ncfm model test paper

NCFM MODEL TEST PAPER

Financial Markets: A Beginners' Module

Maximum Marks: 100 Pass Marks: 50

Test Duration: 60 minutes Time Left: 43:00 minutes

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Correct answers are shown.

Q1

Capital Employed is equal to _________. [ 2 Marks ]

(b) Fixed Assets + Current Assets - Current Liabilities

Q2

If a client buys shares worth Rs. 2,55,000 and sells shares worth Rs. 3,45,000 through a broker, then the maximum

brokerage payable to the broker is _____________. [ 2 Marks ]

Maximum Brokerage is 2.5% on trade value.

So for

Purchase of shares - 2,55,000*2.5%=6375

On the time of Sale - 3,45,000*2.5%=8625

Totally The Maximum Amount is 15,000.

(b) Rs. 15000

Q3

Return on Total Asset is equal to __________. [ 2 Marks ]

(d) Net income /Average Total Asset

Q4

Which of the following is a benefit of participation in a depository? [ 1 Mark ]

(a) No stamp duty on transfer of securities.

(b) Elimination of risks associated with physical certificates such as bad delivery, fake securities,etc.

(c) Nomination facility.

(d) All of the above

Q5

The benchmark stock market index of India is ________. [ 1 Mark ]

(d) the Nifty

Q6

Which of the following is not true about offer of shares through normal public issue? [ 2 Marks ]

(a) In normal Public issue, investors bid for shares at the floor price or above and after the closure of the process the

price is determined for allotment of shares.

Q7

At 8% annual inflation rate, an item costing Rs. 100 today, would cost Rs. _______ after one year. [ 3 Marks ]

(a) Rs. 108

Q8

At 6% annual inflation rate, an item costing Rs. 100 today, would cost Rs. _______ after two years. [ 3 Marks ]

(b) Rs. 112.36

Q9

The Margin which takes care that all daily losses must be met by the investor by depositing of further collateral by the

close of business, the following day is known as _________. [ 1 Mark ]

(a) Mark to Market Margin

Q10

What is the present value of Rs. 6000 receivable after two years at a discount rate of 5% under continuous

discounting? [ 2 Marks ]

(a) Rs. 5429.02

Q11

What is the dividend yield of ABC Co Share having a face value of Rs 100, market value of 360 and an annual

dividend of Rs 10? [ 1 Mark ]

(b) 2.77%

Q12

Earnings Per Share (EPS) is calculated by _________. [ 2 Marks ]

(d) Net Profit / No. of Ordinary shares outstanding

Q13

Which amongst these is not a Debt market instrument? [ 1 Mark ]

(c) FIIs

Q14

Which rate of return accounts for intra-year compounding? [ 2 Marks ]

(a) Effective

Q15

___________ is a good indicator of the stock market behaviour. [ 1 Mark ]

(d) Nifty index

Q16

Market Capitalisation is _____________. [ 2 Marks ]

(b) No. of shares issued by a company multiplied by it's market price

Q17

What is the present value of Rs 10000 receivable after 1 year discounted at 10% p.a.? [ 2 Marks ]

(d) 9090.9

Q18

What factor/s affect the interest rate? [ 3 Marks ]

(a) Government borrowings

(b) Supply of money

(c) Inflation rate


Q19

Which of the following needs to be considered by an investor, while investing? [ 3 Marks ]

(a) Assess risk-return profile of the investment.

(b) Know the liquidity and safety aspects of the investment.

(c) Obtain written documents explaining the investment.


Q20

Money market mutual funds can invest in _______. [ 3 Marks ]

(a) treasury bills

(b) certificate of deposits

(c) commercial paper


Q21

Which of the following is not true about a debt instrument? [ 1 Mark ]

(a) It signifies a ownership right in the company.

Q22

Which type of corporate action splits the existing shares of a particular face value into smaller denominations? [ 1

Mark ]

(a) Stock Split

Q23

How many securities are there in Nifty index? [ 1 Mark ]

(d) 50

Q24

Which of the following is TRUE about Primary Markets? [ 2 Marks ]

(c) Primary Markets refer to the mobilization of funds from the public by corporates through the issue of shares /

debentures.

