Exchange Traded Currency Options
20 questions. Each answer is explained.
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Learn these topics
More units in NISM Series I
- Introduction to Currency Markets16
- Foreign Exchange Derivatives13
- Exchange Traded Currency Futures15
- Strategies Using Exchange Traded Currency Derivatives19
- Trading Mechanism in Exchange Traded Currency Derivatives13
- Clearing, Settlement and Risk Management in Exchange Traded Currency Derivatives18
- Regulatory Framework for Exchange Traded Currency Derivatives12
- Accounting and Taxation11
- Codes of Conduct and Investor Protection Measures13
Exam format
| Questions | 100 · 1 mark each |
|---|---|
| Duration | 120 min · 2 hours |
| Pass mark | 60% · 60 of 100 marks |
| Negative marking | 25% · 0.25 marks off per wrong answer |
| Certificate validity | 3 years · from the date of the examination |
| Marks for this unit | Not published by NISM |
NISM Series I Currency Derivatives
Exam rules read on NISM's site on 3 October 2026. Check the current rules on NISM's site (opens in a new tab)
What these answers assume, and when it was last checked
Each question uses the rules listed below. We last checked them on 5 September 2026. A Budget or SEBI circular can change a rate, lot size or expiry day. If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.
- NSE uses Tuesday expiry and BSE uses Thursday expiry. This applies from 1 September 2025.
- The January 2026 index lot sizes are NIFTY 65, BANKNIFTY 30, FINNIFTY 60, MIDCPNIFTY 120 and NIFTYNXT50 25.
- The October 2024 SEBI framework sets a minimum index contract value of Rs 15–20 lakh. Each exchange may list one weekly benchmark index.
- Option buyers pay the premium upfront from 1 February 2025. A short index option has an extra 2% Extreme Loss Margin on expiry day from 20 November 2024.
- Equity short-term capital gains are taxed at 20%. Long-term gains are taxed at 12.5% above Rs 1.25 lakh. Both rates apply from 23 July 2024.
- F&O income is non-speculative business income in ITR-3. NSE equity derivatives trade from 9:15 a.m. to 3:40 p.m.
- The final ten-minute session began on 3 August 2026. It aligns with the cash market Closing Auction Session.
- Most Securities Transaction Tax questions test the base and who pays. On an option sale, it is the premium and the seller pays. On a futures sale, it is the traded value and the seller pays.
- On exercise, Securities Transaction Tax uses intrinsic value: settlement price minus strike price. The buyer pays it.
- Two questions test the current rate. From 1 April 2026, option sales carry 0.15% on the premium and futures sales carry 0.05% on traded price. The earlier rates were 0.10% and 0.02% from 1 October 2024.
- This section uses the T+1 rolling settlement cycle. Obligations are fixed on T+1. A short delivery goes to buy-in auction on T+1 and settles on T+2.
- The trade-for-trade surveillance segment uses direct close-out. Funds pay in by 10:30 a.m. and pay out on or after 1:30 p.m. on settlement day.
- Securities pay in to the settlement pool by 10:30 a.m. They pay out directly to the client’s demat account by 3:30 p.m.
- The 3:30 p.m. deadline replaced 1:30 p.m. under SEBI’s 10 October 2024 circular. Direct client credit was required by SEBI’s 5 June 2024 circular.
- The optional T+0 cycle trades until 1:30 p.m. Obligations are fixed by 2:30 p.m. on the trade day. An early pay-in shortage is closed out directly.
- Cash-market Value at Risk margin is six times exponentially weighted moving-average volatility. It has a 9% floor for Group I, a 21.5% floor for Group II, and a fixed 50% or 75% level for Group III.
- Extreme Loss Margin is 3.5% for a share and 2% for a broad-market-index exchange traded fund. Mark-to-market margin is collected before the next day’s trading. The trade-for-trade segment has 100% upfront margin.
- Close-out uses the higher of the highest price from trade day to auction day and 20% above the auction day’s official close.
- A funds shortage costs 0.07% a day. The trading facility is withdrawn at a shortage of Rs 5 lakh or more.
- SCORES allows 21 calendar days, then two 15-day review levels. Online Dispute Resolution moves from conciliation to arbitration after the market participant and SCORES steps.
