Strategies Using Exchange Traded Currency Derivatives
19 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
- Exchange Traded Currency Options20
- 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 19 questions on Strategies Using Exchange Traded Currency Derivatives, with answers
Q1An importer must pay USD 4,50,000 in two months. Each USD-INR futures contract covers USD 1,000. For a full one-for-one hedge using a suitable maturity, which position should the importer take?
Option A. Sell 4,500 contracts
Why it is wrong: Both the direction and the contract count are wrong.
Option B. Sell 450 contracts
Why it is wrong: The count is right, but selling futures loses when USD-INR rises and worsens the payable’s directional exposure.
Option C. Buy 4,500 contracts
Why it is wrong: The direction is right, but this position covers USD 45,00,000, ten times the stated payable.
Option D. Buy 450 contracts — Correct answer
Answer: D. Buying matches the payable’s risk direction and 450 contracts cover USD 4,50,000. The importer will need to acquire USD. If USD-INR rises, the rupee payment becomes larger. A long USD-INR future gains when USD-INR rises, so buying futures is the matching hedge direction. Contract count = USD 4,50,000 ÷ USD 1,000 per contract = 450 contracts. This is a simplified full-notional hedge, not an assertion that every basis or timing risk disappears. Remember: For a USD payable, first identify the need for a long hedge, then divide the exposure by the lot size.
Hint, shown before you answer in practice mode: Common mistake: Getting the correct number of contracts but choosing the exporter’s hedge direction.
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Q2An exporter expects a USD receivable in three months. Which position is the conventional futures hedge against a fall in the receivable’s rupee value?
Option A. Buy USD-INR futures
Why it is wrong: A long future loses when USD-INR falls, so it adds to the receivable’s adverse directional exposure.
Option B. Sell USD-INR futures — Correct answer
Option C. Sell a USD-INR put
Why it is wrong: A short put can suffer losses when USD-INR falls below its strike. It does not protect this downside exposure.
Option D. Buy a USD-INR call
Why it is wrong: A long call benefits from sufficiently higher USD-INR. It does not provide a put-like payoff when the dollar falls.
Answer: B. A short USD-INR future gains when the exporter’s dollar receipt converts into fewer rupees. The exporter will receive dollars. If each dollar converts into fewer rupees, the receipt’s rupee value falls. A short future gains when its settlement rate is below its selling rate. Selling a suitably sized futures position therefore offsets the direction of the exporter’s currency exposure. The hedge and the underlying receivable still need to be assessed together. Remember: A USD receivable is normally matched with a short USD-INR futures hedge against rupee appreciation.
Hint, shown before you answer in practice mode: Common mistake: Choosing the hedge from the word exporter alone without identifying the currency being received.
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Q3An exporter sells 200 USD-INR futures contracts at ₹88.6000 per USD. Each contract covers USD 1,000. The position is held to expiry at a final settlement rate of ₹87.9000. Ignoring costs and interest, what is the cumulative result on the futures leg alone?
Option A. A loss of ₹1,40,000
Why it is wrong: The magnitude is right, but a short position gains rather than loses when the rate falls.
Option B. A gain of ₹140
Why it is wrong: This multiplies the rate change by 200 contracts but omits USD 1,000 per contract.
Option C. A gain of ₹1,40,000 — Correct answer
Option D. A gain of ₹1,77,20,000
Why it is wrong: This is the entry notional, 88.60 × 200 × 1,000, rather than the change in value.
Answer: C. A ₹0.70 gain per USD on USD 2,00,000 gives ₹1,40,000. Short futures gain per USD = sale rate − final rate = 88.60 − 87.90 = ₹0.70. Total exposure = 200 × USD 1,000 = USD 2,00,000. Cumulative gain = ₹0.70 × 2,00,000 = ₹1,40,000. This is the derivative leg’s result, not the exporter’s overall business profit. If daily mark-to-market amounts have already been totalled, do not add this same cumulative gain a second time. Remember: For short futures, use entry minus final rate and multiply by both lot size and contract count.
Hint, shown before you answer in practice mode: Common mistake: Treating a profitable hedge leg as proof of profit on the combined commercial exposure.
