| Q 1. | An ‘European’ call option will give the buyer the right but not the obligation to buy from the seller an underlying at the strike price ________ .
Only on the expiry date
On or before the expiry date
One day preceding the expiry date
One day after the expiry date
 CORRECT ANSWER  WRONG ANSWER
CORRECT ANSWER:Only on the expiry date Explanation:
European option: The owner (buyer/holder) of a European option can exercise his right only on the expiry date/day of the contract. In India, all index and stock options are European style options.
American option: The owner (buyer/holder) of an American option can exercise his right at any time on or before the expiry date/day of the contract.
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| Q 2. | If one does a calendar spread contract in index futures, then it attracts_________
Lower margin than sum of two independent legs of futures contract
No margin need to be paid for calendar spread positions
Higher margin than sum of two independent legs of futures contract
Same margin as sum of two independent legs of futures contract
CORRECT ANSWER WRONG ANSWER CORRECT ANSWER:Lower margin than sum of two independent legs of futures contract Explanation:
Calendar spread position is a combination of two positions in futures on the same underlying - long on one maturity contract and short on a different maturity contract.
When the market fluctuates, if there is a loss in the long position then there will be an almost equal profit in short position.
So Calendar spreads carry no market risk - hence lower margins are adequate.
Calendar spread carries on only basis risk. Basis risk means both the contracts will not fluctuate identically. |
| Q 3. | A stock exchange has ON LINE SURVEILLANCE capability to monitor the __________.
Volumes
Prices
Positions
All of the above
CORRECT ANSWER WRONG ANSWER CORRECT ANSWER:All of the above Explanation:
All modern stock exchanges have highly developed online surveillance sytems to monitor the volumes / position and prices of all listed products and also check any unusual activity etc. in them. |
| Q 4. | A trader sells a lower strike price CALL option and buys a higher strike price CALL option, both of the same scrip and same expiry date. This strategy is called _______ .
Bearish Spread
Bullish Spread
Long term Investment
Butterfly
CORRECT ANSWER WRONG ANSWER CORRECT ANSWER:Bearish Spread Explanation:
The trader sells a lower strike price CALL option (receives a premium) and buys a higher strike price CALL option (pays a premium).
Since the lower strike price option has a higher premium, the trader receives a net credit initially.
This strategy benefits when the stock declines or remains below the lower strike price, making it a Bear Call Spread, which is a Bearish Spread strategy.
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| Q 5. | 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?
True
False
CORRECT ANSWER WRONG ANSWER CORRECT ANSWER:False Explanation:
Clearing member is required to provide liquid assets which adequately cover various margins and liquid Net-worth requirements. He may deposit liquid assets in the form of cash, bank guarantees, fixed deposit receipts, approved securities and any other form of collateral as may be prescribed from time to time. |
| Q 6. | The Spot price ie. the market price of a share is Rs 200 and the interest rate is 12% pa. Which of the below price is closest to 3 months future maturity ?
206
200
203
224
CORRECT ANSWER WRONG ANSWER CORRECT ANSWER:206 Explanation:
Price of a future contract is generally the spot price plus interest for the time period.
Yearly Interest Rate is 12%. Full year's interest = 12% of 200 ie. Rs 24 (200 x 12 / 100)
So for 3 months the cost of interest is Rs 6. ( 24/12 x 3)
Therefore the 3 month future contract will have an price of appx. Rs 206. (200 + 6) |
| Q 7. | A long position in a PUT option can be closed by taking a short position in CALL option.
True
False
CORRECT ANSWER WRONG ANSWER CORRECT ANSWER:False Explanation:
A long position in any option can be closed by selling that option and not in any other way.
So a long position in a PUT option can be closed by selling that PUT option. |
| Q 8. | When you buy a put option on a stock you are owning, this strategy is called _____________ .
Straddle
writing a covered call
calender spread
protective put
CORRECT ANSWER WRONG ANSWER CORRECT ANSWER:protective put Explanation:
Protective Put is a a risk-management strategy that investors can use to guard against the loss of unrealized gains.
The put option acts like an insurance policy - it costs money, which reduces the investor's potential gains from owning the security, but it also reduces his risk of losing money if the security declines in value. |
| Q 9. | Mr. Ashu has bought 100 shares of ABC at Rs 980 per share. He expects the price to go up but wants to protect himself if price falls. He does not want to lose more than Rs. 1000 on this long position in ABC. What should Mr. Ashu do?
Place a stop loss order for 100 shares of ABC at Rs 990 per share
Place a stop loss order for 100 shares of ABC at Rs 970 per share
Place a limit buy order for 100 shares of ABC at Rs 990 per share
Place a limit sell order for 100 shares of ABC at Rs 970 per share
CORRECT ANSWER WRONG ANSWER CORRECT ANSWER:Place a stop loss order for 100 shares of ABC at Rs 970 per share Explanation:
Mr. Ashu will lose Rs 1000 if the ABC share will fall by Rs 10 as he has 100 shares and a 10 rupee fall will lead to Rs 1000 loss (100x10).
He has bought at Rs 980. So he will put the stop loss order at Rs 970 (980 - 10). |
| Q 10. | _________ is a cost to the market participants but is not mentioned in the contract note.
Impact Cost
SEBI turnover fees
Securities Transaction Tax
Exchange transaction charges
CORRECT ANSWER WRONG ANSWER CORRECT ANSWER:Impact Cost Explanation:
Impact cost is the cost that a buyer or seller of stocks incurs while executing a transaction due to the prevailing liquidity condition on the counter. Lower the liquidity, higher will be the impact cost.
The impact cost is not reflected in the contract notes.
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