Q25

The future value of a Rs.10,000 investment done today, which gives an annual rate of return of 20% per annum, after

one year should be ____________. [ 3 Marks ]

(c) Rs. 12,000

Q26

Which of the following problems have been eliminated by Depositories? [ 1 Mark ]

(a) Reduction in the share transfer time to the buyer.

(b) Risk of stolen, fake, forged shares.

(c) Stamp duty on transfer of shares in dematerialized form.


Q27

Which of the following is not a benefit of investing in mutual funds? [ 2 Marks ]

(a) Investment in Mutual funds leads to diversification of holdings.

(b) Mutual funds are managed by professional fund managers.

(c) Mutual Funds regularly provide investors with information on the value of their investments.

(d) None of the above

Q28

Funds which invest only in the stocks comprising an index and aim to give returns commensurate with the index

returns are called _________. [ 2 Marks ]

(a) Index Funds

Q29

Depositories are like banks for securities. [ 1 Mark ]

(a) TRUE

Q30


(b) Rs. 112

Q31

The future value of a Rs.10,000 investment, which gives an annual rate of return of 20% per annum, after two years

would grow to _________ (assume discrete compounding) [ 3 Marks ]

(a) Rs. 14,400

Q32

An investment should provide an after-tax return which is ________. [ 3 Marks ]

(a) at least higher than the rate of inflation

Q33

Which of the following is not true about ADR? [ 1 Mark ]

(b) ADRs may be used in public or private markets inside or outside US.

Q34

What are the segments of Securities Market? [ 1 Mark ]

(a) Primary market and Secondary market

Q35

Which instrument among these is considered the most challenging and rewarding investment option, when compared

to other investment options? [ 3 Marks ]

(a) Equity

Q36

'Bid' means the _____________. [ 3 Marks ]

(a) Seller's price

(d) Buyer's price

Q37

Profit and Loss account of a company shows _______. [ 2 Marks ]

(a) The revenues and expenses during particular period of time.

Q38

Which instrument among these have historically shown to give the highest returns when invested over long periods? [

3 Marks ]

(b) Equity

Q39

The lenders use ______________ ratio to assess debt servicing capacity of a firm. [ 2 Marks ]

(a) Interest Coverage ratio

Q40

_______ funds do not have a fixed date of redemption. [ 2 Marks ]

(a) Open ended funds

Q41

'Ask' means the ________. [ 3 Marks ]

(b) Seller's price

Q42

________________ is maintained by NSE to make good investor claims, which may arise out of non-settlement of

obligations by the trading member, who has been declared defaulter, in respect of trades executed on the Exchange.

[ 1 Mark ]

(d) Investor Protection Fund (IPF)

Q43


(b) Rs. 110

Q44

What is the present value of Rs. 3000 receivable after two years at a discount rate of 5% under continuous

discounting? [ 2 Marks ]

(b) Rs. 2714.51

Q45

The future value of a Rs.12,000 investment made today, which gives an annual rate of return of 10% per annum,

after one year should be _________. [ 3 Marks ]

(c) Rs. 13,200

Q46

Nifty index is used in _________. [ 1 Mark ]

(a) Derivatives

(b) Index Funds

(c) Exchange Traded Funds (ETFs)


Q47

Demutualisation of stock exchanges refer to _________. [ 3 Marks ]

(a) the legal structure of an exchange whereby the ownership, the management and the trading rights at the

exchange are segregated from one another

Q48

Which securities can an investor invest in? [ 1 Mark ]

(a) Shares

(b) Debentures

(c) Mutual Funds


Q49

_____________ gives the buyer the right, but not the obligation to sell a given quantity of underlying asset at a given

price on or before a given future date. [ 1 Mark ]

(a) Put Option

Q50

The holders of which instrument are members of the company and have voting rights? [ 3 Marks ]

