Clearing Settlement and Risk Management of Commodity Derivatives
20 questions. Each answer is explained.
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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 XVI Commodity 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 Clearing Settlement and Risk Management of Commodity Derivatives, with answers
Q1After a commodity futures trade is accepted for clearing through novation, which entity interposes itself between the two clearing sides?
Option A. The publisher of the commodity price index
Why it is wrong: Index calculation does not make the publisher the counterparty to a cleared trade.
Option B. The clearing corporation — Correct answer
Option C. The assayer that tests commodity quality
Why it is wrong: Quality assessment is distinct from assuming clearing obligations.
Option D. The warehouse that stores the seller’s goods
Why it is wrong: Storage of goods is not the central counterparty function.
Answer: B. Novation changes the clearing counterparty structure rather than the grade or economics of the traded contract. The clearing corporation takes the central counterparty role in the clearing arrangement. Warehouses, assayers and index publishers provide other services. They do not replace the clearing corporation merely because the contract concerns physical goods. Remember: Identify the central counterparty separately from trading, storage and quality-testing entities.
Hint, shown before you answer in practice mode: Common mistake: Assuming the physical warehouse guarantees every financial obligation of the trade.
XVI-054easyconceptual
Q2A clearing member has a confirmed funds pay-in due today. One of its trading-member clients says its own customer will pay tomorrow. Which statement best describes the clearing member’s obligation?
Option A. The clearing obligation disappears until the customer pays tomorrow.
Why it is wrong: The stated obligation remains unless changed under an applicable arrangement, which is not given here.
Option B. The confirmed pay-in becomes an option that the clearing member can decline.
Why it is wrong: A futures settlement obligation is not converted into an option by late collection.
Option C. The customer’s delay does not by itself postpone the confirmed pay-in. — Correct answer
Option D. The warehouse must automatically advance the customer’s money to cover the gap.
Why it is wrong: A warehouse’s storage role does not imply an automatic financing commitment.
Answer: C. Settlement obligations at one level of the clearing chain do not automatically change because collection at another level is delayed. The question states that the clearing member has a confirmed pay-in due today. A delay in an underlying customer payment creates a funding or collection problem. It is not itself an agreed change to that settlement obligation. Remember: Track client collections and clearing obligations separately, including their deadlines.
Hint, shown before you answer in practice mode: Common mistake: Assuming a chain of unpaid receivables automatically extends a clearing pay-in deadline.
XVI-055mediumconceptual
Q3A seller keeps an eligible short commodity futures position open through expiry in a contract specified as compulsory physical delivery. Which preparation is required rather than assuming the trade ends only with a price-difference payment?
Option A. Submit the original hedge intention as a substitute for arranging goods.
Why it is wrong: A hedging purpose does not itself fulfil the physical performance required by the specified contract.
Option B. Substitute any available grade without checking the contract.
Why it is wrong: Quality and grade eligibility are defined by the contract, not freely chosen at expiry.
Option C. Arrange conforming deliverable goods and the required delivery process. — Correct answer
Option D. Pay only the difference between entry and expiry price and disregard goods.
Why it is wrong: That describes a price-difference settlement without the required physical leg.
Answer: C. An open position in a compulsory-delivery contract carries a physical settlement obligation under the contract’s delivery framework. The contract is expressly described as compulsory physical delivery. A short that remains for delivery must be supported by conforming goods and the required tender/transfer arrangements. Daily MTM does not replace the physical leg. Remember: Check the settlement mode and delivery obligations before carrying a position into expiry.
Hint, shown before you answer in practice mode: Common mistake: Assuming every derivatives contract ends through cash settlement alone.
XVI-056easyconceptual
Q4A contract permits a specified grain grade with moisture no higher than 12%. A seller tenders the correct quantity, but an accepted assay shows 14% moisture. The contract provides no allowance for this grade. What follows?
Option A. Correct quantity alone does not make the tender conform to the contract. — Correct answer
Option B. The buyer must accept it because the number of tonnes is correct.
Why it is wrong: The quality standard remains binding even when quantity is correct.
Option C. The seller can invent a discount and make the grade eligible unilaterally.