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Q4In a theoretical USD-INR payoff exercise, a call and a put have the same ₹88.00 strike and expiry. Their premiums are ₹0.30 and ₹0.20 per USD. Which position makes a net profit at every expiry rate strictly between ₹87.50 and ₹88.50 per USD? Ignore costs and interest.
Option A. Sell the call and sell the put — Correct answer
Option B. Buy the call and sell the put
Why it is wrong: This combination has net expiry profit of Sₜ − 88.10 per USD. It loses at some rates inside the stated interval.
Option C. Buy the call and buy the put
Why it is wrong: Buying both options gives the opposite payoff. Within this interval, their exercise proceeds do not recover the combined ₹0.50 premium.
Option D. Sell the call and buy the put
Why it is wrong: This combination has net expiry profit of 88.10 − Sₜ per USD. It loses at some rates inside the stated interval.
Answer: A. Selling both creates a short straddle with positive net profit throughout the open interval and zero profit at its two endpoints. Selling both options collects ₹0.30 + ₹0.20 = ₹0.50 per USD. At expiry, only the call or the put can have positive intrinsic value at a given rate. Their combined exercise amount is the absolute value of (settlement rate − 88.00). Short straddle net profit per USD = 0.50 − |settlement rate − 88.00|. It is positive whenever the absolute difference is less than 0.50. The break-even rates are ₹87.50 and ₹88.50. Profit is zero at those endpoints and positive strictly between them. Losses arise outside that interval and can be substantial. This is a payoff analysis, not a recommendation or a statement of permission to trade unhedged. Remember: For a short straddle, the break-even rates are the common strike minus and plus the total premium received.
Hint, shown before you answer in practice mode: Common mistake: Assuming a narrow-range view guarantees profit, or forgetting that premium defines the break-even interval.
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Q5An importer matches the USD amount of a payable exactly with USD-INR futures. The payment date falls between the available futures expiry dates. Which limitation remains despite the exact quantity match?
Option A. A contract-rounding mismatch in the USD amount
Why it is wrong: The stem states that the USD amount is matched exactly, so contract rounding is not the remaining issue.
Option B. A mismatch between the invoice currency and the futures currency
Why it is wrong: Both the payable and the futures exposure are USD-INR. A different hedge currency is not stated.
Option C. Uncertainty about early exercise by the futures holder
Why it is wrong: A futures contract does not give its holder an option-style early-exercise choice.
Option D. Timing mismatch and associated basis risk — Correct answer
Answer: D. Standardised expiry dates can leave a timing mismatch and a residual spot-futures basis exposure. The payable and the hedge have the same currency and amount, so those two mismatches are excluded by the question. The payment date differs from the available futures expiries. The hedger may need to close a futures position before expiry or use another maturity. The spot exchange rate used for the payment and the futures price used to close the hedge need not change identically over that period. That can leave basis risk associated with the date mismatch. Remember: Check currency, quantity and maturity separately when assessing how closely a futures hedge matches an exposure.
Hint, shown before you answer in practice mode: Common mistake: Assuming an exact lot-count match makes every aspect of the hedge exact.
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Q6A hypothetical USD-INR bull call spread buys one 88.00-strike call for ₹0.50 per USD and sells one 89.00-strike call for ₹0.20 per USD. Both expire together and each represents USD 1,000. What is the maximum net profit at expiry, ignoring charges and financing?
Option A. ₹1,000
Why it is wrong: ₹1,000 is the maximum gross expiry payoff. It omits the net premium paid.
Option B. ₹300
Why it is wrong: ₹300 is the initial net debit and the maximum loss under the stated expiry-payoff assumptions, not the maximum profit.
Option C. ₹700 — Correct answer
Option D. ₹1,300
Why it is wrong: This adds the ₹300 debit to the gross payoff as though the debit had been received rather than paid.
Answer: C. The ₹1,000 strike-width payoff less the ₹300 debit leaves ₹700. Net premium paid per USD = ₹0.50 − ₹0.20 = ₹0.30. For USD 1,000 the initial debit is ₹300. At or above 89.00, the two call intrinsic values differ by 89.00 − 88.00 = ₹1 per USD. The maximum gross payoff is therefore ₹1,000. Maximum net profit = ₹1,000 − ₹300 = ₹700. Above the upper strike, further gains on the long call are offset by losses on the short call. Remember: For a debit call spread, maximum expiry profit is strike width times quantity minus the net premium paid.