(d) Equity

NCFM EXAM - DERIVATIVES MARKET (DEALERS) MODULE

PRACTICE QUESTIONS

DERIVATIVES MARKET (DEALERS) MODULE

1. Swaps can be regarded as portfolios of ________. [ 1 Mark ]

(a) Future Contracts

(b) Option Contracts

(c) Call Options

(d) Forward Contracts

(e) I am not attempting the question

2. A stock is currently selling at Rs. 165. The put option at Rs. 163 strike price costs Rs.

3. What is the time value of the option? [ 1 Mark ]

(a) Rs. 3

(b) Rs. 2

(c) Rs. 1

(d) Rs. 1.50


3. LEAPS have a maturity of upto _________. [ 1 Mark ]

(a) one year

(b) three years

(c) ten years

(d) three months


4. What is the outstanding position on which initial margin will be levied if no proprietary

trading is done and the details of client trading are: one client buys 500 units @ 1260.

The second client buys 900 units @Rs.1255 and sells 1000 units @Rs.1260?[2 Marks ]

(a) 1900 units

(b) 2400 units

(c) 500 units

(d) 600 units


5. A payer swaption is an option to pay ______ and receive ______. [ 1 Mark ]

(a) floating, fixed

(b) interest, interest

(c) fixed, floating

(d) options, futures


6. Forward contracts are ________ contracts. [ 3 Marks ]

(a) Multilateral

(b) Tri-lateral

(c) Future

(d) Bilateral


7. You are the owner of a 5 million portfolio with a beta 1.0. You would like to insure

your portfolio against a fall in the index of magnitude higher than 10%. Spot Nifty

stands at 4000. Put options on the Nifty are available at three strike prices. Which

strike will give you the insurance you want? [ 2 Marks ]

(a) 3,870

(b) 3,840

(c) 3,600



8. A receiver swaption is an option to receive ______ and pay ______. [ 1 Mark ]

(a) fixed, floating

(b) floating, fixed

(c) interest, interest

(d) options, futures


9. The market impact cost on a trade of Rs. 4 million of the S&P CNX Nifty works out to

be about 0.06%. This means that if S&P CNX Nifty is at 4000, a sell order of that value

will go through at a price of Rs. _______. [ 1 Mark ]

(a) 3997.60

(b) 3996

(c) 3,999.50

(d) 3,995.50


10. Ms. Shetty has sold 1000 calls on ABC Ltd. at a strike price of Rs. 885 for a premium

of Rs.27 per call on April 1. The closing price of equity shares of ABC Ltd. is Rs. 890 on

that day. If the call option is assigned against her on that day, what is her net

obligation on April 01? [ 2 Marks ]

(a) Pay-out of Rs.22,300

(b) Pay-in of Rs.22,000

(c) Pay-in of Rs.25,000

(d) Pay-out of Rs.22,000


11. BANK Nifty is a derivative contract on NSE ____________. True or False? [ 3 Marks ]

(a) True

(b) False

(c) I am not attempting the question

12. CNX IT is a derivatives contract on NSE. True or False? [ 3 Marks ]

(a) True

(b) False


13. Forward contracts on expira tion have to settled by __________. [ 3 Marks ]

(a) cash

(b) difference in price

(c) payment of margin

(d) delivery of the asset


14. On expiry the settlement price of a stock option contract is the _________.[ 2 Marks ]

(a) Closing futures price

(b) Closing stock price

(c) Closing options price



15. In an index fund, trading in the stocks comprising the fund, is required in response to

______. [ 1 Mark ]

(a) Favourable company specific news

(b) Poor company specific news

(c) Mergers

(d) Government policies



be about 0.04%. This means that if S&P CNX Nifty is at 4100, a sell order of that value

will go through at a price of Rs. _______. [ 1 Mark ]

(a) 4098.35

(b) 4096

(c) 4093

(d) 4099.50


17. The following is an example of an order with time condition. [ 3 Marks ]

(a) Day order

(b) Stop Loss

(c) Limit




trading is d one and the details of client trading are: one client buys 1000 units @

1260. The second client buys 1000 units @Rs.1255 and sells 1000 units @Rs.1260.?

[ 2 Marks ]

