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Unit ko samjho · NISM Series I

Clearing, Settlement and Risk Management in Exchange Traded Currency Derivatives

18 questions is unit mein

Sawaal aur jawaab English mein hain, kyunki NISM ka exam paper bhi English mein hota hai.

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Practice bank se · 1

At the clearing-member level, which entity becomes buyer to the seller and seller to the buyer when an exchange-traded currency futures trade is novated?

The clearing corporation interposes itself as central counterparty at the clearing-member level. The original matched trade is replaced at the clearing level by obligations involving the central counterparty. The clearing corporation therefore faces each clearing side. The clearing bank moves money but does not become the futures counterparty merely by providing payment services. Remember: Keep trade matching, central-counterparty clearing and banking functions separate.

Hint Common mistake: Assuming that the exchange’s trading platform and the clearing corporation perform the same legal role.

I-028

Practice bank se · 2

An outright USD-INR futures position has a mark-to-market gross value of ₹2,20,00,000. Using NSE Clearing’s 0.50% Extreme Loss Margin rate for these futures, what is the ELM alone? Assume no spread benefit or additional margin.

Applying 0.50% to ₹2,20,00,000 gives ₹1,10,000. For this USD-INR futures position, ELM = gross mark-to-market value × ELM rate. Convert 0.50% to 0.005. Calculate ₹2,20,00,000 × 0.005 = ₹1,10,000. This is ELM only. , daily losses or other applicable amounts are not included in the requested result. Remember: Match the margin rate to futures or short options before multiplying the correct notional base.

Hint Common mistake: Using an outdated exchange overview or a short-options rate for a futures position.

I-029

Practice bank se · 3

Assume total USD-INR open interest on NSE is USD 500 million. What ordinary client-level USD-INR position limit follows from the published exchange rule? Consider this limit alone, not the separate underlying-exposure requirements.

Six percent gives USD 30 million, which exceeds the fixed USD 20 million limb. Calculate the percentage limb: 6% × USD 500 million = USD 30 million. Compare USD 30 million with USD 20 million. The higher amount is USD 30 million. Meeting this position ceiling does not by itself establish compliance with RBI’s hedging and underlying-exposure requirements. Remember: Calculate both limbs of a higher-of limit and apply the correct participant category.

Hint Common mistake: Using the fixed amount without comparison or mixing up client and trading-member limits.

I-030

Practice bank se · 4

Under NSE’s standard specification, when does trading end in a monthly USD-INR futures contract? Ignore any separately notified holiday or special-session adjustment.

This combines the specified two-working-day rule with the 12:30 p.m. trading cutoff. Start from the last business day of the month and count back two working days. The standard last trading time on that date is 12:30 p.m. IST. Normal session hours do not extend an expiring contract beyond this cutoff. Remember: Identify both the expiry date rule and its contract-specific trading cutoff.

Hint Common mistake: Treating a normal trading-day close as the expiry cutoff, or counting calendar days instead of working days.

I-031

Practice bank se · 5

Which benchmark is prescribed for the final settlement price of an exchange-traded USD-INR futures contract when the corresponding FBIL reference rate is available?

Both the benchmark administrator and the observation day match the prescribed rule. RBI’s exchange-traded foreign exchange directions specify the corresponding FBIL reference rate on the contract’s last trading day for INR pairs. Use that rate for the settlement benchmark. Do not replace its observation date with the later date when settlement money is paid. Remember: For the specified INR-pair final settlement, identify FBIL and the last trading day together.

Hint Common mistake: Carrying forward an older RBI-labelled website row or using the funds payout date for the reference rate.

I-032

Practice bank se · 6

A trader buys 30 USD-INR futures contracts at 88.2000. The same day’s settlement price is 88.0500. Each contract represents USD 1,000. What is the day’s mark-to-market result? Ignore charges.

The fall of ₹0.15 per USD on USD 30,000 gives a ₹4,500 loss. For a first-day long position, MTM = (settlement price − entry price) × × number of contracts. The change is 88.0500 − 88.2000 = −₹0.1500 per USD. MTM = −0.1500 × 1,000 × 30 = −₹4,500. The negative sign denotes a loss and a settlement obligation. Remember: Apply the signed rate change to the full foreign-currency quantity, not just to the number of contracts.

Hint Common mistake: Dropping the contract multiplier or treating a fall as a gain for a long position.

I-033

Practice bank se · 7

In one currency-futures contract, Client P buys 10 lots and sells 4 lots. Client Q sells 6 lots. There are no other positions. Apply NSE Clearing’s client-netting basis and assume initial margin is ₹1,800 per net open lot. What is the combined client initial margin?

