Basics of Derivatives (Equity, Currency and Interest Rate)
6 questions. Each answer is explained.
Question 1 of 6Practice · Series XIII — Common Derivatives
0 right · 0 wrong · 6 to go
A–D or 1–4 to answer · Enter or → for the next question · ← to go back
Learn these topics
More units in NISM Series XIII
- Introduction to the Underlying Markets24
- Introduction to Forwards and Futures20
- Strategies Using Futures24
- Introduction to Options – Options on Equities and Currencies22
- Option Trading Strategies – Strategies using Equity Options and Currency options4
- Introduction to Trading, Clearing, Settlement & Risk Management25
- Legal and Regulatory Environment14
- Accounting and Taxation of Derivatives6
- Sales Practices, Code of Conduct and Investor Protection Measures5
Exam format
| Questions | 150 · 1 mark each |
|---|---|
| Duration | 180 min · 3 hours |
| Pass mark | 60% · 90 of 150 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 XIII Common Derivatives
Exam rules read on NISM's site on 17 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 17 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 6 questions on Basics of Derivatives (Equity, Currency and Interest Rate), with answers
Q1Which statement most accurately describes the nature of a financial derivative contract?
Option A. It always pays a fixed annual coupon
Why it is wrong: A derivative need not pay any coupon.
Option B. It represents direct ownership of a company's shares
Why it is wrong: A derivative contract does not automatically confer ownership.
Option C. Its value depends on an underlying asset or variable — Correct answer
Option D. Its value never changes before maturity
Why it is wrong: A derivative's value can change well before expiry.
Answer: C. A derivative derives its value from an underlying price, rate, index or other variable. Remember: Derivatives depend on an underlying variable.
Hint, shown before you answer in practice mode: Common mistake: Do not confuse a derivative contract with a share. Focus on where the contract gets its value.
XIII-001easyconceptual
Q2Which participant uses derivatives mainly to reduce an existing exposure to price changes?
Option A. Speculator
Why it is wrong: A speculator mainly accepts risk to seek profit.
Option B. Hedger — Correct answer
Option C. Arbitrageur
Why it is wrong: An arbitrageur seeks to exploit a pricing difference.
Option D. Market commentator
Why it is wrong: A commentator need not take a position.
Answer: B. A hedger uses derivatives to offset an existing or expected exposure. Remember: Hedging aims to reduce a specific exposure.
Hint, shown before you answer in practice mode: Common mistake: Do not mistake a hedge for a risk-free guarantee. Think about reducing an existing risk.
XIII-002easyconceptual
Q3Which feature most clearly distinguishes a standard exchange-traded derivative from a privately negotiated OTC contract?
Option A. Unlimited freedom to customize every term
Why it is wrong: Unlimited customization is more typical of OTC agreements.
Option B. No defined expiration or settlement mechanism
Why it is wrong: Exchange contracts specify expiries and settlement terms.
Option C. A guarantee that the position can never lose any money
Why it is wrong: Clearing reduces counterparty risk but cannot prevent market losses.
Option D. Standard contract terms with central clearing arrangements — Correct answer
Answer: D. Exchange-traded derivatives use standardized contract specifications and generally a clearing mechanism. Remember: Exchange contracts trade on standard terms.
Hint, shown before you answer in practice mode: Common mistake: Clearing does not eliminate trading risk. Compare standardization and trading arrangements.
XIII-003mediumconceptual
Q4An importer expects to pay US dollars in three months. Which action most directly addresses rupee depreciation risk?
Option A. Buying extra equity shares today
Why it is wrong: Equity shares do not directly hedge the dollar payment.
Option B. Ignoring the future currency liability
Why it is wrong: Ignoring exposure leaves exchange-rate risk open.
Option C. Selling a fixed-rate corporate bond
Why it is wrong: Selling a bond does not directly offset a currency liability.
Option D. Locking an appropriate future exchange rate — Correct answer
Answer: D. Locking a suitable exchange rate can reduce the importer's uncertainty about the rupee cost. Remember: Match a hedge to the exposure being hedged.
Hint, shown before you answer in practice mode: Common mistake: The direction of the foreign-currency obligation matters. Identify the exposure created by a dollar payment.
XIII-004mediumapplication
Q5Which risk remains when a hedge instrument does not move exactly with the exposure being hedged?
Option A. Guaranteed profit
Why it is wrong: A hedge never guarantees profit.
Option B. Voting risk
Why it is wrong: Voting risk does not describe price mismatch in a hedge.
Option C. Basis risk — Correct answer
Option D. Coupon payment risk
Why it is wrong: Coupon payment risk is unrelated to the hedge price difference.
Answer: C. Basis risk arises when the price relationship between the hedge and the exposure changes unexpectedly. Remember: Imperfect hedges can retain basis risk.
Hint, shown before you answer in practice mode: Common mistake: A hedge need not track the exposure perfectly. Think about imperfect price co-movement.
XIII-005mediumconceptual
Q6A trader offsets an OTC derivative with an economically opposite contract. The original counterparty becomes insolvent. Which risk remains?
Option A. Complete removal of every contractual obligation
Why it is wrong: Opposite trades do not always legally terminate the original deal.
Option B. Only equity shareholder voting risk
Why it is wrong: Shareholder voting is unrelated to this OTC default scenario.
Option C. Counterparty credit risk on the original agreement — Correct answer
Option D. Automatic cancellation of both contracts
Why it is wrong: Offsetting market exposure does not automatically extinguish contracts.
Answer: C. Opposite economic positions do not necessarily cancel the original OTC counterparty's payment obligation. Remember: Market hedging and counterparty risk are different.
Hint, shown before you answer in practice mode: Common mistake: Do not assume an economic offset is a legal closeout. Consider whether opposite exposure closes a legal obligation.
XIII-006hardapplication
Basics of Derivatives (Equity, Currency and Interest Rate): common questions
How many practice questions are there on Basics of Derivatives (Equity, Currency and Interest Rate)?
6 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 XIII, which has 150 questions in total.
Are these real NISM Series XIII questions on Basics of Derivatives (Equity, Currency and Interest Rate)?
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 XIII?
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.
Introduction to the Underlying Markets
24 questions on Introduction to the Underlying Markets. Its quiz opens on that unit.
Open Introduction to the Underlying MarketsPaper Trading Try it on the practice trading desk