Exchange Traded Interest Rate Options
6 questions. Each answer is explained.
Question 1 of 6Practice · Series V-D — Mutual Fund - Specialized Investment Fund Distributors
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Learn these topics
More units in NISM Series V-D
- The Investment Landscape5
- Concept & Role of a Mutual Fund4
- Legal Structure of Mutual Funds in India3
- Legal and Regulatory Framework7
- Scheme Related Information7
- Fund Distribution and Channel Management Practices4
- Net Asset Value, Total Expense Ratio and Pricing of Units5
- Taxation3
- Investor Services10
- Risk, Return and Performance of Funds5
- Mutual Fund Scheme Performance5
- Mutual Fund Scheme Selection10
- Basics of Derivatives10
- Understanding Index5
- Introduction to Forwards and Futures15
- Introduction to Options13
- Strategies Using Equity Futures and Equity Options9
- Introduction to Interest Rate, Interest Rate Instruments and Fixed Income Markets6
- Interest Rate Derivatives2
- Exchange Traded Interest Rate Futures10
- Strategies Using Interest Rate Derivatives6
Exam format
| Questions | 150 · 1 mark each |
|---|---|
| Duration | 180 min · 3 hours |
| Pass mark | 60% · 90 of 150 marks |
| Negative marking | 10% · 0.1 marks off per wrong answer |
| Certificate validity | 3 years · from the date of the examination |
| Marks for this unit | 6 of 150 marks (4%) |
Source: July 2026 Annexure I, Chapter 21: Exchange Traded Interest Rate Options
NISM Series V-D Mutual Fund - Specialized Investment Fund Distributors
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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 Exchange Traded Interest Rate Options, with answers
Q1An option on an interest-rate futures contract is specified to be European-style. When may its holder exercise the option, subject to the contract’s exercise procedures?
Option A. Only at its specified expiry exercise time. — Correct answer
Option B. On any trading day up to expiry.
Why it is wrong: That describes the flexibility of American-style exercise, not European-style exercise.
Option C. Only on the day the option was purchased.
Why it is wrong: European style does not restrict exercise to the purchase date.
Option D. Whenever the writer chooses to force exercise before expiry.
Why it is wrong: The holder’s exercise right is governed by the contract. The writer does not choose an early exercise date.
Answer: A. A European-style option can be exercised only at its specified expiry exercise time. This is distinct from whether the option may be sold in the market before expiry. Remember: Do not confuse the ability to trade an option with the right to exercise it.
Hint, shown before you answer in practice mode: Exercise style refers to the permitted exercise time.
V-D-139easyconceptual
Q2A put option is written on a bond-price quote. Its strike is 102, the underlying price is 99 and its premium is 4 quote points. Using intrinsic value = max(strike − underlying price, 0), what is the option’s time value? Assumptions: All quotes and the option’s price-based underlying are explicitly supplied.
Option A. 4 quote points
Why it is wrong: This treats the entire premium as time value even though the put is in the money.
Option B. 7 quote points
Why it is wrong: This adds intrinsic value to premium instead of subtracting it.
Option C. 3 quote points
Why it is wrong: This is the intrinsic value, not the premium remaining after intrinsic value.
Option D. 1 quote point — Correct answer
Answer: D. Intrinsic value = max(102 − 99, 0) = 3 points. Time value = 4 − 3 = 1 point. The premium contains both components. Remember: Option premium and intrinsic value are different quantities.
Hint, shown before you answer in practice mode: First calculate intrinsic value, then subtract it from the premium.
V-D-140mediumnumerical
Q3A trader buys two European calls on a hypothetical interest-rate futures price, each with strike 100 and premium 1.20 quote points. Each quote point is worth ₹1,000 per option contract. The underlying futures final price is 103. Ignoring costs and interest on the premium, what is the total net profit? Assumptions: The multiplier and settlement prices are hypothetical. Premium financing and charges are ignored.
Option A. ₹3,600 — Correct answer
Option B. ₹1,800
Why it is wrong: This calculates net profit for only one contract.
Option C. A loss of ₹2,400
Why it is wrong: This would apply if the calls expired worthless, whereas the final price is above strike.
Option D. ₹6,000
Why it is wrong: This is the gross expiry payoff before deducting the ₹2,400 premium.