(a) 2000 units

(b) 3000 units

(c) 1000 units

(d) 4000 units


19. The beta of TELCO is 0.8. A person has a long TELCO position of Rs. 800,000 coupled

with a short Nifty position of Rs. 600,000. Which of the following is TRUE? [ 1 Mark ]

(a) He is bearish on Nifty as well as on TELCO

(b) He has a complete hedge against fluctuations of Nifty

(c) He has a partial hedge against fluctuations of Nifty

(d) He is bullish on Nifty as well as on TELCO


20. Reliance Industries Ltd. does not have a Beta value. True or False? [ 2 Marks ]

(a) True

(b) False


21. Nifty consists of securities having _____ market capitalization stocks. [ 1 Mark ]

(a) large

(b) small

(c) medium

(d) large and small


22. The beta of ICICI Bank is 1.5. A person has a long position of Rs. 400,000 of ICICI

Bank. Which of the following gives a complete hedge?. [ 1 Mark ]

(a) SELL Rs. 600,000 of Nifty futures

(b) SELL Rs. 650,000 of Nifty futures

(c) SELL Rs. 700,000 of Nifty futures



23. On 15th January, Raju bought a January Nifty futures contract which cost him

Rs.334,500. For this he had to pay an initial margin of Rs.31,520 to his broker. Each

Nifty futures contract is for delivery of 100 Nifties. On 25th January, the index closed

at 3360. How much profit/loss did he make? [ 2 Marks ]

(a) (-) 1,200

(b) (-) 1,500

(c) (+) 1,200

(d) (+) 1,500


24. Futures have a _______ payo ff. [ 2 Marks ]

(a) Non-linear

(b) Linear

(c) Vertical

(d) Horizontal


25. Mr. A buys a futures contract of M/s. XYZ Ltd. (Lot Size: 1000) expiring on 29th Sep

for Rs. 300. The spot price of the share is Rs. 290. Does he have to pay securities

transaction tax? [ 1 Mark ]

(a) Yes, only if he buys more than 1 contract

(b) Yes

(c) No, only if he sells of the contract immediately

(d) No


26. Ms. Shetty has sold 5000 calls on ABC Ltd. at a strike price of Rs. 500 for a premium

of Rs.25 per call on April 1. The closing price of equity shares of ABC Ltd. is Rs. 505 on

that day. If the call option is assigned against her on that day, what is her net

obligation on April 01? [ 2 Marks ]

(a) Pay-out of Rs.1,22,300

(b) Pay-in of Rs.1,22,000

(c) Pay-in of Rs.1,25,000

(d) Pay-out of Rs.1,00,000


27. An index put option at a strike of Rs. 4200 is selling at a premium of Rs. 30. At what

index level will it break even for the buyer of the option? [ 1 Mark ]

(a) Rs. 4175

(b) Rs. 4176

(c) Rs. 4170

(d) Rs. 4162


28. Which of the following is the duty of the trading member? [ 3 Marks ]

(a) Giving tips to clients to buy and sell

(b) Funding losses of the clients

(c) Collection of adequate margins from the client



29. The only way an investor can manage risks in the underlying cash market is by?

[ 1 Mark ]

(a) Hedging in the futures market

(b) Speculating in the futures market

(c) Speculating in the options market



30. Nifty is a ________ index [ 2 Marks ]

(a) well diversified

(b) poorly diversified

(c) balanced

(d) volatile


31. You have bought a stock on the exchange. To eliminate the risk arisin g out of the

stock price, you should _____. [ 3 Marks ]

(a) buy index futures

(b) buy stock futures

(c) sell the stock futures

(d) none of the above


32. On 1st January, a three month call option on the Nifty with a strike of 4280 is

available for trading. The `T’ that is used in the Black Scholes formula should be

_______. [ 1 Mark ]

(a) 3

(b) 0.25

(c) 90



33. The spot price of ABC Ltd. is Rs. 2000 and the cost of financing is 10%. What is the

fair price of a one month futures contract on ABC Ltd.? [ 2 Marks ]

(a) 2015

(b) 2016.75

(c) 2018.75

(d) 2019


34. Cyrus is short 800 WIPRO July Puts at strike Rs. 1520 for a premium of Rs. 43 each on

July 22. On July 25, (the expiration day of the contract), the spot price of WIPRO

closes at Rs.1553, while the July futures on WIPRO close at 1655. Does Cyrus have an

obligation to the Clearing Corporation on his positions, and how much, if any?