Hint, shown before you answer in practice mode: Common mistake: Forgetting the premium debit or assuming the long call still has uncapped upside after the short call is added.
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Q7An importer must pay USD 40,000 and buys matching USD-INR calls at strike 84.00 for ₹0.25 per USD. At expiry, both the spot purchase rate and the option settlement rate are 85.30. Ignoring fees and financing, what is the total rupee cost after the option settlement and premium?
Option A. ₹34,12,000
Why it is wrong: This is the unhedged spot payment. It excludes both the option receipt and premium.
Option B. ₹33,70,000 — Correct answer
Option C. ₹33,60,000
Why it is wrong: This is the strike-based payment before adding the ₹10,000 premium.
Option D. ₹34,22,000
Why it is wrong: This adds the premium to the spot purchase but omits the ₹52,000 call settlement received.
Answer: B. This answer includes all three cash flows with the option receipt reducing the payment and premium increasing it. Buying USD 40,000 at spot costs 40,000 × ₹85.30 = ₹34,12,000. The calls pay (85.30 − 84.00) × 40,000 = ₹52,000. Premium paid is ₹0.25 × 40,000 = ₹10,000. Net rupee cost = ₹34,12,000 − ₹52,000 + ₹10,000 = ₹33,70,000. Dividing by USD 40,000 gives an effective cost of ₹84.25 per USD. It is strike plus premium here because the calls finish in the money and the settlement and purchase rates match. Remember: For an importer’s purchased-call hedge, calculate spot cost minus call receipt plus premium.
Hint, shown before you answer in practice mode: Common mistake: Quoting the strike as the all-in cost or treating the call receipt as another payment.
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Q8A spread position is short 10 near-month USD-INR futures at 84.00 and long 10 far-month futures at 84.30. Both are closed when near-month is 84.50 and far-month is 84.70. Each contract covers USD 1,000. Ignoring costs and interest on MTM, what is the combined result?
Option A. A gain of ₹1,000
Why it is wrong: This reverses the sign of the ₹0.10 spread narrowing for the stated long-far, short-near position.
Option B. A gain of ₹4,000
Why it is wrong: This counts only the profitable far-month leg and omits the near-month loss.
Option C. A loss of ₹1,000 — Correct answer
Option D. A loss of ₹5,000
Why it is wrong: This counts only the near-month loss and omits the ₹4,000 far-month gain.
Answer: C. The two legs combine to a ₹1,000 loss, equal to −₹0.10 × USD 10,000. The far-month long gains (84.70 − 84.30) × 10 × 1,000 = ₹4,000. The near-month short loses (84.00 − 84.50) × 10 × 1,000 = −₹5,000. Combined result = ₹4,000 − ₹5,000 = −₹1,000. The far-minus-near spread narrowed from ₹0.30 to ₹0.20. A long-far, short-near position loses when that spread narrows. Remember: Write down both leg directions before interpreting whether spread widening or narrowing helps.
Hint, shown before you answer in practice mode: Common mistake: Assuming that two rising futures prices must make a two-leg position profitable.
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Q9An exporter hedges USD 1,00,000 by selling the same amount of USD-INR futures at 84.20. Before expiry, it receives and converts the dollars at spot 83.70 and closes the futures at 83.80. Ignoring costs and financing, what is its effective rupee receipt per USD?
Option A. ₹84.10 — Correct answer
Option B. ₹84.20
Why it is wrong: This assumes the closing futures and spot rates are equal. The stated early close-out leaves a ₹0.10 difference.
Option C. ₹83.70
Why it is wrong: This is only the spot receipt, excluding the futures gain.
Option D. ₹84.30
Why it is wrong: This adds the ₹0.10 spot-futures gap with the wrong sign to the entry futures rate.
