IV, you will learn about the basics of Interest Rate Derivatives and Return and Risk Measures for Debt Securities and Contract Specification for Interest Rate Derivatives. Anyone who is working or have interest in derivative market can prepare for this NISM Module.

Study Material For NISM Series IV:

You can buy Nism 4 workbook from Amazon or you can download Ebook of NISM 4 from here free of cost.

We have also provided Free Mock test for Nism Series IV in this website. Our Nism Mock test discuss all the relevant concepts of this Certification in detail and provide accurate explanation for every question.

LIST OF CHAPTERS IN NISM Series 4 :

Unit NAME OF UNITS DIFFICULTY LEVEL
1Fixed-income and Debt securities – IntroductionEasy
2Interest Rate – IntroductionMedium
3Return and Risk Measures for Debt SecuritiesMedium
4Interest Rate DerivativesMedium
5Contract Specification for Interest Rate DerivativesTough
6Trading, Clearing, Settlement and Risk ManagementMedium
7Regulations and ComplianceMedium
8Trading and HedgingMedium

NISM Series 4 Summary of all Units:


Chapter 1: Fixed-income and Debt securities – Introduction

1.1 Financial Markets: Overview
1.2 Debt/Fixed-Income Securities: Introduction
1.3 Debt/Fixed-Income Securities: Classification
1.4 Fixed-income versus Fixed-return
1.5 Debt versus Equity.
1.6 Primary and Secondary Market for Debt Securities in India.


Chapter 2: Interest Rate – Introduction

2.1 Interest Rate: Concept.
2.2 Risk-Free Rate versus Risky Rate.
2.3 Nominal vs. Real Interest Rate.
2.4 Term Structure of Rates: Shapes
2.5 Term Structure of Rates: Shifts
2.6 Conversion of Rate into Amount
2.7 Accrued Interest.


Chapter 3: Return and Risk Measures for Debt Securities

3.1 Return Measure: Spot Rate
3.2 Coupon, Current Yield and Yield-To-Maturity
3.3 Spot Rate, Bond Price and YTM
3.4 Risk Measures.


Chapter 4: Interest Rate Derivatives

4.1 Derivatives: Definition and Economic Role.
4.2 Interest Rate Derivatives.
4.3 OTC versus Exchange-traded Derivatives.
4.4 Derivatives Market in India.


Chapter 5: Contract Specification for Interest Rate Derivatives

5.1 Underlying.
5.2 Contract Amount (or Market Lot).
5.3 Contract Months, Expiry / Last Trading Day and Settlement Day.
5.4 Price Quotation, Tick Size and Trading Hours.
5.5Daily Settlement Price (DSP).
5.6 Final Settlement Price (FSP).
5.7 Delivery under physical settlement.


Chapter 6: Trading, Clearing, Settlement and Risk Management

6.1 Operational Guidelines of Exchanges.
6.2 Order Types and Execution.
6.3 Spread Orders.
6.4 Margining and Mark-To-Market.
6.5 Clearing and Settlement.
6.6 Procedure for Delivery.


Chapter 7: Regulations and Compliance

7.1 Role of Various Regulators.
7.2 Restrictions on Resident and Non-Resident Investors.
7.3 Limits on Open Interest.
7.4 Regulatory Reporting.
7.5 Role of FIMMDA in Fixed Income and Derivatives Markets in India.
7.6 Accounting.


Chapter 8: Trading and Hedging

8.1 Trading Strategies.
8.2 Hedging Strategies.
8.3 Basis Risk, Yield Curve Spread Risk and Market Liquidity Risk.

NISM Interest Rates Derivatives Mock Test (Play And Earn):

#1. Which of the following are passive funds?

Exchange Traded Funds are passive funds. It was made only once by the Fund Manager then they repeat the same strategy again and again.

#2. TDS on Mutual Funds are charge to

Indian Residents are not subjected to TDS. but NRIs have to pay TDS on Mutual Funds.

#3. Indexation facility is only available for

As per rules, Indexation benefits are applicable only  for long terms capital gains in Debt funds.

Investment period of 3 years is considered as long term investment in debt funds.

If holding period is less than 3 years then debt funds are considered as short term.

#4. SEBI created due diligence criteria for

SEBI created due diligence criteria for big distributors to check their records on which basis they give advise to investors.

As per SEBI, Due diligence criteria are only applicable for distributors who:

  1. Have point of presence in more than 20 locations.
  2. Have received commission of over Rs.50 lakh from one AMC.
  3. Have received commission of over Rs. 1 crore p.a. across industry , not just one AMC.
  4. Have received AUM over Rs. 100 crore in non-institutional category.

#5. Which of the following Fund have lock-in period?

Exchange Traded Funds and Liquid Funds have no lock-in period while ELSS have lock-in period of 3 years. Liquid funds mostly invest in fixed income securities so they are very safe.

#6. Which fund is good for emergency redemption of money ?