[ 2 Marks ]

(a) Yes. Rs.19,800 pay-out

(b) No pay in or pay-out on expiration of contract

(c) Yes. Rs.18,900 pay-out

(d) Yes. Rs.19,800 pay-in


35. On 15th October, Arvind bought a December Nifty futures contract which cost him Rs.

325,600. For this he had to pay an initial margin of Rs. 30,100 to his broker. Each

Nifty futures contract is for delivery of 100 Nifties. On 27th December, the index

closed at 3280. How much profit/loss did he make? [ 2 Marks ]

(a) (+) 1400

(b) (-) 2400

(c) (+) 2400

(d) (-) 1400


36. Assume that the base value of a market capitalization weighted index were 1000 and

the base market capitalisation were Rs.70,000 crore. If the current market

capitalisation is Rs.140,000 crore, the index is at Rs. ____. [ 1 Mark ]

(a) 2,110

(b) 2,350

(c) 2,250

(d) 2,000


37. On 1st January, a one month call option on the Nifty with a strike of 4250 is available

for trading. The `T’ that is used in the Black Scholes formula should be _______.

[ 1 Mark ]

(a) 2

(b) 0.08

(c) 20



38. If the annual risk free rate is 9%, then the ‘r' used in the Black Scholes formula should

be ______. [ 1 Mark ]

(a) 0.086

(b) 0.099

(c) 1.1



39. The beta of ACC is 1.5. A person has a long TELCO position of Rs. 900,000 coupled

with a short nifty position of Rs. 800,000. Which of the following is TRUE? [ 1 Mark ]

(a) He is bearish on Nifty as well as on ACC

(b) He has a complete hedge against fluctuations of Nifty

(c) He has a partial hedge against fluctuations of Nifty

(d) He is bullish on Nifty as well as on ACC


40. If the annual risk free rate is 8%, then the ‘r' used in the Black Scholes formula should

be ______. [ 1 Mark ]

(a) 0.076

(b) 0.096

(c) 1.1



41. Hedging with stock futures means ___________. [ 1 Mark ]

(a) shorting stocks

(b) shorting index futures

(c) shorting stock futures

(d) long index futures


42. Which of the following is the duty of the trading member? [ 3 Marks ]

(a) Employing large numbers of research analysts

(b) Executing his own orders prior to client orders

(c) Bringing risk factors to the knowledge of client



43. On expiry, the settlement price of a Reliance Industries Ltd. futures contract is

_______. [ 2 Marks ]

(a) opening price of Reliance Industries Ltd.

(b) closing price of Reliance Industries Ltd.

(c) closing price of Reliance Industries Ltd. futures contract

(d) Last traded price of Reliance Industries Ltd.


44. On 1st January, a two month call option on the Nifty with a strike of 4250 is available


[ 1 Mark ]

(a) 3

(b) 0.16

(c) 90



45. The NEAT F&O trading system _____________. [ 3 Marks ]

(a) allows spread trades

(b) allows combination trades

(c) allows only a single order placement at a time

(d) (a) and (b) above


46. Santosh is bearish about ABC Ltd. and sells twenty one-month ABC Ltd. futures

contracts at Rs.3,96,000. On the last Thursday of the month, ABC Ltd. closes at

Rs.410. He makes a _________. (assume one lot = 100) [ 1 Mark ]

