Introduction to Forwards and Futures
20 questions. Each answer is explained.
Question 1 of 10Practice · Series XIII — Common Derivatives
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Learn these topics
More units in NISM Series XIII
- Basics of Derivatives (Equity, Currency and Interest Rate)6
- Introduction to the Underlying Markets24
- 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 20 questions on Introduction to Forwards and Futures, with answers
Q1Which description best explains a forward contract agreed between two counterparties today?
Option A. An equity share giving its holder ownership and voting rights
Why it is wrong: An equity share is an ownership security.
Option B. A bond paying a fixed coupon until maturity
Why it is wrong: A bond is a debt instrument, not a forward.
Option C. A customized agreement today for a transaction on a future date — Correct answer
Option D. An exchange index calculated from listed shares
Why it is wrong: An index is a measure rather than a bilateral contract.
Answer: C. A forward fixes the terms of a future transaction through an agreement between counterparties. Remember: Forwards specify a transaction for a later date.
Hint, shown before you answer in practice mode: Common mistake: Do not mistake a future-dated contract for debt ownership. Think about fixing transaction terms in advance.
XIII-031easyconceptual
Q2Which feature is commonly associated with exchange-traded futures?
Option A. Daily marking to market — Correct answer
Option B. Unlimited private customization
Why it is wrong: Private customization is typical of OTC agreements.
Option C. No contract expiry
Why it is wrong: Futures contracts specify expiration conditions.
Option D. No collateral or margin requirement
Why it is wrong: Futures generally require collateral or margin.
Answer: A. Futures are commonly marked to market so gains and losses are settled through the clearing process. Remember: Futures normally involve daily settlement of value changes.
Hint, shown before you answer in practice mode: Common mistake: Do not assume a futures buyer pays the full underlying value. Consider how clearing manages changes in value.
XIII-032easyconceptual
Q3A trader holding a long futures contract benefits directly when the futures settlement price does what?
Option A. Falls
Why it is wrong: A falling futures price causes a loss for a long position.
Option B. Stays exactly constant
Why it is wrong: An unchanged price creates no directional gain.
Option C. Rises — Correct answer
Option D. Becomes unrelated to the underlying asset
Why it is wrong: Futures prices generally relate to the underlying market.
Answer: C. A long futures position gains when the futures price rises relative to its entry price. Remember: Long futures positions have positive price exposure.
Hint, shown before you answer in practice mode: Common mistake: Do not reverse long and short payoff directions. Recall the payoff direction of a long position.
XIII-033easyconceptual
Q4Which price movement creates a gain for a short futures position, ignoring costs?
Option A. An increase in the futures price
Why it is wrong: An increase creates a loss to a short position.
Option B. No change in the futures price
Why it is wrong: An unchanged price gives no directional gain.
Option C. A decline in the futures price — Correct answer
Option D. A rise in the trader's entry margin
Why it is wrong: Changing margin does not itself create trading profit.
Answer: C. A short futures position gains when it can be closed at a lower futures price. Remember: Short futures gain from declining contract prices.
Hint, shown before you answer in practice mode: Common mistake: A short future is different from a long future. Compare the sale price with the later closing price.
XIII-034easyconceptual
Q5What normally happens to the gap between spot and futures prices as a contract approaches expiry?
Option A. The gap generally converges toward zero — Correct answer
Option B. The gap must grow without limit
Why it is wrong: A widening gap is not a necessary expiry rule.
Option C. The spot price becomes permanently frozen
Why it is wrong: Spot market prices can still move.
Option D. The futures contract turns into an equity share
Why it is wrong: Expiry does not convert futures into ownership shares.
Answer: A. Under consistent settlement terms, futures and underlying spot prices normally converge toward expiry. Remember: Expiry generally drives spot-futures convergence.
Hint, shown before you answer in practice mode: Common mistake: Do not expect a large persistent arbitrage gap at final settlement. Think about delivery or final settlement at expiry.
XIII-035easyconceptual
Q6In a futures contract, what does contract size specify?
