Derivatives in Portfolio Management
6 questions. Each answer is explained.
Question 1 of 6Practice · Series XXI-B — Portfolio Managers
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 XXI-B
- Investment Landscape and Required Return4
- Introduction to Securities Markets and Participants3
- Investing in Stocks and Equity Research7
- Investing in Fixed Income Securities and Bond Valuation6
- Mutual Fund6
- Role of Portfolio Managers in India8
- Operational Aspects of Portfolio Managers (Onboarding and Fees)8
- Portfolio Management Process and Asset Allocation8
- Taxation6
- Regulatory, Governance and Ethical Aspects of Portfolio Managers8
- Introduction to Indices6
- Concept of Informational Efficiency6
- Behavioral Finance6
- Introduction to Modern Portfolio Theory6
- Introduction to Capital Market Theory6
- Risk8
- Equity Portfolio Management Strategies14
- Fixed Income Portfolio Management Strategies14
- Performance measurement and evaluation of Portfolio Managers8
- Portfolio Rebalancing6
Exam format
| Questions | 120 · 1 or 2 marks each |
|---|---|
| Duration | 180 min · 3 hours |
| Pass mark | 60% · 90 of 150 marks |
| Negative marking | 25% · 0.25 or 0.5 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 XXI-B Portfolio Managers
Exam rules read on NISM's site on 30 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 30 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 Derivatives in Portfolio Management, with answers
Q1What makes a financial contract a derivative rather than a direct holding of its underlying asset?
Option A. Its market value cannot fall below its cost
Why it is wrong: Derivatives can lose value and do not provide that protection.
Option B. Its holder must receive a regular dividend
Why it is wrong: A derivative does not necessarily confer shareholder dividend rights.
Option C. Its purchase always transfers the underlying asset
Why it is wrong: Some derivatives settle in cash without transferring the underlying asset.
Option D. Its value depends on an underlying reference — Correct answer
Answer: D. A derivative takes its value from an underlying reference such as an asset, index or rate. It is a contract rather than necessarily direct ownership of that underlying. Remember: Derivative value is linked to an underlying reference.
Hint, shown before you answer in practice mode: Focus on where the contract’s economic value comes from. Common mistake: Assuming derivative ownership is the same as owning the underlying asset.
XXI-B-021easyconceptual
Q2Which statement correctly distinguishes an option buyer from an option writer?
Option A. Both parties have only rights and no obligations
Why it is wrong: The writer has a contractual obligation if the option is exercised or settled as specified.
Option B. The buyer has a right and the writer an obligation — Correct answer
Option C. The writer has the right to force buyer exercise
Why it is wrong: The writer cannot require the buyer to choose voluntary exercise.
Option D. Both parties must exercise on every trading day
Why it is wrong: Options are not compulsorily exercised by both parties each day.
Answer: B. The buyer purchases a right, while the writer accepts the corresponding contractual obligation. The premium compensates the writer for taking that obligation. Remember: Buying an option and writing an option create different rights and risks.
Hint, shown before you answer in practice mode: Compare the benefit purchased with the commitment sold. Common mistake: Treating both sides of an option like identical futures obligations.
XXI-B-022easyconceptual
Q3A put with strike ₹100 costs ₹7. At expiry the underlying is ₹85. What is the buyer’s profit per unit?
Option A. ₹15 profit
Why it is wrong: This is the payoff before deducting the ₹7 premium.
Option B. ₹7 loss
Why it is wrong: This ignores the put’s positive payoff at expiry.
Option C. ₹8 profit — Correct answer
Option D. ₹22 profit
Why it is wrong: This adds the premium instead of treating it as the buyer’s cost.
Answer: C. The buyer earns ₹8 per unit because the ₹15 payoff exceeds the ₹7 premium. Put payoff = max(₹100 − ₹85, 0) = ₹15. Profit = ₹15 − ₹7 = ₹8, ignoring charges. Remember: Option payoff and option profit differ by the premium paid.
Hint, shown before you answer in practice mode: Distinguish exercise value from the buyer’s net result. Common mistake: Reporting intrinsic value as profit without deducting the premium.
XXI-B-023mediumnumerical
Q4A hypothetical 100-unit futures contract is sold at 24,500 and bought back at 24,300. What is the gross trading result?
Option A. ₹20,000 profit — Correct answer
Option B. ₹200 profit
Why it is wrong: This uses the price change but omits the 100-unit contract multiplier.
Option C. ₹2,00,000 profit
Why it is wrong: This overstates the contract multiplier by a factor of ten.
Option D. ₹20,000 loss
Why it is wrong: A fall in the futures price benefits the short position.
Answer: A. The short futures position earns ₹20,000 because the buyback price is lower. Price gain = 24,500 − 24,300 = 200 points. Gross profit = 200 × 100 = ₹20,000. Remember: Futures profit depends on direction, price movement and the contract multiplier.
Hint, shown before you answer in practice mode: Check the position’s direction before applying the stated multiplier. Common mistake: Using the long-position sign for a contract sold first.
XXI-B-024mediumnumerical
Q5An exporter expects foreign-currency receipts and fears rupee appreciation. Which forward position directly hedges that currency exposure?
Option A. Buy the expected foreign currency forward
Why it is wrong: Buying adds to the exporter’s existing exposure to that currency.
Option B. Leave the currency position entirely unhedged
Why it is wrong: Remaining unhedged does not address the stated appreciation risk.
Option C. Sell the expected foreign currency forward — Correct answer
Option D. Buy additional foreign-currency receivables
Why it is wrong: Additional receivables increase rather than offset the existing currency exposure.
Answer: C. Selling the expected foreign currency forward offsets the exporter’s exposure to its future rupee value. The amount and maturity should correspond to the exposure being hedged. Remember: A hedge offsets an existing exposure rather than doubling it.
Hint, shown before you answer in practice mode: Identify what the exporter will receive and which price movement reduces its rupee value. Common mistake: Buying the currency merely because it is the currency of the invoice.
XXI-B-025mediumapplication
Q6Open interest is 400 contracts. Then 25 new contracts open and 10 existing contracts close. What is the resulting open interest?
Option A. 415 contracts — Correct answer
Option B. 365 contracts
Why it is wrong: This treats newly opened contracts as closures.
Option C. 435 contracts
Why it is wrong: This adds closed contracts rather than removing them.
Option D. 430 contracts
Why it is wrong: This double-counts both sides of each newly opened or closed contract.
Answer: A. Open interest becomes 415 contracts because opening adds outstanding contracts and closing removes them. Working: 400 + 25 − 10 = 415. Each contract has two counterparties but is counted once. Remember: Open interest counts outstanding contracts, not trading volume or both sides separately.
Hint, shown before you answer in practice mode: Count outstanding contracts once, not each counterparty separately. Common mistake: Doubling contract counts because every contract has a buyer and a seller.
XXI-B-026hardnumerical
Derivatives in Portfolio Management: common questions
How many practice questions are there on Derivatives in Portfolio Management?
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 21 practice topics for NISM Series XXI-B, which has 150 questions in total.
Are these real NISM Series XXI-B questions on Derivatives in Portfolio Management?
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 XXI-B?
Yes. NISM takes off 25% of a question's marks for a wrong answer. On a 1 or 2-mark question that is 0.25 or 0.5 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.
Mutual Fund
6 questions on Mutual Fund. Its quiz opens on that unit.
Open Mutual FundPaper Trading Try it on the practice trading desk