Answer: A. This answer combines the actual spot conversion with the profit on the matched short futures. The exporter receives ₹83.70 per USD from converting the underlying dollars. The short futures gains 84.20 − 83.80 = ₹0.40 per USD. Combined receipt is ₹83.70 + ₹0.40 = ₹84.10 per USD. Using basis defined here as spot minus futures, the closing basis is 83.70 − 83.80 = −₹0.10. Effective receipt = initial futures price + closing basis = ₹84.10. Total receipts reconcile to ₹83,70,000 from the dollars plus ₹40,000 from futures, or ₹84,10,000. Remember: Before expiry, use actual spot conversion plus actual futures P&L rather than assuming the initial futures rate is exactly realised.
Hint, shown before you answer in practice mode: Common mistake: Assuming expiry convergence already holds at an earlier hedge-unwind date.
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Q10For an expiry-payoff exercise, a long USD-INR strangle buys a put at strike 87 for ₹0.25 per USD and a call at strike 89 for ₹0.35 per USD. Both cover equal amounts and expire together. Ignoring costs and interest, when is the combined net profit strictly positive?
Option A. Below 86.75 or above 89.35
Why it is wrong: These use each active option’s own premium but omit the premium paid for the other leg.
Option B. Below 86.40 or above 89.60 — Correct answer
Option C. Below 87.60 or above 88.40
Why it is wrong: These move the boundaries inside the strikes. Both purchased options are out of the money between 87 and 89.
Option D. Below 86.40 or above 89.35
Why it is wrong: The lower boundary includes both premiums, but the upper boundary omits the put premium.
Answer: B. Both premiums total ₹0.60 per USD. The put must earn more than 0.60 below 87, or the call more than 0.60 above 89. Total premium = 0.25 + 0.35 = ₹0.60 per USD. Net expiry profit per USD = max(87 − S, 0) + max(S − 89, 0) − 0.60. Below 87, only the put pays. Positive profit requires 87 − S > 0.60, so S < 86.40. Above 89, only the call pays. Positive profit requires S − 89 > 0.60, so S > 89.60. At 86.40 and 89.60 the position breaks even. Between the two strikes, both options expire without intrinsic value and the loss equals the total premium. Remember: Use the total premium of both purchased options to find either break-even boundary.
Hint, shown before you answer in practice mode: Common mistake: Subtracting only the put premium for the lower boundary and adding only the call premium for the upper boundary.
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Q11An exporter fully covers a USD receivable with a USD-INR put at strike 88, paying ₹0.30 per USD. At expiry, spot equals the option settlement rate. What are net INR receipts per USD when that rate is 86 and 90, respectively? Ignore other costs and interest.
Option A. ₹88.00 and ₹90.00
Why it is wrong: These omit the ₹0.30 premium paid in each outcome.
Option B. ₹87.70 and ₹87.70
Why it is wrong: This incorrectly caps the exporter’s receipt in the favourable high-rate outcome. A purchased put preserves that upside.
Option C. ₹86.30 and ₹90.30
Why it is wrong: These add a premium as though it were received and omit the put’s ₹2 payoff in the first outcome.
Option D. ₹87.70 and ₹89.70 — Correct answer
Answer: D. At 86 the ₹2 put payoff lifts gross receipts to ₹88, then the premium is deducted. At 90 the put expires worthless and only the premium reduces the spot receipt. Net receipt per USD = spot receipt + put payoff − premium = S + max(88 − S, 0) − 0.30. At S = 86, net receipt = 86 + 2 − 0.30 = ₹87.70 per USD. At S = 90, put payoff is zero and net receipt = 90 − 0.30 = ₹89.70 per USD. Under the matching-rate assumptions, the effective floor is 88 − 0.30 = ₹87.70. Above the strike, receipts still increase with the spot rate. Remember: Combine the underlying receipt, option settlement and premium before judging the hedge.
Hint, shown before you answer in practice mode: Common mistake: Treating a protective put like a futures hedge that fixes both favourable and unfavourable outcomes.
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Q12In a frictionless six-month exercise, USD-INR spot is 80 and the forward is 81.20. A participant borrows ₹80,000 at 6% annual simple interest, buys USD and invests it at 4% annual simple interest. All maturity USD are sold forward. For exactly 0.5 year, what surplus remains after repaying the INR loan?
Option A. ₹1,200
Why it is wrong: This compares 81.20 with 80 on the initial USD 1,000 but ignores both financing cash flows.