Each client contributes 6 open lots to the gross client-level requirement, giving 12 × ₹1,800. Client P’s net position is 10 − 4 = 6 lots long. Client Q has 6 lots short. Add the absolute client-level net positions: |6| + |−6| = 12 marginable lots. Combined initial margin under the assumed per-lot rule = 12 × ₹1,800 = ₹21,600. This simplified rate is hypothetical, not an actual SPAN requirement. Remember: Net within each client first, then aggregate the client requirements without cross-client offsets.

Hint Common mistake: Using the member’s net directional exposure as if it were the total marginable client exposure.

I-047

Practice bank se · 8

A currency-futures position is closed with a verified cumulative trading loss of ₹6,000. The client had posted ₹4,000 as initial margin. There is no broker error and costs are ignored. Which amount is the client’s trading loss?

The trading loss remains the verified ₹6,000, even though it exceeds the initial margin. The problem states the full cumulative price-based loss as ₹6,000. Posting ₹4,000 collateral does not change that result. The loss exceeds the initial margin by ₹2,000. That excess is not the total loss, and the initial margin should not be added again as an extra expense. Actual cash still payable would depend on prior MTM payments, which the question does not give. Remember: Distinguish a futures P&L amount from collateral and from any remaining cash-settlement balance.

Hint Common mistake: Treating margin as a maximum loss or adding it to P&L as a separate trading cost.

I-067

Practice bank se · 9

For daily settlement of currency-futures MTM, what is the role of a clearing member’s account with a clearing bank?

The account receives the funds debit or credit arising from MTM settlement. NSE Clearing’s daily MTM description states that losses and profits are debited or credited to the clearing member’s clearing-bank account. That banking role is distinct from calculating open positions, acting as the central counterparty or setting a settlement price. Remember: Separate the calculation of settlement obligations from the bank-account movement that pays or receives them.

Hint Common mistake: Confusing the exchange, clearing corporation and clearing bank because all participate in the trade lifecycle.

I-068

Practice bank se · 10

Which event is the Core Settlement Guarantee Fund designed to address within the applicable default waterfall?

Failure to meet settlement commitments is the fund’s stated default-management purpose. The official policy identifies a clearing member’s failure to meet settlement commitments as the event for using the Core SGF to help complete settlement. Use is governed by the applicable default framework and resource sequence. The question does not imply that the fund is the first resource used or that it guarantees every investor’s economic return. Remember: Associate Core SGF with settlement completion after member default, not with protecting trading profits.

Hint Common mistake: Confusing settlement protection with compensation for ordinary market losses or with free margin funding.

I-069

Practice bank se · 11

A clearing member uses an interoperability arrangement for eligible currency-derivative trades executed on two recognised exchanges. Which statement describes the arrangement correctly?

Interoperability provides a clearing choice for eligible trades across exchanges. Trading venue and clearing provider need not be the same choice. The member executes trades through the applicable exchange arrangements. The interoperability framework lets eligible trades from multiple exchanges be cleared and settled through the selected clearing corporation. This does not merge order matching or replace exchange-specific trading admission. Applicable membership, product and risk requirements continue to matter. Remember: Trading venue choice and clearing corporation choice are different decisions.

Hint Common mistake: Interpreting a common clearing arrangement as a common order book or an automatic grant of trading rights.

I-091

Practice bank se · 12

For this calculation, accepted securities worth ₹1,00,000 receive a 15% haircut, while ₹40,000 cash receives none. Required margin is ₹1,30,000. Ignore composition limits and all other adjustments. What is the collateral surplus or shortfall?

Recognised collateral is 1,00,000 × 0.85 + 40,000 = ₹1,25,000, which is ₹5,000 below the requirement. Recognised securities value = 1,00,000 × (1 − 0.15) = ₹85,000. Add the full ₹40,000 cash to obtain recognised collateral of ₹1,25,000. Surplus or shortfall = recognised collateral − required margin = 1,25,000 − 1,30,000 = −₹5,000, a shortfall. The example deliberately isolates haircut arithmetic. Actual eligibility, composition limits and additional risk controls must be assessed separately. Remember: Apply each haircut to the relevant collateral component before comparing with the requirement.

Hint Common mistake: Using market value without a haircut or applying the securities haircut to cash as well.

I-092

Practice bank se · 13

A simplified scanning-risk exercise uses only four portfolio profit/loss scenarios: −₹18,000, −₹12,500, +₹9,000 and +₹6,000. Negative values mean losses. What is the scanning-risk charge before any other margin components?

The largest loss among the four alternative scenarios is ₹18,000. The two loss scenarios are ₹18,000 and ₹12,500. The other two scenarios are gains. The worst of these outcomes is a loss of ₹18,000, so the illustrative scanning-risk charge is ₹18,000. This is only the scanning component. Other margin components, if applicable, are not determined by these four figures. The question supplies ordinary profit/loss signs. An actual SPAN risk array may use the opposite sign convention, so read the data definition before calculating. Remember: Choose the worst scenario loss, then distinguish that component from total margin.