- At NSE, the Investor Protection Fund limit is Rs 35 lakh per investor for each defaulting or expelled member. This applies to claims arising after 13 August 2024.
- A Basic Services Demat Account has no annual maintenance charge up to Rs 4 lakh of holdings. It costs up to Rs 100 above that, until the Rs 10 lakh eligibility ceiling. These slabs apply from 1 September 2024.
- The rupee pairs are USD-INR, EUR-INR, GBP-INR and JPY-INR. The cross-currency pairs are EUR-USD, GBP-USD and USD-JPY.
- Each contract covers 1,000 units of the foreign currency, except JPY-INR. JPY-INR covers 100,000 yen and is quoted in rupees per 100 yen.
- The tick is 0.25 paise, or Rs 0.0025. It equals Rs 2.50 a contract.
- Rupee pairs trade from 9:00 a.m. to 5:00 p.m. A monthly contract stops trading at 12:30 p.m. two working days before the expiry month’s last business day.
- Final settlement is in cash at the FBIL reference rate on expiry day. FBIL, Financial Benchmarks India, has published this rate in place of the Reserve Bank since 2018. Premium-style European options are quoted in rupees. The buyer pays the premium in cash on T+1.
- Daily settlement is on T+1 and final settlement is on T+2.
- NSE Clearing circular 026/2020 sets SPAN margin plus Extreme Loss Margin. The futures margin is 0.50% for USD-INR, 0.15% for EUR-INR, 0.25% for GBP-INR and 0.35% for JPY-INR. A short option has 0.75%. These figures apply from 1 June 2020.
- A USD-INR client may hold 6% of total open interest or USD 20 million, whichever is higher. A trading member may hold 15% or USD 100 million.
- A resident user has one USD 100 million equivalent limit across all rupee pairs and exchanges. No document is needed below that limit, but a valid underlying contracted exposure must still exist. This clarification applies from 3 May 2024.
- The currency segment has no Securities Transaction Tax.
The exam figures (questions, time, pass mark, negative marking and certificate validity) come from NISM's own pages, read on 3 October 2026. Timed practice uses the same figures. Study with the official workbook as well.
The written-out answers on this page are hidden while your timed set runs.
All 20 questions on Exchange Traded Currency Options, with answers
Q1NSE exchange-traded currency options on INR pairs have which exercise style and settlement mode?
Option A. American exercise and cash settlement in INR
Why it is wrong: Cash settlement in INR is right, but American-style early exercise is not the specified exercise style.
Option B. European exercise and physical currency delivery
Why it is wrong: European style is right, but the settlement is in cash, not physical delivery of foreign currency.
Option C. European exercise and cash settlement in INR — Correct answer
Option D. American exercise and physical currency delivery
Why it is wrong: Both the exercise style and the settlement mode are wrong.
Answer: C. This answer states both European exercise and cash settlement in INR. The NSE specification describes INR-pair currency options as European style. Exercise is therefore at expiry, not at any earlier time chosen by the holder. These contracts are cash settled in Indian rupees rather than settled by delivering the foreign currency. A European option can still be traded or its position closed before expiry, subject to market conditions. Restricting exercise does not prohibit secondary-market trading. Remember: Keep exercise timing separate from trading before expiry and from the method of settlement.
Hint, shown before you answer in practice mode: Common mistake: Assuming that a European option cannot be sold or closed before expiry.
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Q2A USD-INR call has a strike of ₹88.00 per USD while the underlying exchange rate is ₹88.60 per USD. Which statement is correct?
Option A. It is in the money with intrinsic value of ₹0.60 per USD. — Correct answer
Option B. It is out of the money because its strike is below the underlying rate.
Why it is wrong: An underlying rate above the strike makes a call in the money, not out of the money.
Option C. It is at the money because its time to expiry is not specified.
Why it is wrong: Moneyness follows from the underlying and strike comparison. The time to expiry is not needed for this comparison.
Option D. It is in the money with intrinsic value of ₹88.60 per USD.
Why it is wrong: ₹88.60 is the underlying exchange rate. Intrinsic value is the excess over the strike, not the whole underlying rate.