Option B. ₹424 — Correct answer
Option C. ₹2,824
Why it is wrong: This subtracts only the original ₹80,000 from forward proceeds and omits ₹2,400 of INR interest.
Option D. ₹400
Why it is wrong: This uses an approximate fair forward of 80.80 and the initial USD 1,000 instead of reconciling the actual maturity cash flows.
Answer: B. USD 1,000 grows to USD 1,020. Its forward proceeds are ₹82,824, while the INR loan repayment is ₹82,400. Initial USD purchased = 80,000 ÷ 80 = USD 1,000. The initial INR borrowing and spot purchase offset. USD at maturity = 1,000 × (1 + 0.04 × 0.5) = USD 1,020. The forward covers this full amount, including the foreign interest. Forward INR proceeds = 1,020 × 81.20 = ₹82,824. INR loan repayment = 80,000 × (1 + 0.06 × 0.5) = ₹82,400. Net maturity surplus = 82,824 − 82,400 = ₹424. The exact parity forward would be 80 × 1.03 ÷ 1.02, so the offered forward is higher. The positive result follows from the explicitly frictionless hypothetical prices. Actual participation permissions, credit costs, bid-ask spreads and funding constraints can change feasibility. Remember: Cover the foreign investment’s maturity amount and subtract the domestic loan’s maturity amount.
Hint, shown before you answer in practice mode: Common mistake: Hedging only the initial foreign principal or subtracting only the original domestic loan.
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Q13A trader buys 10 USD-INR puts with strike 90 for ₹0.80 per USD and sells 10 puts with strike 88 for ₹0.25 per USD. All expire together, each covers USD 1,000, and settlement is 87. What is the net profit after premiums, ignoring charges and financing?
Option A. ₹20,000
Why it is wrong: It is the gross spread payoff and omits the ₹5,500 net premium cost.
Option B. ₹14,500 — Correct answer
Option C. ₹24,500
Why it is wrong: It deducts the net premium from the long put alone while ignoring the ₹10,000 written-put settlement liability.
Option D. ₹9,500
Why it is wrong: It treats both premiums as costs, subtracting (0.80 + 0.25) × 10,000 from ₹20,000 instead of crediting the received premium.
Answer: B. This answer deducts the net premium from the payoff of both legs, including the short-put liability. Purchased puts pay (90 − 87) × 10,000 = ₹30,000. Written puts require (88 − 87) × 10,000 = ₹10,000. Gross combined payoff = ₹30,000 − ₹10,000 = ₹20,000. Net premium paid = (0.80 − 0.25) × 10,000 = ₹5,500. Net profit = ₹20,000 − ₹5,500 = ₹14,500. This is also the maximum expiry profit: [(90 − 88) − 0.55] × 10,000. The maximum loss is the ₹5,500 net debit and break-even is 90 − 0.55 = 89.45. Remember: Below the lower strike, a debit put spread earns the strike width less the net premium paid.
Hint, shown before you answer in practice mode: Common mistake: Keeping the short option’s premium but forgetting its settlement obligation.
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Q14An exporter shorts currency futures solely to offset a matching contracted dollar receipt. A rise in USD-INR causes a futures loss and increases the receipt’s rupee value. Based on the stated purpose, how should this participant be classified?
Option A. A hedger, despite the futures loss — Correct answer
Option B. A speculator, because the futures leg lost money
Why it is wrong: A hedge can lose money on the derivative when the underlying position gains. The sign of one leg’s profit does not change the stated purpose.
Option C. An arbitrageur, because two exposures are present
Why it is wrong: Having two exposures is not sufficient for arbitrage. The scenario contains no locked-in pricing discrepancy.
Option D. A market maker, because one position offsets another
Why it is wrong: Offsetting positions alone do not identify a market maker. No activity of providing two-way quotations is stated.
Answer: A. The derivative is explicitly used to offset the matching business exposure. The exporter already has a commercial dollar receivable and takes the short futures position to offset its currency sensitivity. A higher rate helps the receivable and hurts the short futures. Those opposite effects are consistent with hedging. No riskless price discrepancy, customer two-way quotation or unrelated directional objective is stated. The participant is a hedger. Remember: Identify the exposure being offset and the purpose of the derivative before classifying the participant.