Hint Common mistake: Adding losses from mutually exclusive scenarios or confusing risk-array signs with ordinary profit/loss signs.

I-093

Practice bank se · 14

For this question only, a valid same-currency futures calendar spread requires ₹400 per matched near/far pair, and each unmatched contract requires ₹2,100. A client is long 70 near-month contracts and short 45 far-month contracts of equal size. With no other margins or positions, what is the total requirement?

This answer applies the assumed pair rate to 45 matched pairs and the outright rate only to the 25 residual contracts. Matched pairs = min(70, 45) = 45. Those pairs use 45 of the 70 near-month longs and all 45 far-month shorts. Unmatched quantity = 70 − 45 = 25 near-month long contracts. Pair margin = 45 × ₹400 = ₹18,000. Outright margin = 25 × ₹2,100 = ₹52,500. Total requirement = ₹18,000 + ₹52,500 = ₹70,500. The 45 pairs contain 90 contracts, not 45 contracts in total. Remember: Match the smaller opposing quantity first and then calculate margin on the unpaired remainder.

Hint Common mistake: Counting a pair as one original contract or assuming every contract qualifies for spread treatment.

I-116

Practice bank se · 15

At an intraday checkpoint, one client has ₹8,000 crystallized futures profit, ₹12,000 option premium payable and ₹1,500 option premium receivable. None has settled and there are no other items. Under NSE Clearing’s net-payable approach, what is this client’s consolidated crystallized obligation margin alone?

This answer nets both stated credits against the premium payable at the same client level. Premium payable contributes ₹12,000 to the obligation. The ₹8,000 futures profit and ₹1,500 premium receivable are credits. Net payable = ₹12,000 − ₹8,000 − ₹1,500 = ₹2,500. Because the result is payable, the component requested is ₹2,500. This calculation does not say that the client’s total initial, extreme-loss or other margins equal ₹2,500. Remember: For this component, identify the client’s payable and receivable signs before calculating the net payable.

Hint Common mistake: Treating a receivable as a liability or calling one component the client’s entire margin.

I-117

Practice bank se · 16

In an illustrative 99% one-day VaR model, the chance of a loss above ₹50,000 is 1% on each day. If this probability remains valid over 250 trading days, which statement about breaches is correct?

This answer distinguishes the model’s average count from the actual random count. The expected number of breaches is the sum of the daily breach probabilities: 250 × 0.01 = 2.5. A realised count must be a whole number, but an expectation need not be. Rounding the expectation does not turn it into a promised count. Losses may exceed the stated threshold. This calculation says nothing about how large those tail losses could be. Independence is not needed merely to add the expected daily indicator values. Remember: VaR describes a percentile under assumptions, not the worst loss or an exact schedule of exceptions.

Hint Common mistake: Treating 99% confidence as 100% protection against losses beyond the threshold.

I-118

Practice bank se · 17

For the same USD-INR contract, a clearing member has a client net long 12 contracts and a proprietary net short 12 contracts. Assume margin is ₹2,000 per net contract in each category, with all other components ignored. Applying NSE Clearing’s client/proprietary separation, what total margin follows?

Each 12-contract category requires ₹24,000 under the hypothetical rate. Client margin = 12 × ₹2,000 = ₹24,000. Proprietary margin is calculated on its own net 12-contract short position, giving another ₹24,000. Total under the supplied simplified rule = 24,000 + 24,000 = ₹48,000. The economic directions are opposite, but the permitted margin aggregation does not offset these categories. Remember: Check who owns each position before applying a netting benefit.

Hint Common mistake: Netting every opposite position held through one clearing member regardless of client or proprietary ownership.

I-140

Practice bank se · 18

A member must pay ₹25,000 of MTM in cash by a stated deadline. It has ₹15,000 of available cash and ₹40,000 of approved non-cash collateral that cannot be converted or used for this cash payment before the deadline. A ₹12,000 receipt arrives afterward. What additional cash is needed by the deadline?

The member must bridge the ₹10,000 difference between the cash due and the cash actually available. Only ₹15,000 of the member’s resources is usable cash before the specified deadline. The non-cash collateral may have a separate collateral value, but the question expressly makes it unavailable for this payment. The later receipt also misses the deadline. Additional cash required = ₹25,000 − ₹15,000 = ₹10,000. Remember: Separate collateral adequacy from the timing of usable cash for settlement.

Hint Common mistake: Counting resources that cannot meet the specific payment obligation before its deadline.

I-141
Margin

Margin is the money a participant must keep in place to carry a leveraged position.

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Expiry Day

Expiry day is the last day on which a derivative contract can be traded.

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Lot Size

Lot size is the number of units of the underlying that one derivatives contract stands for.

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