Why it is wrong: A unilateral discount is not a substitute for an allowed contractual adjustment.
Option D. Rely only on the receipt quantity without considering the accepted assay.
Why it is wrong: The accepted assay supplies material quality information that the recorded quantity does not replace.
Answer: A. Conforming delivery depends on quality and quantity, as well as the proper transfer of title. The tested moisture content exceeds the stated quality limit. The question explicitly excludes an allowance permitting this grade. A receipt or correct weight cannot cure that failure by itself. Remember: Test every material delivery specification, not only the lot weight.
Hint, shown before you answer in practice mode: Common mistake: Assuming a quality shortfall can always be settled by an improvised discount.
XVI-057mediumconceptual
Q5A delivery rule requires an unencumbered electronic warehouse receipt. The seller has enough recorded goods, but the receipt remains pledged to a lender. What must be addressed before this receipt can satisfy the stated condition?
Option A. Nothing, because the recorded quantity always overrides a lender’s pledge.
Why it is wrong: Quantity and absence of encumbrances are separate requirements.
Option B. The futures trade automatically cancels the lender’s recorded rights over the receipt.
Why it is wrong: The facts provide no mechanism by which merely trading futures extinguishes the lender’s rights.
Option C. The seller should create a second, unpledged receipt for the same goods.
Why it is wrong: A second receipt for the same goods would not legitimately eliminate the existing pledge.
Option D. The pledge must be validly released or resolved under the permitted process. — Correct answer
Answer: D. Ownership records and encumbrances matter when transferable goods are used to meet delivery obligations. The receipt’s quantity is sufficient, but it fails the stated unencumbered condition. The recorded pledge must be resolved through the permitted process. Duplicating the receipt or ignoring the lender’s rights does not create valid delivery eligibility. Remember: Check title and encumbrances alongside quality, quantity and location.
Hint, shown before you answer in practice mode: Common mistake: Treating an electronic goods balance as automatically free for any transfer.
XVI-058mediumregulatory
Q6Which activity is most directly a commodity repository function rather than physical warehouse storage?
Option A. Keeping electronic receipt records and logging permitted transfers or pledges. — Correct answer
Option B. Physically drying and cleaning grain to prevent spoilage during storage.
Why it is wrong: Drying is a physical storage or conditioning service.
Option C. Weighing every truck that arrives at the warehouse gate before unloading.
Why it is wrong: Gate weighing is a physical receipt-handling process.
Option D. Transporting the commodity by truck from a delivery centre to a buyer’s factory.
Why it is wrong: Transport is a logistics service, not an electronic repository record function.
Answer: A. The repository manages electronic records of rights in stored goods, while physical handling is performed by other service providers. Electronic receipts need controlled issuance, secure records and authenticated transfers or pledge entries. Storage, weighing and transportation concern handling the goods themselves, not maintaining the repository record. Remember: Distinguish information and title records from physical custody and movement.
Hint, shown before you answer in practice mode: Common mistake: Assuming the entity maintaining the electronic receipt also operates every warehouse and truck.
XVI-059easyconceptual
Q7For this question, a delivery invoice uses a base price of ₹1,000 per unit, a 2% quality premium on that base price and a ₹5-per-unit location discount. Ten units are delivered. There are no taxes or other charges. What is the invoice value?
Option A. ₹10,250
Why it is wrong: It adds the location discount as though it were a premium.
Option B. ₹9,750
Why it is wrong: It treats the quality premium as a discount and also subtracts the location discount.
Option C. ₹10,200
Why it is wrong: It omits the location discount.
Option D. ₹10,150 — Correct answer
Answer: D. Delivery adjustments must be applied using their specified price base and sign before multiplying by quantity. Quality premium per unit = 2% × ₹1,000 = ₹20. Adjusted unit price = ₹1,000 + ₹20 − ₹5 = ₹1,015. Invoice = 10 × ₹1,015 = ₹10,150. No unstated GST or fee is inserted. Remember: Keep grade, location and tax adjustments separate and use each stated base.
Hint, shown before you answer in practice mode: Common mistake: Applying every adjustment in the same direction or forgetting to multiply per-unit adjustments by delivery quantity.