Option A. The amount of underlying exposure represented by one contract — Correct answer
Option B. The maximum profit available to a buyer
Why it is wrong: Maximum profit is not fixed by contract size alone.
Option C. The fixed number of days until the next trading session
Why it is wrong: Trading-session length is a separate rule.
Option D. The daily price movement guaranteed by the exchange
Why it is wrong: No daily price gain is guaranteed.
Answer: A. Contract size specifies the underlying quantity or notional exposure defined by the contract specification. Remember: Contract size scales both profit and loss.
Hint, shown before you answer in practice mode: Common mistake: Do not confuse notional exposure with the initial margin. Identify what one contract represents.
XIII-036easyconceptual
Q7A trader buys one futures contract at ₹110 and exits at ₹118. The contract covers 100 units. What is the gross profit?
Option A. ₹8
Why it is wrong: ₹8 ignores the contract quantity.
Option B. ₹1,800
Why it is wrong: ₹1,800 uses the wrong price difference.
Option C. ₹11,800
Why it is wrong: ₹11,800 is exit contract value, not profit.
Option D. ₹800 — Correct answer
Answer: D. Gross profit = (₹118 − ₹110) × 100 = ₹800. Remember: Multiply the price difference by contract quantity.
Hint, shown before you answer in practice mode: Common mistake: Do not confuse contract turnover with profit. Calculate movement per unit and scale it by quantity.
XIII-037mediumnumerical
Q8A short futures position of 50 units is entered at ₹210 and closed at ₹204. What is the gross profit?
Option A. −₹300
Why it is wrong: −₹300 reverses the direction of a profitable short.
Option B. ₹600
Why it is wrong: ₹600 doubles the price movement.
Option C. ₹10,200
Why it is wrong: ₹10,200 is the repurchase contract value.
Option D. ₹300 — Correct answer
Answer: D. Gross profit = (₹210 − ₹204) × 50 = ₹300. Remember: Short futures profit from lower closing prices.
Hint, shown before you answer in practice mode: Common mistake: Do not use the long-position payoff formula for shorts. For a short position, compare entry sale price with exit purchase price.
XIII-038mediumnumerical
Q9Which important risk is generally greater in a bilateral forward than a centrally cleared futures contract?
Option A. Stockholder voting dilution
Why it is wrong: Voting dilution concerns share ownership.
Option B. Counterparty default risk — Correct answer
Option C. Guaranteed dividend adjustment
Why it is wrong: Dividend treatment does not represent the main credit distinction.
Option D. Guaranteed full profit on expiry
Why it is wrong: Neither instrument guarantees trading profit.
Answer: B. A bilateral forward has direct counterparty credit exposure, while central clearing helps manage that risk in futures. Remember: Clearing reduces, rather than removes, counterparty exposure.
Hint, shown before you answer in practice mode: Common mistake: Do not equate standardization with absence of risk. Compare who is responsible for performance.
XIII-039mediumconceptual
Q10A non-dividend-paying asset trades at ₹1,000. With simple annual financing at 8%, what is its six-month theoretical futures price?
Option A. ₹1,080
Why it is wrong: ₹1,080 uses a full year of financing.
Option B. ₹1,040 — Correct answer
Option C. ₹960
Why it is wrong: ₹960 subtracts rather than adds the carry cost.
Option D. ₹1,008
Why it is wrong: ₹1,008 applies 0.8% rather than 4%.
Answer: B. Simple cost-of-carry price = ₹1,000 × (1 + 0.08 × 0.5) = ₹1,040. Remember: Futures pricing includes the cost of carrying an asset.
Hint, shown before you answer in practice mode: Common mistake: Use the correct time fraction in a carry calculation. Account for financing over only half a year.
XIII-040mediumnumerical
Q11A currency futures contract represents USD 1,000. Its quoted price rises by ₹0.40 per dollar. What is the long position's gain?
Option A. ₹40
Why it is wrong: ₹40 understates the contract quantity.
Option B. ₹4,000
Why it is wrong: ₹4,000 moves the decimal one place.