Answer: A. The call is in the money and the rate difference is ₹0.60 per USD. Compare the underlying rate of 88.60 with the strike of 88.00. The underlying is higher. Call intrinsic value = maximum of (88.60 − 88.00) and zero = ₹0.60 per USD. This determines moneyness and intrinsic value, not the buyer’s net profit. The premium paid is not given. Remember: For a call, compare the underlying rate with the strike, then take the positive difference.
Hint, shown before you answer in practice mode: Common mistake: Equating in-the-money status with a profitable trade after premium.
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Q3A trader buys one USD-INR call covering USD 1,000. The strike is ₹88.50 per USD and premium is ₹0.4500 per USD. At expiry, the final settlement rate is ₹89.2000. Ignoring costs and interest on the premium, the net profit is:
Option A. ₹1,150
Why it is wrong: This adds the premium to the payoff instead of deducting the cost.
Option B. ₹700
Why it is wrong: ₹700 is the gross payoff before deducting the premium.
Option C. ₹450
Why it is wrong: ₹450 is the premium paid, not the profit earned.
Option D. ₹250 — Correct answer
Answer: D. The ₹700 payoff exceeds the ₹450 premium by ₹250. Call payoff per USD = maximum of (89.20 − 88.50) and zero = ₹0.70. Gross payoff = ₹0.70 × 1,000 = ₹700. Premium paid = ₹0.45 × 1,000 = ₹450. Net profit = ₹700 − ₹450 = ₹250. The premium must be deducted once, not omitted or added. Remember: Calculate the option payoff first, then deduct the premium to obtain net profit.
Hint, shown before you answer in practice mode: Common mistake: Calling the exercise payoff the net profit.
I-016mediumnumerical
Q4Which option Greek measures the sensitivity of an option’s value to the passage of time, with other pricing inputs unchanged?
Option A. Gamma
Why it is wrong: Gamma measures how delta changes when the underlying price changes.
Option B. Theta — Correct answer
Option C. Vega
Why it is wrong: Vega measures sensitivity to volatility, not directly to the passage of time.
Option D. Delta
Why it is wrong: Delta measures first-order sensitivity to a change in the underlying price.
Answer: B. Theta is the sensitivity associated with the passage of time, all other inputs held constant. The question changes only the passage of time. The relevant sensitivity is theta. A long option often loses time value as expiry approaches, but theta should be understood as a sensitivity rather than an unconditional claim that every option loses a fixed amount each day. Delta relates to the underlying price, gamma to changes in delta, and vega to volatility. Remember: Match the changing input to its Greek. Time corresponds to theta.
Hint, shown before you answer in practice mode: Common mistake: Assuming time decay is a fixed daily amount or confusing it with changes caused by volatility.
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Q5A USD-INR put is bought at a strike of ₹87.00 per USD for a premium of ₹0.6000 per USD. Ignoring other costs and interest, its break-even final settlement rate at expiry is:
Option A. ₹87.60 per USD
Why it is wrong: Adding the premium to the strike gives a long call’s break-even pattern, not a long put’s.
Option B. ₹87.00 per USD
Why it is wrong: At the strike the put’s payoff is zero, so the premium remains a loss.
Option C. ₹86.40 per USD — Correct answer
Option D. ₹0.60 per USD
Why it is wrong: This is the premium itself, not the underlying exchange rate at break-even.
Answer: C. At 86.40, the put pays 87.00 − 86.40 = 0.60, equal to the premium paid. For an in-the-money put, payoff per USD = strike − settlement rate. At break-even, 87.00 − settlement rate = 0.60. Settlement rate = 87.00 − 0.60 = ₹86.40 per USD. At that rate the ₹0.60 payoff exactly recovers the premium. Remember: At expiry, a long put’s break-even is strike minus premium when other costs are ignored.
Hint, shown before you answer in practice mode: Common mistake: Adding the premium to the strike for both calls and puts.
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Q6For an NSE USD-INR option, the premium is quoted and the premium payment is settled in which currencies, respectively?
Option A. INR and INR — Correct answer
Option B. INR and USD
Why it is wrong: The quotation is in INR, but the payment is also in INR rather than USD.
Option C. USD and USD
Why it is wrong: Neither the premium quote nor its settlement currency is USD for the specified contract.