Liquid fund  is important  for  any investor’s  portfolio  as there is no lock-in period one can withdraw  money  anytime. Liquid fund is good for emergency redemption of money. 

#7. Which among the following fund can private sector NPS subscriber can choose, under the active choice model?

Under the active choice model,  private sector NPS subscriber have right to manage their investment (with a rule that their investment shouldn’t have Equity exposure more than 75%).

 

So, under active choice model, NPS subscriber can invest in any kind of fund with above exception.

#8. Which among the following option is correct?

In Private sector model NPS Subscribers have two choice:

1) Active choice = NPS Subscribers can manage their investment.

2) Auto choice = NPS Subscribers can’t manage their investment.

 

 

But in case of Active choice, there is a rule that Equity exposure shouldn’t exceed more than 75%.

 And in the Government model of NPS, only government decide to manage the investment.

#9. Permanent Retirement Account Number (PRAN) card is

PRAN card is issued only to NPS subscribers

and can be used as a valid photo id proof

for KYC verification for micro SIP.

#10. NAV of fund will remain constant, if dividend is paid to investors

If dividend is paid to investors, NAV of fund will  goes down to the  extent of  dividend  paid plus addition of DDT.

#11. Certificate of Deposits are issued to

Certificate of Deposits are issued  to Individuals as well as Corporations.

But issued  by Scheduled banks.

#12. Indexation Benefit is used to evade tax

Indexation Benefit is used to decreases  the  tax liability for the impact of Inflation.

For Instance, i put money on SBI Bank FD.

If Inflation rate is 4% and Interest rate is 7% then my actual Rate of return is (7-4=3%). So my actual gain is 3%.

If i pay tax for normal case then i have to pay tax for 7% gains.

But through help of indexation i need to pay tax for only 3% gains.

#13. Stamp duty is applicable on

From 1st July 2020,

Stamp duty is applicable on the purchase of mutual funds,

but not on the redemption of units.

 

#14. Stamp duty will be imposed at a rate of

From 1st July 2020,

Stamp duty will be imposed at a rate of 0.005%

on the purchase of mutual funds.

#15. Stamp duty will be imposed on the transfer of mutual fund units.

From 1st July 2020,

Stamp duty will be imposed on the transfer of mutual fund units.

Stamp duty will be imposed on Transfer of units from one demat account to another at the rate of 0.015%.

#16. Raj invests Rs.1000000 in an sector fund whose face value is Rs.10 and NAV is Rs.59. How many units Raj will be allotted?

Raj invests Rs.1000000 in a sector fund.

with face value =Rs.10 and NAV =Rs.59.

As sector fund is open ended so units will be allotted on market value(NAV).                 

so, the number of units Raj will be allotted= Invested amount /NAV

= 1000000/59

=16,949.15 units

                                                                     

 

#17. Raghav invests Rs.100000 in an NFO, whose face value is Rs.10 and NAV is Rs.60 . How many units Raghav will be allotted?

Raghav invests Rs.100000 

with face value =Rs.10 and NAV =Rs.60

As it is NFO, so units will be allotted on face value.                 

so, the number of units Raj will be allotted= Invested amount /face value

                                                                      = 100000/10

                                                                      =10,000 units

 

#18. In case of Growth option of Mutual fund

There are two Options to invest in Mutual fund:

  1. Growth option

  2. Dividend option.

Dividend is declared only in Dividend option but not in a Growth option of a Mutual fund.

Tax deferral benefit is available only in growth option.

In Dividend Reinvestment option, number of units can be also increased. but not in growth option.

In Growth option, NAV can capture the full value of portfolio gain as dividend  can’t  be declared.

#19. If unit holder pledged their units then they

After pledging, unit holder can’t sell them unless they return the money.

They also can’t switch their units into another scheme

But they can do additional purchase in the same account.

#20. Fluctuations in bonds when interest rate changes. This risk is known as

  • In Reinvestment risk, it may not be possible to reinvest interest received at the same rate as principal.

    For instance;

    FD’s initial interest rate could be different from the interest rate of the day of maturity.

    So there is risk involve in reinvestment. This risk is known as Reinvestment risk.

  • Call risk: When investor invest in bonds but the issuer could  call back bonds. this risk is known as Call risk.

While term inflation risk does not exist. So, Fluctuations in bonds when interest rate changes, this risk is known as Interest rate risk.

#21. SEBI regulates banks

SEBI regulates Stock market while RBI regulates banks in India.

finish

Results

The above  percentage is your score of this test.

 

  • This was Sample of Nism  V A Mock test.
  • Now let’s start with our Premium NISM Mock test:

 

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The above  percentage is your score of this test.

 

  • This was Sample of Nism  V A Mock test.
  • Now let’s start with our Premium NISM Mock test:

 

  • Part 1 of Premium NISM Mock Test of NISM V A:

 

Click here to Start.

 

 

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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