XVI-060mediumnumerical
Q8A long futures position covers 10 units, entered at ₹500 and held for delivery. Cumulative MTM gains of ₹200 have already been received. The delivery rule invoices goods at the final price of ₹520 per unit with no adjustments or charges. How much must be paid for the delivery invoice, before using any separately received MTM cash?
Option A. ₹5,200 — Correct answer
Option B. ₹200
Why it is wrong: It is only the cumulative MTM gain and cannot purchase the delivered goods.
Option C. ₹5,000
Why it is wrong: It is the combined economic cost after separately received MTM, not the invoice amount.
Option D. ₹5,400
Why it is wrong: It adds the MTM gain to the invoice instead of recording it separately.
Answer: A. A physical delivery invoice and previously settled futures gains are separate cash-flow entries. The invoice rule uses the final price: 10 × ₹520 = ₹5,200. The earlier ₹200 MTM receipt does not change the invoice’s face amount. Considering both cash flows, the economic cost is ₹5,200 − ₹200 = ₹5,000, which equals the initial futures price times quantity. The question asks for the invoice, not that net cost. Remember: Do not confuse an invoice amount with the net economic cost after earlier settlement cash flows.
Hint, shown before you answer in practice mode: Common mistake: Deducting previously received MTM twice or omitting the physical payment entirely.
XVI-061hardnumerical
Q9A client deposits ₹30,000 to open a commodity futures position. An adverse move creates a valid cumulative loss of ₹42,000 before it is closed. Ignoring all other balances, which statement is correct?
Option A. The exchange absorbs the extra ₹12,000 merely because initial margin was paid.
Why it is wrong: Margin payment is not an insurance contract transferring every larger trading loss to the exchange.
Option B. The extra ₹12,000 is converted into a refundable option premium.
Why it is wrong: Futures losses are not reclassified as a premium for an option that was not bought.
Option C. The ₹30,000 deposit does not limit the trading loss to ₹30,000. — Correct answer
Option D. The loss is automatically written down to ₹30,000.
Why it is wrong: No such automatic loss cap follows from the margin deposit.
Answer: C. Futures margin supports performance of obligations. It is not an option premium or a contractual maximum-loss payment. The supplied futures loss is ₹42,000. Initial collateral of ₹30,000 does not alter the payoff formula. Ignoring all other balances, the loss exceeds the deposit by ₹12,000. Settlement and collection consequences depend on applicable arrangements, but the loss is not automatically capped. Remember: Calculate futures losses from price and quantity, not from the size of the initial deposit.
Hint, shown before you answer in practice mode: Common mistake: Treating leveraged futures like purchased options with premium-limited loss.
XVI-062easyconceptual
Q10An account has ₹40,000 cash and eligible securities worth ₹1,00,000. For this question, the securities receive a 20% haircut and there are no other eligibility limits. A requirement of ₹1,30,000 must be met. What is the collateral shortfall?
Option A. ₹0
Why it is wrong: It counts securities at their unadjusted market value.
Option B. ₹50,000
Why it is wrong: It ignores the cash and compares the requirement only with adjusted securities.
Option C. ₹30,000
Why it is wrong: It compares the requirement only with the securities’ face market value and ignores the supplied cash and haircut treatment.
Option D. ₹10,000 — Correct answer
Answer: D. A collateral haircut reduces recognised security value rather than increasing the required cash balance by the same amount automatically. Recognised securities = ₹1,00,000 × (1 − 0.20) = ₹80,000. Total recognised collateral = ₹40,000 + ₹80,000 = ₹1,20,000. Shortfall = ₹1,30,000 − ₹1,20,000 = ₹10,000. Remember: Value each collateral component under its eligibility rule before finding the deficit.
Hint, shown before you answer in practice mode: Common mistake: Using market value as collateral value despite an explicitly stated haircut.
XVI-063mediumnumerical
Q11In a simplified risk illustration, two positions have P&L in ₹thousand as follows: scenario 1 is −20 and +15, scenario 2 is −10 and −12, and scenario 3 is +15 and −10. The risk amount is the worst combined loss among these three scenarios. What is it?