Hint, shown before you answer in practice mode: Common mistake: Judging whether a trade is a hedge by its standalone profit or loss.
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Q15In a payoff-only comparison, which standalone position benefits from a sufficiently large fall in EUR-USD while limiting its maximum expiry trading loss to the premium paid? Ignore charges and financing.
Option A. Selling a futures contract
Why it is wrong: It fits the bearish direction but can incur losses that are not capped by an option purchase premium.
Option B. Writing an uncovered call
Why it is wrong: The writer receives a premium and may owe a large settlement amount after a rate rise. This is not the stated premium-paid risk profile.
Option C. Buying a call
Why it is wrong: Its loss is premium-limited, but its exercise value increases with a rise rather than the required fall.
Option D. Buying a put — Correct answer
Answer: D. This answer combines the required bearish expiry payoff with loss limited to the premium paid. When the exchange rate falls sufficiently below the put strike, the purchased put’s payoff exceeds its premium. If the put expires without exercise value, the purchaser loses the premium but has no writer’s settlement obligation. A short future also benefits from a fall, but has no premium-defined maximum loss. A written call has an obligation if the rate rises, while a purchased call benefits from a rise rather than a fall. Remember: A strategy must match both the directional view and the requested loss constraint.
Hint, shown before you answer in practice mode: Common mistake: Selecting a bearish futures position without checking whether its risk matches the option-premium limit.
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Q16An importer hedges a USD 25,000 payable with a purchased USD-INR call at strike 89 and a written put at strike 87, both covering the payable at its due date. Each premium is ₹0.45 per USD. What are the net rupee costs of meeting the payable if expiry USD-INR is 85 and 91, respectively? Ignore financing and charges.
Option A. ₹21,25,000 and ₹22,25,000
Why it is wrong: It ignores the ₹50,000 written-put obligation at the lower exchange rate.
Option B. ₹21,75,000 and ₹22,25,000 — Correct answer
Option C. ₹21,75,000 and ₹22,75,000
Why it is wrong: It ignores the ₹50,000 purchased-call receipt at the higher exchange rate.
Option D. ₹21,86,250 and ₹22,36,250
Why it is wrong: It adds the ₹11,250 call premium to each correct cost but fails to offset the equal put premium received.
Answer: B. This answer includes the written-put payment below 87 and the call receipt above 89, with no net initial premium. Net initial premium = (0.45 − 0.45) × 25,000 = ₹0. At 85, buying the dollars costs 85 × 25,000 = ₹21,25,000. The call pays zero and the written put requires (87 − 85) × 25,000 = ₹50,000. Net cost is ₹21,75,000. At 91, buying the dollars costs ₹22,75,000. The call pays (91 − 89) × 25,000 = ₹50,000 and the put pays zero. Net cost is ₹22,25,000. Within 87 to 89 neither option pays, so the importer pays spot. In this equal-premium illustration the effective cost is bounded between 87 and 89 INR per USD. Remember: For a collar, include both option settlements and the underlying currency purchase.
Hint, shown before you answer in practice mode: Common mistake: Calling an equal-premium collar costless while overlooking the obligation created by the written option.
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Q17An importer buys USD-INR futures at 88.10 for a USD 30,000 payable. When payment is deferred, it closes that hedge at 88.55 and buys the same amount in the later contract at 88.80. At payment, spot and the later contract’s final settlement are both 89.20. Ignoring charges and financing, what is the effective INR cost per USD after both futures legs?
Option A. 88.10
Why it is wrong: It ignores the ₹0.25 per USD difference between the far and near contracts when the hedge was rolled.
Option B. 88.35 — Correct answer
Option C. 88.80
Why it is wrong: It uses the new contract’s entry rate but ignores the ₹0.45 per USD gain already realised on the original hedge.
Option D. 89.20
Why it is wrong: It is the unhedged spot purchase rate and ignores both futures gains.