Option D. USD and INR
Why it is wrong: Settlement in INR is right, but the premium quotation is not in USD.
Answer: A. Both the premium quotation and premium payment use INR. For the specified USD-INR option, NSE quotes the premium in INR. The premium payment is also settled in INR. The USD contract quantity is used to scale the per-unit premium. It does not make the premium payable in USD. This question does not test a premium-settlement timetable. Remember: Do not infer the premium-payment currency solely from the base currency of the underlying pair.
Hint, shown before you answer in practice mode: Common mistake: Assuming USD-INR option buyers must pay the option premium in dollars.
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Q7For a sensitivity exercise, a portfolio contains 8 long USD-INR puts with delta −0.35 each and 5 long calls with delta +0.60 each. Every contract is USD 1,000. If USD-INR rises by ₹0.10, what is the approximate portfolio value change? Keep deltas and all other inputs constant.
Option A. ₹580 gain
Why it is wrong: ₹580 adds the absolute put and call movements, wrongly treating the long puts as gaining when the underlying rises.
Option B. ₹20 gain — Correct answer
Option C. ₹20 loss
Why it is wrong: This reverses the sign of the combined portfolio’s small positive delta.
Option D. ₹200 gain
Why it is wrong: ₹200 is the net change for a ₹1 move under the same deltas. The question specifies a ₹0.10 move.
Answer: B. The ₹300 call gain exceeds the ₹280 put loss by ₹20. Put contribution to the value change = 8 × (−0.35) × 1,000 × ₹0.10 = −₹280. Call contribution = 5 × 0.60 × 1,000 × ₹0.10 = ₹300. Net first-order change = −₹280 + ₹300 = ₹20. This is a local approximation under constant deltas, not an exact repricing after a large market move. Remember: Add signed option sensitivities before interpreting the direction and size of the portfolio response.
Hint, shown before you answer in practice mode: Common mistake: Adding absolute deltas or forgetting that the underlying change is ₹0.10 rather than ₹1.
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Q8An analyst keeps spot, strike, time and interest-rate inputs fixed in a currency-option pricing model. A volatility input of 15% makes the model price equal the observed premium. What does this 15% represent?
Option A. The historical volatility calculated from past underlying returns
Why it is wrong: Historical volatility would be measured from past underlying returns, not inferred by matching a current premium.
Option B. The expected percentage appreciation of the underlying currency
Why it is wrong: A volatility input describes variability, not an expected 15% directional appreciation.
Option C. The annualised volatility input consistent with the observed premium — Correct answer
Option D. The realised volatility that must occur before the option expires
Why it is wrong: An implied value is not a guarantee about the volatility subsequently realised. Future outcomes may differ.
Answer: C. This is the model-consistent annualised implied-volatility input described by the procedure. The analyst is solving from the observed option premium back to the volatility input, while holding the model’s other inputs fixed. The resulting 15% is therefore the model-consistent implied volatility. It is not calculated from a history of returns and does not promise that future realised volatility will equal 15%. Remember: Read implied volatility as information embedded in an option price under a model, not as a certain market outcome.
Hint, shown before you answer in practice mode: Common mistake: Confusing implied volatility with realised volatility or with the expected direction of the exchange rate.
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Q9Before expiry, a USD-INR call has strike 89.00, spot rate 88.00 and premium ₹0.35 per USD. What is its time value per USD?
Option A. ₹0.00
Why it is wrong: Zero is the intrinsic value, not the entire premium’s time component before expiry.
Option B. ₹1.00
Why it is wrong: The ₹1 gap below the strike is not positive intrinsic value or time value.
Option C. ₹0.35 — Correct answer
Option D. ₹1.35
Why it is wrong: This adds the below-strike gap to the premium instead of subtracting non-negative intrinsic value.
Answer: C. With zero intrinsic value, the stated ₹0.35 premium is entirely time value. Call intrinsic value = max(spot − strike, 0) = max(88 − 89, 0) = ₹0 per USD. Time value = premium − intrinsic value = ₹0.35 − ₹0 = ₹0.35 per USD. Being out of the money does not force a pre-expiry premium to zero. Remember: An out-of-the-money option can have time value even though its intrinsic value is zero.