Answer: A. Each call pays max(103 − 100, 0) = 3 points and cost 1.20 points. Net profit = (3 − 1.20) × ₹1,000 × 2 = ₹3,600. Remember: Expiry payoff excludes premium. Trading profit includes it.
Hint, shown before you answer in practice mode: Deduct the premium from the positive call payoff before applying the multiplier and contract count.
V-D-141mediumnumerical
Q4Which statement correctly distinguishes a purchased option from a futures position?
Option A. The option buyer acquires a contractual exercise right, while a futures position creates contractual obligations for both sides. — Correct answer
Option B. An option buyer must exercise even when exercise would have no value, in the same way that a futures buyer must settle.
Why it is wrong: An option provides a right rather than an obligation to make an uneconomic exercise.
Option C. Both an option buyer and an option writer can always choose to ignore a valid exercise under the contract.
Why it is wrong: The writer must fulfil the contract’s obligations when valid exercise or settlement occurs.
Option D. A futures buyer pays a premium to obtain a right with no obligation, exactly like an option buyer does.
Why it is wrong: That describes an option-style right, not a futures obligation.
Answer: A. A purchased option gives its holder the contractual right specified by the option. Futures create obligations for both sides, while the option writer bears the obligations associated with a valid exercise or settlement. Remember: Rights, obligations and premium payments distinguish options from futures.
Hint, shown before you answer in practice mode: Compare a right purchased through a premium with a two-sided future commitment.
V-D-142easyconceptual
Q5An interest-rate option is priced at 1.10 quote points. Its local vega is 0.15 quote points for each one-percentage-point increase in implied volatility. Implied volatility rises from 18% to 20%, while other inputs remain unchanged. Using this first-order approximation, what is the new option value? Assumptions: Vega is supplied per one percentage point, and the calculation is a local first-order estimate.
Option A. 1.40 quote points — Correct answer
Option B. 1.25 quote points
Why it is wrong: This accounts for only one percentage point of the two-point volatility increase.
Option C. 0.80 quote points
Why it is wrong: This subtracts the positive vega effect instead of adding it.
Option D. 1.103 quote points
Why it is wrong: This multiplies by a decimal 0.02 even though vega is quoted per percentage point.
Answer: A. Estimated increase = 0.15 × (20 − 18) = 0.30 points. The approximate new value is 1.10 + 0.30 = 1.40 points. Higher-order effects are excluded. Remember: A Greek’s units determine how to scale the change in its input.
Hint, shown before you answer in practice mode: The volatility move is two percentage points under the supplied vega convention.
V-D-143mediumnumerical
Q6An analyst takes an observed interest-rate option premium and solves a selected pricing model for the volatility input that reproduces that premium. What has the analyst estimated?
Option A. A model-free number that cannot change when interest-rate assumptions change.
Why it is wrong: The implied value depends on the pricing model and its other inputs.
Option B. The exact volatility that is guaranteed to occur before expiry.
Why it is wrong: A market-implied model input is not a guarantee of future realised volatility.
Option C. The option’s maximum possible loss in rupees.
Why it is wrong: A volatility parameter is not a monetary loss amount.
Option D. Implied volatility under the selected model and its other inputs. — Correct answer
Answer: D. Implied volatility is the volatility input that makes the chosen model match the observed premium, given the remaining inputs. It may differ from both past realised volatility and the volatility that later occurs. Remember: Implied volatility is a price-derived, model-dependent estimate, not a promised outcome.
Hint, shown before you answer in practice mode: The unknown being solved for is the model’s volatility parameter.
V-D-144mediumapplication
Exchange Traded Interest Rate Options: common questions
How many practice questions are there on Exchange Traded Interest Rate Options?
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 22 practice topics for NISM Series V-D, which has 150 questions in total.
Are these real NISM Series V-D questions on Exchange Traded Interest Rate Options?
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 much of the NISM Series V-D exam is Exchange Traded Interest Rate Options?
NISM's published syllabus outline gives it 6 of the paper's 150 marks, or 4% of the exam. It is quoted from the outline, not estimated. The published unit it comes from: July 2026 Annexure I, Chapter 21: Exchange Traded Interest Rate Options
Does negative marking apply to NISM Series V-D?
Yes. NISM takes off 10% of a question's marks for a wrong answer. On a 1-mark question that is 0.1 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 Interest Rate Derivatives
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