Option A. ₹32,000
Why it is wrong: It adds position 1’s worst loss of ₹20 thousand to position 2’s worst loss of ₹12 thousand from a different scenario.
Option B. ₹5,000
Why it is wrong: It uses the first scenario’s loss rather than comparing all three.
Option C. ₹20,000
Why it is wrong: It reports only the largest loss on one position.
Option D. ₹22,000 — Correct answer
Answer: D. Portfolio scenario risk adds position results within each common scenario before selecting the worst portfolio loss. Scenario 1 total = −20 + 15 = −₹5 thousand. Scenario 2 total = −10 − 12 = −₹22 thousand. Scenario 3 total = 15 − 10 = +₹5 thousand. The worst combined loss is ₹22 thousand. Combining different positions’ worst outcomes from different scenarios would answer a different question. Remember: Aggregate within each common scenario before choosing the worst result.
Hint, shown before you answer in practice mode: Common mistake: Adding each leg’s independently worst loss as though those states necessarily occur together.
XVI-130hardnumerical
Q12For this question, an account starts with ₹60,000 cash collateral. A ₹9,000 MTM loss is debited from it, and the required collateral after settlement is ₹65,000. There are no other credits. How much fresh cash is needed to restore the requirement?
Option A. ₹14,000 — Correct answer
Option B. ₹74,000
Why it is wrong: It adds the loss to the new requirement without recognising the cash still in the account.
Option C. ₹5,000
Why it is wrong: It considers only the change in required collateral and ignores the loss debit.
Option D. ₹9,000
Why it is wrong: It restores only the opening ₹60,000 and ignores the higher requirement.
Answer: A. An MTM loss and a changed collateral requirement affect different parts of the funding calculation. After the loss debit, the account has ₹60,000 − ₹9,000 = ₹51,000. The new requirement is ₹65,000. Fresh cash needed = ₹65,000 − ₹51,000 = ₹14,000, including both the loss replacement and ₹5,000 increase in requirement. Remember: Calculate the post-settlement balance before calculating a margin top-up.
Hint, shown before you answer in practice mode: Common mistake: Confusing the MTM loss itself with the complete cash amount needed to meet all current requirements.
XVI-131mediumnumerical
Q13A participant has enough collateral for a futures position outside its delivery period. As the contract approaches physical settlement, the applicable schedule imposes a separate delivery-related margin. Which conclusion is most appropriate?
Option A. The initial margin paid earlier permanently fixes every later margin requirement.
Why it is wrong: Initial margin does not establish a permanently unchanging schedule.
Option B. Funding must be rechecked, as earlier collateral may not cover the added margin. — Correct answer
Option C. A delivery-related margin turns the physical settlement into a cash settlement.
Why it is wrong: A collateral requirement does not by itself alter the settlement mode.
Option D. The delivery-related margin automatically pays the complete invoice for the goods.
Why it is wrong: Margin and the full delivery invoice serve different purposes.
Answer: B. Contract-stage changes can add funding requirements distinct from ordinary opening margin and the goods invoice. The scenario expressly states that an additional delivery-related requirement applies. The participant should compare total eligible collateral with all current requirements. It should separately plan any goods or invoice obligation. Remember: Recheck collateral and delivery funding as a contract moves toward expiry.
Hint, shown before you answer in practice mode: Common mistake: Assuming the amount sufficient to open a position is sufficient through every later settlement stage.
XVI-132mediumconceptual
Q14A commodity call on futures is exercised and creates a long futures position at its strike. The participant intends to keep that futures position rather than close it immediately. Which risk-management check is now essential?
Option A. Check the applicable futures margin, MTM and eventual settlement obligations. — Correct answer
Option B. Assume the previously paid call premium funds the futures position forever.
Why it is wrong: Option premium does not substitute for all subsequent futures collateral and losses.
Option C. Ignore later price moves because the call was already in the money.
Why it is wrong: Price changes after exercise still affect the retained long futures position.
Option D. Treat the created position as physical inventory already paid for in full.