Hint, shown before you answer in practice mode: Common mistake: Applying the zero-at-expiry result to an option that has not expired.
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Q10A USD-INR call has delta 0.40 and gamma 0.10 per ₹1 change in spot. Spot rises by ₹0.50. Assuming gamma remains constant over this move and other inputs are unchanged, what is the estimated new delta?
Option A. 0.45 — Correct answer
Option B. 0.50
Why it is wrong: This adds the full gamma of 0.10 as though spot had risen by ₹1 rather than ₹0.50.
Option C. 0.35
Why it is wrong: This subtracts the delta change even though both gamma and the spot move are positive.
Option D. 0.05
Why it is wrong: This is only the change in delta, not the new delta after the move.
Answer: A. The estimated increase of 0.05 is added to the original delta of 0.40. Estimated change in delta = gamma × change in spot = 0.10 × 0.50 = 0.05. Add the change to the starting delta: 0.40 + 0.05 = 0.45. This is a local estimate under the constant-gamma assumption, not a full option repricing. Remember: First calculate gamma × underlying change, then add that amount to the initial delta.
Hint, shown before you answer in practice mode: Common mistake: Confusing the change in delta with delta itself, or applying a full-unit gamma adjustment to a half-unit move.
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Q11For payoff analysis, a written USD-INR put covers USD 1,000, has strike 84.00 and earns premium ₹0.30 per USD. The expiry settlement rate is 82.80. Ignoring costs, what is the writer’s net result?
Option A. A gain of ₹300
Why it is wrong: This includes the premium but ignores the writer’s ₹1,200 settlement obligation.
Option B. A loss of ₹1,200
Why it is wrong: This is the gross settlement loss before including the premium already received.
Option C. A gain of ₹900
Why it is wrong: This reverses the writer’s net loss into a gain. It resembles the opposite side’s net result.
Option D. A loss of ₹900 — Correct answer
Answer: D. Premium of ₹300 less settlement payable of ₹1,200 leaves a ₹900 loss. The put finishes in the money by 84.00 − 82.80 = ₹1.20 per USD. Gross settlement payable is ₹1.20 × 1,000 = ₹1,200. Premium received is ₹0.30 × 1,000 = ₹300. Net result = ₹300 − ₹1,200 = −₹900. The exercise choice belongs to the buyer. The writer cannot ignore an in-the-money settlement obligation merely because it causes a loss. Remember: For a written put, net result = premium received − max(strike − settlement rate, 0), multiplied by quantity.
Hint, shown before you answer in practice mode: Common mistake: Using the option buyer’s payoff sign or forgetting the premium when calculating the writer’s net result.
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Q12In a no-arbitrage binomial valuation of a European currency option, which probabilities are used when expected model payoffs are discounted at the appropriate risk-free rate?
Option A. The analyst’s subjective probabilities of appreciation and depreciation
Why it is wrong: These describe a personal forecast, not the risk-neutral valuation probabilities required by this method.
Option B. The historical frequency of upward and downward exchange-rate movements
Why it is wrong: Historical frequencies are not automatically the no-arbitrage valuation weights for the specified model.
Option C. Equal probabilities for both moves regardless of model inputs
Why it is wrong: Risk-neutral probabilities are not always one-half. They must be consistent with the model’s inputs and no-arbitrage restrictions.
Option D. Risk-neutral probabilities consistent with the model’s no-arbitrage conditions — Correct answer
Answer: D. These valuation weights are chosen consistently with replication and financing, rather than taken from an analyst’s price forecast. The binomial model represents future underlying values through upward and downward moves. Replication and no-arbitrage conditions determine the valuation weights. For currency options, the financing treatment must reflect the two currencies. The discounted risk-neutral expected payoff is a model value. The probabilities should not be interpreted as an analyst’s real-world forecast of appreciation or depreciation. Remember: Risk-neutral probabilities are pricing weights, not necessarily real-world event probabilities.
Hint, shown before you answer in practice mode: Common mistake: Using a bullish price forecast directly as the probability input to a no-arbitrage option valuation.