Answer: B. This answer includes the gains from both holding periods and reconciles to the initial rate plus the roll spread. First futures-leg gain = (88.55 − 88.10) × 30,000 = ₹13,500. Second futures-leg gain = (89.20 − 88.80) × 30,000 = ₹12,000. Total futures gain is ₹25,500. Buying the dollars costs 89.20 × 30,000 = ₹26,76,000. Net cost after the hedge gains is ₹26,76,000 − ₹25,500 = ₹26,50,500. Effective cost = ₹26,50,500 ÷ 30,000 = 88.35 INR per USD. Independently, original entry plus the roll spread is 88.10 + (88.80 − 88.55) = 88.35. Remember: For a rolled hedge, reconcile the underlying payment with every closed and final futures leg.
Hint, shown before you answer in practice mode: Common mistake: Resetting the economic history when rolling and losing the profit or loss on the old contract.
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Q18An exporter expects EUR 10,000. Initially EUR-USD is 1.10 and USD-INR is 80.00. In a hypothetical proxy hedge, the exporter sells USD 11,000 of USD-INR futures. At receipt, EUR-USD is 1.05, USD-INR is still 80.00, and the futures are closed at their entry price. Ignoring costs, what is the change in combined INR value from the initial receipt valuation?
Option A. A gain of ₹40,000
Why it is wrong: A fall in EUR-USD reduces the USD and INR value of a euro receipt. The direction is a loss.
Option B. No change because the initial USD equivalent was hedged
Why it is wrong: Matching the initial USD equivalent does not hedge subsequent EUR-USD movements when USD-INR is unchanged.
Option C. A loss of ₹4,000
Why it is wrong: This understates 10,000 × 0.05 × 80 by a factor of ten.
Option D. A loss of ₹40,000 — Correct answer
Answer: D. The receipt loses ₹40,000 and the expressly unchanged futures price produces no offsetting result. Initial receipt value = EUR 10,000 × 1.10 USD/EUR × ₹80/USD = ₹8,80,000. Final receipt value = 10,000 × 1.05 × 80 = ₹8,40,000. The USD-INR futures are closed at their entry price, so their cumulative result is zero. Combined change = 8,40,000 − 8,80,000 + 0 = −₹40,000. The EUR-USD movement is the unoffset risk. Remember: Matching a starting notional does not remove exchange-rate risk between two different foreign currencies.
Hint, shown before you answer in practice mode: Common mistake: Treating a USD hedge as a complete hedge of a EUR cash flow just because their initial values match.
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Q19A trader sells one 88-strike USD-INR call for ₹0.70 per USD and buys one 89-strike call for ₹0.25 per USD. Both cover USD 1,000 and expire together. What is the maximum net loss at expiry, including premiums and ignoring costs and interest?
Option A. ₹450
Why it is wrong: ₹450 is the maximum net profit, earned when the spread expires without a settlement loss.
Option B. ₹1,000
Why it is wrong: ₹1,000 is the maximum gross settlement loss before including the premium credit.
Option C. ₹550 — Correct answer
Option D. ₹1,450
Why it is wrong: This adds the credit to the settlement loss instead of treating it as cash received.
Answer: C. The capped settlement loss of ₹1,000 is reduced by the ₹450 credit already received. Net credit per USD = 0.70 − 0.25 = ₹0.45, or ₹450 for USD 1,000. At a settlement rate of 89 or higher, the short 88 call’s liability exceeds the long 89 call’s receipt by ₹1 per USD. The gross settlement loss is capped at ₹1,000. Maximum net loss = 1,000 − 450 = ₹550. At rates at or below 88, both calls expire without settlement and the ₹450 credit is retained. Remember: For a credit spread, subtract the net credit from the maximum adverse settlement difference.
Hint, shown before you answer in practice mode: Common mistake: Mixing the maximum payoff loss with net loss after premium, or treating a received credit as an expense.
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Strategies Using Exchange Traded Currency Derivatives: common questions
How many practice questions are there on Strategies Using Exchange Traded Currency Derivatives?
19 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 Strategies Using Exchange Traded Currency Derivatives?
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.
Trading Mechanism in Exchange Traded Currency Derivatives
13 questions on Trading Mechanism in Exchange Traded Currency Derivatives. Its quiz opens on that unit.
Open Trading Mechanism in Exchange Traded Currency Derivatives