(a) profit of Rs. 14,000

(b) loss of Rs. 14,000

(c) profit of Rs. 28,000

(d) loss of Rs. 28,000


47. To be eligible for trading a broker must be _________. [ 1 Mark ]

(a) SEBI registered

(b) highly capitalised

(c) a member of the Association of Trading members



48. You are the owner of a 4 million portfolio with a beta 1.0. You would like to insure

your portfolio against a fall in the index of magnitude higher than 12%. Spot Nifty

stands at 4200. Put options on the Nifty are available at three strike prices. Which

strike will give you the insurance you want? [ 2 Marks ]

(a) 3,870

(b) 3,840

(c) 3,696



49. A stock is currently selling at Rs. 50. The call option to buy the stock at Rs.45 costs

Rs.9. What is the time value of the option? [ 1 Mark ]

(a) Rs. 9

(b) Rs. 7

(c) Rs. 4

(d) Rs. 2


50. An option contract which will not be exercised on the expiry date is ________.

[ 2 Marks ]

(a) an in-the-money option

(b) a deep in-the-money

(c) an out-of-the-money option



51. The theoretical futures price is based on the ________. [ 2 Marks ]

(a) strike price

(b) underlying spot price

(c) the price at which a futures contract trades in the market

(d) the price set by the exchange


52. On 1st January, a two month call option on the Nifty with a strike of 4000 is available


[ 1 Mark ]

(a) 2

(b) 0.16

(c) 20



53. Stock options on HDFC Bank Ltd. can be exe rcised ___________. [ 2 Marks ]

(a) any time on or before maturity

(b) upon maturity

(c) any time upto maturity

(d) on a date pre-specified by the trading member


54. Ms. Shetty has sold 1400 calls on HLL at a strike price of Rs.297 for a premium of

Rs.11 per call on April 1. The closing price of equity shares of HLL is Rs. 300 on that

day. If the call option is assigned against her on that day, what is her net obligation on

April 01. [ 2 Marks ]

(a) Pay-out of Rs.12,300

(b) Pay-in of Rs.12,000

(c) Pay-in of Rs.11,000

(d) Pay-out of Rs.11,200


55. _____________is allowed to clear trades of themselves but not of others. [ 1 Mark ]

(a) Trading member - clearing member

(b) Trading members are not allowed to clear their own trades

(c) professional clearing member

(d) self clearing member


56. Index Funds use index futures to reduce _________ [ 2 Marks ]

(a) tracking error

(b) expenses

(c) time to invest in the markets



57. Weekly options trading commenced on NSE in _______. [ 1 Mark ]

(a) 02-Jun-2005

(b) 04-Jul-2005

(c) NSE does not trade in Weekly options

(d) 04-Jun-2005



be about 0.05%. This means that if S&P CNX Nifty is at 4200, a buy order of that

value will go through at a price of Rs. _______. [ 1 Mark ]

(a) 4202.10

(b) 4200

(c) 4210

(d) 4211



trading is done and the details of client trading are: one client buys 2000 units @

1260. The second client buys 2000 units @Rs.1255 and sells 1000 units @Rs.1260.?

[ 2 Marks ]

(a) 4000 units

(b) 5000 units

(c) 3000 units



60. In the F&O segment of NSEIL, obligations of client's positions are calculated on a

________ basis. [ 2 Marks ]

(a) cumulative

(b) gross

(c) net

(d) portfolio


Answers :

1 (d) 21 (a) 41 (c)

2 (a) 22 (a) 42 (c)

3 (b) 23 (d) 43 (b)

4 (d) 24 (b) 44 (b)

5 (c) 25 (d) 45 (d)

6 (d) 26 (d) 46 (d)

7 (c) 27 (c) 47 (a)

8 (a) 28 (c) 48 (c)

9 (a) 29 (a) 49 (c)

10 (d) 30 (a) 50 (c)

11 (a) 31 (c) 51 (b)

12 (a) 32 (b) 52 (b)

13 (d) 33 (b) 53 (a)

14 (b) 34 (b) 54 (d)

15 (c) 35 (c) 55 (d)

16 (a) 36 (d) 56 (a)

17 (a) 37 (b) 57 (c)

18 (c) 38 (a) 58 (a)

19 (c) 39 (c) 59 (c)

20 (b) 40 (a) 60 (c)

ncfm model test paper

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