Option C. ₹400 — Correct answer
Option D. USD 400
Why it is wrong: USD 400 uses the wrong profit currency.
Answer: C. Gain in rupees = 1,000 × ₹0.40 = ₹400. Remember: Currency futures payoff uses the contract's quotation units.
Hint, shown before you answer in practice mode: Common mistake: Check whether profit is expressed in rupees or dollars. Scale the rupee movement by the dollar quantity.
XIII-041mediumnumerical
Q12What is the main purpose of marking a futures position to market each day?
Option A. Settle changes in contract value using daily settlement prices — Correct answer
Option B. Guarantee that futures prices rise every day
Why it is wrong: Daily settlement does not ensure rising futures prices.
Option C. Remove all variation in the underlying asset's market price
Why it is wrong: Underlying market volatility continues.
Option D. Convert the futures contract into a cash deposit
Why it is wrong: A futures position remains a derivative contract.
Answer: A. Mark-to-market settlement credits and debits positions for changes in their futures value. Remember: Daily settlement recognizes gains and losses.
Hint, shown before you answer in practice mode: Common mistake: Do not confuse daily settlement with contract expiry. Think about daily gains and losses.
XIII-042mediumconceptual
Q13What does the basis of an equity futures contract most commonly compare?
Option A. Two unrelated company dividend policies
Why it is wrong: Dividend policies alone do not define basis.
Option B. The spot price and the futures price — Correct answer
Option C. The broker's commission and statutory taxes
Why it is wrong: Trading charges are separate from basis.
Option D. Only the first and last trading prices each day
Why it is wrong: Intraday opening and closing changes are not spot-futures basis.
Answer: B. Basis is a defined difference between the spot and futures price, with the sign depending on the convention used. Remember: Basis captures the spot-futures relationship.
Hint, shown before you answer in practice mode: Common mistake: State the basis sign convention before calculating it. Think about cash-versus-futures price difference.
XIII-043mediumconceptual
Q14A futures contract has a tick size of 0.01 and a quantity of 2,000 units. What is one tick worth?
Option A. ₹2
Why it is wrong: ₹2 uses one-tenth of the contract quantity.
Option B. ₹200
Why it is wrong: ₹200 uses ten times the tick value.
Option C. ₹20 — Correct answer
Option D. ₹0.01
Why it is wrong: ₹0.01 is the per-unit tick, not contract value.
Answer: C. One tick value = 0.01 × 2,000 = ₹20, assuming rupee quotation per unit. Remember: Tick value depends on price increment and contract quantity.
Hint, shown before you answer in practice mode: Common mistake: A small tick size can represent a sizable contract change. Multiply minimum quoted change by contract quantity.
XIII-044mediumnumerical
Q15In deliverable interest-rate futures, what is the purpose of a conversion factor?
Option A. Guarantee that every eligible bond has the same market price
Why it is wrong: Conversion factors do not equalize actual market prices.
Option B. Remove the need for any delivery invoice
Why it is wrong: An invoice amount may still be needed.
Option C. Set a single market yield for all government bonds
Why it is wrong: Market yields remain determined by the market.
Option D. Make eligible bonds with different coupons and maturities comparable — Correct answer
Answer: D. A conversion factor adjusts eligible bonds for differences in their characteristics when calculating delivery terms. Remember: Conversion factors assist delivery comparison.
Hint, shown before you answer in practice mode: Common mistake: Do not confuse the factor with a guaranteed bond price. Consider why eligible bonds need comparability.
XIII-045mediumconceptual
Q16Under covered interest rate parity, what mainly links a currency forward rate to the spot rate?
Option A. The number of listed shares in each of the two countries
Why it is wrong: Share counts do not set parity pricing.
Option B. The next equity index rebalancing date
Why it is wrong: Index revisions are unrelated to currency carry.
Option C. The interest-rate differential between the two currencies — Correct answer
Option D. The guaranteed future inflation rate
Why it is wrong: Future inflation is not a guaranteed known input.
Answer: C. Covered interest rate parity relates spot and forward rates through the two currencies' financing rates. Remember: Interest-rate differences influence theoretical forward rates.