Why it is wrong: A futures position is not automatically a paid physical stock balance.
Answer: A. The purchased option’s limited-premium exposure is not the same as the futures position created when it is exercised. The facts state that exercise has created a futures position and that it will remain open. That futures exposure can create later MTM gains or losses and must meet applicable collateral and settlement requirements. An earlier in-the-money option does not freeze subsequent prices. Remember: Follow an option through exercise into the obligations of the instrument it creates.
Hint, shown before you answer in practice mode: Common mistake: Applying the purchased option’s maximum-loss description to a futures position retained after exercise.
XVI-133mediumconceptual
Q15For this illustration, margin nets positions within each client but not between clients, at ₹1,000 per residual contract. Client A is long 8 and short 3 contracts in the same contract. Client B is short 5. What is the total margin under this rule?
Option A. ₹0
Why it is wrong: It incorrectly offsets A’s residual long position against B’s short position.
Option B. ₹5,000
Why it is wrong: It counts only one client’s residual position.
Option C. ₹16,000
Why it is wrong: It margins all 16 gross contracts and ignores the allowed netting within A.
Option D. ₹10,000 — Correct answer
Answer: D. An aggregation rule determines where offsetting is permitted. Economic positions from separate clients are not netted when the rule forbids it. Client A’s residual position is 8 − 3 = 5 long contracts, requiring ₹5,000. Client B has 5 short contracts, requiring another ₹5,000. Add client-level requirements: ₹10,000. Netting the two clients against each other would wrongly produce zero. Remember: Apply offsets only at the aggregation level allowed by the supplied margin rule.
Hint, shown before you answer in practice mode: Common mistake: Netting positions of separate beneficial owners merely because one intermediary handles them.
XVI-134mediumnumerical
Q16A trader suffers a valid loss from a fall in a futures price. No intermediary default or settlement failure has occurred. Which statement about the clearing corporation’s settlement guarantee fund is appropriate?
Option A. It cancels the losing trade whenever the winning counterparty is profitable.
Why it is wrong: A valid profit on the opposite side is part of the contract’s payoff, not grounds to erase the trade.
Option B. It must reimburse every loss larger than the initial margin.
Why it is wrong: Initial margin is not a threshold above which ordinary trading losses become fund claims.
Option C. It is not a routine reimbursement scheme for that ordinary market loss. — Correct answer
Option D. It guarantees a non-negative return on every cleared position.
Why it is wrong: A performance guarantee is not an investment-return guarantee.
Answer: C. Settlement protection concerns performance of obligations, not protection against the economic result of a valid market position. The loss arises from an adverse price move, not a failure to perform settlement. SEBI’s description links the settlement guarantee fund to default resources. It does not turn every cleared trade into a risk-free investment. Remember: Guaranteed settlement does not mean guaranteed profit.
Hint, shown before you answer in practice mode: Common mistake: Confusing protection of the settlement process with insurance of the investor’s price risk.
XVI-135easyconceptual
Q17A short position is subject to compulsory delivery. A seller says it can simply choose to pay a delivery-default penalty instead of arranging the required goods, even though no such alternative is granted in the contract. Which statement is correct?
Option A. Any seller can change the settlement mode simply by telling its broker after expiry.
Why it is wrong: A unilateral instruction cannot ordinarily rewrite the specified settlement mode.
Option B. Every penalty clause automatically turns the trade into an optional cash-settlement contract.
Why it is wrong: A penalty provision does not necessarily provide an optional settlement mode.
Option C. A default penalty alone does not give a contractual right to pay cash instead of delivering. — Correct answer
Option D. Paying the initial margin cancels the delivery obligation before any default can occur.
Why it is wrong: Collateral supports the obligation rather than cancelling it.
Answer: C. A consequence of breach is different from an agreed alternative method of performance. The contract specifies compulsory delivery and the facts grant no cash-settlement election. The existence of a penalty for failing to perform does not itself add such an election. Applicable default procedures and consequences must be followed if a breach occurs. Remember: Read default provisions as consequences, not as an automatic menu of settlement options.
Hint, shown before you answer in practice mode: Common mistake: Treating a prescribed penalty as the purchase price of permission to ignore a delivery obligation.