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Q13A currency option premium is ₹0.60 per USD. Its vega is ₹0.08 per USD for a one-percentage-point change in implied volatility. If volatility rises from 10% to 12.5%, what is the estimated premium? Keep vega and all other inputs unchanged.
Option A. ₹0.602 per USD
Why it is wrong: This multiplies vega by 0.025 rather than 2.5, despite vega being stated per percentage point.
Option B. ₹0.40 per USD
Why it is wrong: This subtracts the positive vega effect when volatility has risen.
Option C. ₹0.80 per USD — Correct answer
Option D. ₹2.60 per USD
Why it is wrong: This uses the 25% relative increase in volatility as 25 percentage points. The change is only 2.5 points.
Answer: C. Volatility increases by 2.5 percentage points. The premium increases by 0.08 × 2.5 = ₹0.20 per USD. Volatility change = 12.5% − 10% = 2.5 percentage points, not 0.025 percentage points and not 25 points. Estimated premium change = vega × volatility-point change = 0.08 × 2.5 = ₹0.20 per USD. Estimated new premium = 0.60 + 0.20 = ₹0.80 per USD. This is the expressly assumed constant-vega approximation, not a claim that vega stays fixed in live markets. Remember: Match the volatility change to the units of vega before multiplying.
Hint, shown before you answer in practice mode: Common mistake: Confusing a percentage-point change with a decimal change or a relative percentage change.
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Q14A company has paid the premium on a bilateral OTC currency option with no central clearing. The option is in the money at expiry, but the seller defaults on the amount due. Which risk has directly caused the loss?
Option A. Counterparty credit risk — Correct answer
Option B. Exchange-rate market risk
Why it is wrong: The option has a positive settlement value. The stated failure is non-payment by the seller, not an adverse exchange-rate move.
Option C. Basis risk
Why it is wrong: Basis risk concerns a mismatch between related exposures or hedge prices. No such mismatch caused the stated non-payment.
Option D. The buyer’s premium-funding risk
Why it is wrong: The buyer has already paid the premium. Its inability to fund that payment is not the event described.
Answer: A. The loss arises because the party owing the option settlement fails to perform its obligation. The in-the-money option creates a payment claim against the seller under the stated bilateral arrangement. The seller’s default prevents collection of that claim. This is a counterparty credit loss, even though the currency movement produced a favourable option payoff. Central clearing changes the counterparty structure. It should not be described as making all market or credit risks disappear. Remember: Separate the value of a contractual claim from the ability of the counterparty to pay it.
Hint, shown before you answer in practice mode: Common mistake: Assuming that paying an option premium eliminates exposure to the option seller’s failure to perform.
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Q15A portfolio is short 40 calls and long 20 puts, each on USD 1,000. Long-call delta changes from +0.60 to +0.70 and long-put delta from −0.40 to −0.30. It already holds 32 long futures. For one common price risk factor, each long future has delta +1,000 and option delta is multiplied by USD 1,000. Which additional futures trade restores delta neutrality?
Option A. Sell 2 futures
Why it is wrong: Selling 2 adds −2,000 and takes the residual exposure to −4,000 instead of zero.
Option B. Buy 2 futures — Correct answer
Option C. Buy 34 futures
Why it is wrong: 34 long futures are the required total holding, not the additional purchase. Buying 34 more would create 66.
Option D. Make no futures trade
Why it is wrong: The option deltas changed, so the old 32-contract hedge no longer offsets the portfolio.
Answer: B. Adding +2,000 of futures delta offsets the remaining −2,000 exposure. Initial option delta = −40 × 1,000 × 0.60 + 20 × 1,000 × (−0.40) = −32,000. The existing 32 long futures contribute +32,000. New option delta = −40 × 1,000 × 0.70 + 20 × 1,000 × (−0.30) = −34,000. With the existing futures, new total delta is −34,000 + 32,000 = −2,000. An additional 2 long futures supply +2,000 and restore total delta to zero. This is a local sensitivity hedge, not elimination of every option risk. Remember: Recalculate signed option delta and subtract the hedge already held before trading the difference.
Hint, shown before you answer in practice mode: Common mistake: Confusing the required total hedge with the incremental rebalancing trade.
