Series IV
Interest Rate Derivatives
50 questionsPass mark 60%Negative marking 25% / wrong answer
NISM Series IV practice questions
150 questions. Each answer is explained.
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Learn these topics
Practise one unit at a time
- Introduction to Interest Rate, Interest Rate Instruments and Fixed Income Market30 questions
- Interest Rate Derivatives10 questions
- Exchange Traded Interest Rate Futures20 questions
- Exchange Traded Interest Rate Options22 questions
- Strategies Using Exchange Traded Interest Rate Futures and Options24 questions
- Trading Mechanism in Exchange Traded Interest Rate Derivatives10 questions
- Clearing, Settlement and Risk Management of Interest Rate Derivatives16 questions
- Regulatory Framework for Interest Rate Derivatives8 questions
- Accounting and Taxation of Interest Rate Derivatives4 questions
- Code of Conduct and Investor Protection Measures in Interest Rate Derivatives6 questions
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 |
NISM Series IV Interest Rate 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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.
5 sample questions with answers
The other 145 are on the unit pages above, written out the same way.
Q1A bond is purchased for a dirty price of ₹99. During the holding period it pays a ₹3 coupon and is then sold for a dirty price of ₹100.50. Ignoring reinvestment and costs, the holding-period return is closest to:
Option A. 4.55% — Correct answer
Option B. 3.03%
Why it is wrong: This includes only coupon income, ignoring the price change.
Option C. 1.52%
Why it is wrong: This includes only the price gain, ignoring the coupon.
Option D. 4.50%
Why it is wrong: This treats ₹100 rather than the actual ₹99 investment as the denominator.
Answer: A. Total gain = sale proceeds + coupon − purchase price = 100.50 + 3 − 99 = ₹4.50. Return = 4.50/99 = 4.5455%. Using dirty prices on both sides prevents omitting or double-counting accrued interest. This is a holding-period return, not an annualised yield. Remember: Combine coupon receipts with price change, then divide by the actual investment.
Hint, shown before you answer in practice mode: Common mistake: Mixing clean-price capital gains with unadjusted coupon receipts.
IV-016mediumnumerical
Q2For a cash-settled futures contract, why does the terminal settlement value align with its specified underlying reference rather than an unrelated bond quote?
Option A. All government bonds must have identical prices at every maturity
Why it is wrong: Coupon, maturity and liquidity differences can produce different prices.
Option B. The original entry price is automatically restored at expiry
Why it is wrong: Final settlement reflects the contractual market reference, not the trader’s cost.
Option C. The contract defines the final reference used to extinguish the position — Correct answer
Option D. Convergence guarantees a profit for every long and every short
Why it is wrong: The two sides have offsetting price exposure, so convergence is not a universal profit guarantee.
Answer: C. Convergence means the expiring contract settles against the specified underlying reference. For cash settlement that reference may be an exchange-defined average or other prescribed calculation, not necessarily the last screen quote at one instant. A cross-hedged portfolio can still have residual basis risk relative to that reference. Remember: The final settlement reference is contract-specific.
Hint, shown before you answer in practice mode: Common mistake: Assuming every correlated bond must converge to the same price.
IV-051mediumconceptual
Q3An investor owns a bond bought at 100 and writes a call with strike 102 for premium 0.50 on the same amount. Ignore coupons and costs. If the bond finishes at 105, what is the combined profit per unit?
Option A. 0.50
Why it is wrong: This ignores the bond’s retained gain up to the strike.
Option B. 5.50
Why it is wrong: This counts the bond gain and premium but omits the call obligation.
Option C. 3.50
Why it is wrong: This does not correctly net the written call’s 3-unit intrinsic liability.
Option D. 2.50 — Correct answer
Answer: D. Combined profit = (105 − 100) − max(105 − 102, 0) + 0.50 = 2.50. Writing the call exchanges some potential upside for premium. It does not remove the bond’s downside. The premium merely provides a small buffer against a price decline. Remember: A covered call limits upside while retaining substantial downside exposure.
Hint, shown before you answer in practice mode: Common mistake: Calling a covered call a complete downside hedge.
IV-095mediumnumerical
Q4A client buys a near-month bond future and sells an equal quantity in the far month on the same underlying. Which margin statement is most appropriate?
Option A. No margin can be charged at all, because the number of bought and sold contracts nets to zero
Why it is wrong: Different maturities are not the same open position.
Option B. The two contracts are automatically extinguished, because they count as identical offsetting trades
Why it is wrong: An equal-and-opposite position in another expiry does not close the original contract.
Option C. Initial margin is refunded permanently as soon as any second contract is added
Why it is wrong: The risk calculation depends on the combined positions and applicable rules.
Option D. Spread recognition may lower some requirements, but spread risk and applicable margin remain — Correct answer
Answer: D. A calendar spread has exposure to the price difference between maturities and to the timing of each leg’s settlement. NSE Clearing’s framework provides specific spread calculations and charges rather than treating every matched quantity as riskless. Spread recognition can also change as a leg expires or positions are altered. Remember: Risk offsets can reduce margin without removing it.
Hint, shown before you answer in practice mode: Common mistake: Equating a zero net contract count across expiries with zero risk.
IV-125mediumconceptual
Q5An entity’s stated policy records refundable cash margin as a collateral asset, separate from derivative P/L. It transfers ₹50,000 from its bank account as initial margin and no gain, loss or fee has yet arisen. Which entry follows that policy?
Option A. Leave bank cash unchanged and record ₹50,000 of income
Why it is wrong: Cash has actually left the bank account and no income has arisen.
Option B. Record a ₹50,000 trading loss solely because the cash was transferred
Why it is wrong: Under the supplied policy the refundable margin is collateral, not an immediate expense.
Option C. Recognise the contract’s entire notional as revenue
Why it is wrong: The notional does not represent revenue earned from posting collateral.
Option D. Increase the collateral asset by ₹50,000 and reduce bank cash by ₹50,000 — Correct answer
Answer: D. The question explicitly supplies the accounting presentation. Bank cash falls by ₹50,000 and refundable collateral rises by the same amount, so the transfer alone does not change profit. Subsequent variation payments, impairment, release or other events would require their own treatment under the applicable framework and are not assumed here. Remember: Distinguish collateral transfers from fees, derivative valuation changes and realised losses.
Hint, shown before you answer in practice mode: Common mistake: Automatically expensing every cash outflow connected with a trade.
IV-143mediumconceptual
NISM Series IV practice: common questions
Are these the real NISM Series IV exam questions?
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.
How many practice questions are there for NISM Series IV?
150 at the moment, across 10 practice topics, with one page per unit. It is a practice set, not a copy of the paper: the real NISM-Series-IV: Interest Rate Derivatives Certification Examination has 100 questions.
Where are all the questions and answers?
On the 10 practice topics listed above. There are 5 in full. Each unit's page has the rest, with all four options, the correct answer and why each other option is wrong.
Does negative marking apply to NISM Series IV?
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.
How do I book the NISM Series IV exam?
You register and pay on NISM's own website, nism.ac.in. The steps and the fee change from time to time, so read them there on the day you book.
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.
See the exam these questions follow
The Interest Rate Derivatives exam page shows the question count, the time, the pass mark and the marking rule.
Open the NISM Series IV exam page