Hint, shown before you answer in practice mode: Common mistake: Use the correct domestic and foreign rate convention. Think about borrowing and lending in both currencies.
XIII-046mediumconceptual
Q17A deliverable bond has a conversion factor of 0.92. The futures price is 110 and accrued interest is 1.5 per ₹100 face. What invoice amount applies per ₹100 face?
Option A. 101.20
Why it is wrong: 101.20 excludes the accrued interest.
Option B. 110.00
Why it is wrong: 110.00 ignores both adjustment and interest.
Option C. 102.70 — Correct answer
Option D. 111.50
Why it is wrong: 111.50 ignores the conversion factor.
Answer: C. Invoice amount = 110 × 0.92 + 1.5 = 102.70 per ₹100 face. Remember: Delivery invoice uses converted futures price plus accrued interest.
Hint, shown before you answer in practice mode: Common mistake: Do not add accrued interest before applying the conversion factor. Apply the bond's factor before including accrued interest.
XIII-047hardnumerical
Q18USD/INR spot is 84. Domestic one-year interest is 6% and dollar interest is 2%. What is the theoretical one-year forward rate?
Option A. ₹87.29 per USD — Correct answer
Option B. ₹80.83 per USD
Why it is wrong: ₹80.83 reverses the interest-rate ratio.
Option C. ₹89.04 per USD
Why it is wrong: ₹89.04 ignores foreign-currency financing.
Option D. ₹84.00 per USD
Why it is wrong: ₹84.00 ignores the interest-rate differential.
Answer: A. Forward = 84 × (1.06 ÷ 1.02) = approximately ₹87.29 per USD. Remember: Forward points reflect relative currency financing.
Hint, shown before you answer in practice mode: Common mistake: Do not interchange domestic and foreign interest rates. Match the domestic and foreign financing rates to the exchange quote.
XIII-048hardnumerical
Q19A share trades at ₹500 with simple annual funding cost of 10%. A known ₹10 cash dividend is paid at expiry in six months. What theoretical futures price follows?
Option A. ₹525
Why it is wrong: ₹525 omits the dividend.
Option B. ₹515 — Correct answer
Option C. ₹490
Why it is wrong: ₹490 subtracts the dividend without financing cost.
Option D. ₹535
Why it is wrong: ₹535 adds the dividend rather than subtracting it.
Answer: B. Theoretical price = ₹500 × (1 + 0.10 × 0.5) − ₹10 = ₹515, assuming the dividend is paid exactly at expiry. Remember: Known payouts reduce futures fair value.
Hint, shown before you answer in practice mode: Common mistake: Dividend timing matters in a full cost-of-carry model. Include both financing cost and a known cash distribution.
XIII-049hardnumerical
Q20Two government bonds are eligible for delivery into the same futures contract. One delivers at lower net economic cost. Which bond is cheapest to deliver?
Option A. The bond with the lowest net delivery cost after adjustments — Correct answer
Option B. The bond with the highest printed coupon in every case
Why it is wrong: The highest coupon alone cannot decide delivery economics.
Option C. The bond with the greatest face value in every case
Why it is wrong: Face value alone does not identify the cheapest bond.
Option D. The bond with the earliest original issue date
Why it is wrong: Issue date alone does not determine the best delivery choice.
Answer: A. The cheapest-to-deliver bond minimizes the economic cost of satisfying the delivery obligation after relevant adjustments. Remember: Delivery choice depends on adjusted economics.
Hint, shown before you answer in practice mode: Common mistake: Do not rank eligible bonds using coupon rate alone. Compare market acquisition cost with adjusted invoice proceeds.
XIII-050hardapplication
Introduction to Forwards and Futures: common questions
How many practice questions are there on Introduction to Forwards and Futures?
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 XIII, which has 150 questions in total.
Are these real NISM Series XIII questions on Introduction to Forwards and Futures?
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.
Strategies Using Futures
24 questions on Strategies Using Futures. Its quiz opens on that unit.
Open Strategies Using FuturesPaper Trading Try it on the practice trading desk