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Q16In a one-period currency option model, USD-INR at expiry is either 92 or 86. The supplied risk-neutral probability of 92 is 0.60 and the discount factor is 0.98. What is the value per USD of a call with strike 90? Round to three decimals.
Option A. ₹1.200
Why it is wrong: It is the undiscounted expected payoff, not the present value.
Option B. ₹0.784
Why it is wrong: It uses 0.40 instead of 0.60 for the ₹2 payoff, giving 0.40 × 2 × 0.98.
Option C. ₹2.000
Why it is wrong: It is the payoff in the up state alone, without probability weighting or discounting.
Option D. ₹1.176 — Correct answer
Answer: D. This answer applies the given probability to the correct state payoffs and then discounts once. Call payoff in the up state is max(92 − 90, 0) = ₹2 per USD. In the down state it is max(86 − 90, 0) = ₹0. Risk-neutral expected payoff = 0.60 × ₹2 + 0.40 × ₹0 = ₹1.20 per USD. Present value = ₹1.20 × 0.98 = ₹1.176 per USD. The supplied probability is a valuation input, not a claim about the actual likelihood of the exchange rate rising. Remember: Calculate each state’s option payoff before taking the risk-neutral expectation and discounting.
Hint, shown before you answer in practice mode: Common mistake: Averaging underlying exchange rates instead of option payoffs, or forgetting the discount factor.
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Q17A trader buys a USD-INR call and sells a USD-INR put with the same strike 88, expiry and currency amount. Considering only their combined expiry payoff before premiums, which position has the same payoff?
Option A. A short forward at 88
Why it is wrong: Its payoff is 88 − S, the opposite sign.
Option B. A long call at 88 alone
Why it is wrong: It matches above the strike but has zero payoff below it, whereas the combined position has a loss there.
Option C. A long forward at 88 — Correct answer
Option D. A short put at 88 alone
Why it is wrong: It matches below the strike but has zero payoff above it, whereas the combined position gains there.
Answer: C. Its linear payoff S − 88 matches the two option legs both above and below the strike. Let S be the USD-INR settlement rate. The long call pays max(S − 88, 0), while the short put pays −max(88 − S, 0), per USD. When S is at least 88, only the call contributes and the total is S − 88. When S is below 88, only the written put contributes and the total is −(88 − S) = S − 88. A long forward contracted at 88 also has payoff S − 88 per USD. Any difference between call premium paid and put premium received is excluded as instructed. Remember: Prove a synthetic position on both sides of the strike and keep premiums separate from expiry payoff.
Hint, shown before you answer in practice mode: Common mistake: Claiming identical net profit or identical initial cost merely because expiry payoffs match.
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Q18A trader buys 40 USD-INR puts, each on USD 1,000, for ₹0.45 per USD. Before expiry, the puts are out of the money but can be sold at a premium bid of ₹0.72. The trader sells all of them at that bid. With ₹200 total entry-and-exit charges, what is the net trading profit?
Option A. ₹10,800
Why it is wrong: It is the premium trading gain before the ₹200 charges.
Option B. −₹18,200
Why it is wrong: It assumes the option expires worthless and ignores the stated sale at ₹0.72 before expiry.
Option C. ₹28,600
Why it is wrong: It deducts charges from sale proceeds but omits the ₹18,000 purchase premium.
Option D. ₹10,600 — Correct answer
Answer: D. This answer deducts both the initial premium and all stated charges from the actual sale proceeds. Purchase premium = 40 × 1,000 × ₹0.45 = ₹18,000. Sale proceeds = 40 × 1,000 × ₹0.72 = ₹28,800. Net trading profit = ₹28,800 − ₹18,000 − ₹200 = ₹10,600. Being out of the money identifies zero immediate exercise value, not necessarily zero market premium before expiry. A restriction on early exercise does not, by itself, prohibit selling an existing position. Remember: Use the actual closing premium for an option sold before expiry, not its immediate intrinsic value.
Hint, shown before you answer in practice mode: Common mistake: Confusing an out-of-the-money or European-style option with an option that cannot be sold before expiry.
I-121mediumnumerical
Q19Two European USD-INR calls have identical expiry and USD 1,000 size. The 88-strike call can be bought for ₹0.30 per USD, while the 89-strike call can be sold for ₹0.50 per USD. With zero costs and financing effects and full contract performance, which paired trade gives an initial credit and a non-negative expiry payoff?