XVI-136mediumconceptual
Q18In a hypothetical bilateral commodity transaction outside any protected delivery-versus-payment arrangement, a seller transfers title to all goods but the buyer then fails to pay. Which exposure is illustrated most directly?
Option A. Principal exposure to losing the value delivered without receiving the counter-payment. — Correct answer
Option B. Basis risk from using a different delivery-location futures contract.
Why it is wrong: No mismatch between two price locations or a hedge benchmark is specified. The loss arises from settlement non-performance.
Option C. Only replacement-cost exposure on a contract where neither party has performed.
Why it is wrong: The seller has already transferred the goods. Its exposure is not confined to replacing a wholly unperformed contract.
Option D. Market risk from a price change after full and simultaneous settlement.
Why it is wrong: The stated failure is non-payment, not merely a market move after completed exchange of value.
Answer: A. Settlement principal risk concerns having performed one side of an exchange without receiving the other side’s full value. The seller has already transferred the goods and is waiting for the counter-payment. Failure of that payment threatens the delivered principal value. The scenario is not merely a change in the replacement price while both sides remain unperformed. Remember: Ask whether the exposure is a price change, a replacement cost or value already delivered without payment.
Hint, shown before you answer in practice mode: Common mistake: Calling every financial loss market risk even when it arises from settlement non-performance.
XVI-137mediumconceptual
Q19For this question, a client’s overall long-position cap is 600 contracts and its near-month cap is 150. It already has 570 long contracts overall, including 110 in the near month. With no offsetting positions, what is the largest additional near-month purchase allowed by both caps?
Option A. 600 contracts
Why it is wrong: It mistakes the full overall cap for remaining capacity.
Option B. 30 contracts — Correct answer
Option C. 40 contracts
Why it is wrong: It checks only the near-month headroom and would exceed the overall cap.
Option D. 150 contracts
Why it is wrong: It mistakes the full near-month cap for remaining capacity.
Answer: B. A proposed position must satisfy every applicable limit, not just the cap that appears closest to the contract’s expiry. Overall headroom = 600 − 570 = 30 contracts. Near-month headroom = 150 − 110 = 40 contracts. A new near-month long increases both measures, so the permitted increment is the smaller headroom: 30 contracts. Remember: Apply all limits to the post-trade position, using the most restrictive remaining capacity.
Hint, shown before you answer in practice mode: Common mistake: Checking each cap in isolation and selecting the larger headroom.
XVI-138mediumnumerical
Q20A commodity trading platform wants to reduce unauthorised login risk when a user’s password is stolen. Which control most directly addresses that specific risk?
Option A. Increase the number of contracts the account may hold.
Why it is wrong: A larger trading limit does not authenticate a login and can increase possible harm.
Option B. Remove login alerts to reduce the number of messages sent.
Why it is wrong: Removing alerts weakens detection rather than requiring another authentication factor.
Option C. Make the password visible to every employee who handles customer calls.
Why it is wrong: Sharing the password expands exposure rather than reducing it.
Option D. Require a separate authentication factor rather than the password alone. — Correct answer
Answer: D. Authentication controls are part of operational and cyber risk management, distinct from market-position limits. A stolen password defeats a password-only login. A separately controlled second factor adds another authentication requirement. It is not a complete defence against every attack, but it directly addresses the stated single-credential failure more appropriately than changing trading limits or exposing the password. Remember: Match a cyber control to the failure it is meant to prevent, and do not mistake one control for complete cyber resilience.
Hint, shown before you answer in practice mode: Common mistake: Treating a financial exposure limit as a substitute for access security.
XVI-139mediumconceptual
Clearing Settlement and Risk Management of Commodity Derivatives: common questions
How many practice questions are there on Clearing Settlement and Risk Management of Commodity Derivatives?
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 XVI, which has 150 questions in total.
Are these real NISM Series XVI questions on Clearing Settlement and Risk Management of Commodity 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 XVI?
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.
Accounting and Taxation
8 questions on Accounting and Taxation. Its quiz opens on that unit.
Open Accounting and Taxation