Option A. Buy the 88 call and sell the 89 call — Correct answer
Option B. Sell the 88 call and buy the 89 call
Why it is wrong: It pays ₹200 initially and reverses the payoff difference, making the expiry payoff non-positive.
Option C. Buy both calls
Why it is wrong: Buying both requires a premium payment of ₹800 rather than an initial credit.
Option D. Sell both calls
Why it is wrong: Selling both collects premium but creates negative expiry payoffs when the calls finish in the money.
Answer: A. This answer collects ₹200 and holds the call with the larger payoff against the obligation on the smaller-payoff call. Buying the 88 call and selling the 89 call collects a net premium of (0.50 − 0.30) × 1,000 = ₹200. Its expiry payoff per USD is max(S − 88, 0) − max(S − 89, 0). For S at or below 88, the payoff is zero. Between 88 and 89 it is S − 88. At or above 89 it is 1. All three regions are non-negative. Thus the stated executable prices violate the normal call strike ordering. This is a theoretical dominance check, not a claim that such cost-free execution is available in practice. Remember: Compare both the initial cash flow and the payoff across every relevant strike region.
Hint, shown before you answer in practice mode: Common mistake: Calling a premium receipt an arbitrage without checking the written option’s future liability.
I-134hardapplication
Q20A trader holds 20 calls of USD 1,000 each. Per USD, delta is 0.55, vega is ₹0.04 per one volatility percentage point, and theta is −₹0.015 per day. The underlying rises ₹0.20, implied volatility falls four percentage points, and one day passes. Using constant Greeks and ignoring other effects, what is the approximate position-value change?
Option A. A gain of ₹2,200
Why it is wrong: This includes only delta’s favourable contribution and ignores the two adverse contributions.
Option B. A loss of ₹1,300 — Correct answer
Option C. A loss of ₹1,000
Why it is wrong: This combines delta and vega but omits the ₹300 loss attributable to one day of theta.
Option D. A gain of ₹5,100
Why it is wrong: This treats the fall in implied volatility as a rise, adding ₹0.16 instead of subtracting it.
Answer: B. All three signed contributions are included using the units given in the question. Underlying-price contribution per USD = 0.55 × ₹0.20 = +₹0.11. Volatility contribution per USD = ₹0.04 × (−4) = −₹0.16. A percentage point, not a decimal fraction, is the given vega unit. Time contribution per USD = −₹0.015 × 1 = −₹0.015. Combined change per USD = 0.11 − 0.16 − 0.015 = −₹0.065. Position change = −0.065 × 20 × 1,000 = −₹1,300. The favourable underlying move is outweighed by volatility and time effects. Remember: Combine signed Greek contributions in matching units before multiplying by the position size.
Hint, shown before you answer in practice mode: Common mistake: Assuming a call must gain whenever its underlying rises, or mixing percentage points with decimal volatility.
I-135hardnumerical
Exchange Traded Currency Options: common questions
How many practice questions are there on Exchange Traded Currency Options?
20 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 10 practice topics for NISM Series I, which has 150 questions in total.
Are these real NISM Series I questions on Exchange Traded Currency Options?
No. LearnNifty wrote every question from NISM's public syllabus. NISM does not publish its question bank, so nobody can offer you the real paper. Use these questions to check that an idea has gone in. Use the official NISM workbook to see what is examined.
Does negative marking apply to NISM Series I?
Yes. NISM takes off 25% of a question's marks for a wrong answer. On a 1-mark question that is 0.25 marks off. A blank question earns nothing and loses nothing, so a wrong guess costs marks on this paper. Timed practice here uses the same rule.
Are these practice questions kept up to date?
Each question is written against the rules printed on this page, last checked on 5 September 2026. A Budget or a SEBI circular can change a rate, a lot size or an expiry day. If one of those rules changes before your exam, treat the questions that use it as out of date. Then check NISM's current workbook.
Strategies Using Exchange Traded Currency Derivatives
19 questions on Strategies Using Exchange Traded Currency Derivatives. Its quiz opens on that unit.
Open Strategies Using Exchange Traded Currency Derivatives