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Interest Rate Derivatives

2 questions. Each answer is explained.

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Question 1 of 2Practice · Series V-D — Mutual Fund - Specialized Investment Fund Distributors

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Series V-D19. Interest Rate DerivativesBeginnerConceptQuestion reference V-D-128

Question 1 of 2Treasury compares a privately negotiated, uncleared forward-rate agreement with an exchange-traded interest-rate futures contract. Which statement correctly describes a usual distinction? Assumptions: The OTC agreement in this comparison is explicitly bilateral and uncleared.

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More units in NISM Series V-D

Practise all of NISM Series V-D

Exam format

Questions150 · 1 mark each
Duration180 min · 3 hours
Pass mark60% · 90 of 150 marks
Negative marking10% · 0.1 marks off per wrong answer
Certificate validity3 years · from the date of the examination
Marks for this unit2 of 150 marks (1.3%)

Source: July 2026 Annexure I, Chapter 19: Interest Rate Derivatives

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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.

Rules used across this bank
  • 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.
Extra rules for Series VII
  • 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.
Extra rules for Series I
  • 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 2 questions on Interest Rate Derivatives, with answers

  1. Q1Which arrangement best describes a plain-vanilla interest-rate swap in a single currency?

    • Option A. A borrower permanently exchanges domestic principal for foreign-currency principal at the start of the swap.

      Why it is wrong: That describes a currency-related principal exchange, not the specified single-currency interest swap.

    • Option B. A buyer pays a premium for the right to buy a bond at a chosen strike price on a future date.

      Why it is wrong: That describes a bond call option rather than an interest-rate swap.

    • Option C. Two parties exchange fixed-rate and floating-rate interest cash flows calculated on an agreed notional amount. — Correct answer

    • Option D. An investor purchases ordinary shares and receives voting rights and dividends from the company.

      Why it is wrong: This is an equity investment, not an exchange of interest cash flows.

    Answer: C. In a plain-vanilla single-currency interest-rate swap, one interest leg is fixed and the other floating, both calculated using an agreed notional principal. The notional ordinarily serves as the calculation base rather than being exchanged as a loan principal. Remember: Identify a derivative by its cash-flow obligations, not merely by the word interest.

    Hint, shown before you answer in practice mode: Focus on exchanging types of interest payment rather than purchasing an asset.

    V-D-127easyconceptual

    Study this unit

  2. Q2Treasury compares a privately negotiated, uncleared forward-rate agreement with an exchange-traded interest-rate futures contract. Which statement correctly describes a usual distinction? Assumptions: The OTC agreement in this comparison is explicitly bilateral and uncleared.

    • Option A. Both contracts must be available for any date and any amount the client requests, with no standard terms.

      Why it is wrong: Standardised exchange terms may not exactly match a requested date or amount.

    • Option B. The exchange contract has standardised terms and clearing arrangements, while the bilateral agreement can be tailored to the parties. — Correct answer

    • Option C. The privately negotiated agreement has no counterparty exposure because the parties already know each other.

      Why it is wrong: An uncleared bilateral agreement can create counterparty credit exposure.

    • Option D. The exchange contract eliminates every market and liquidity risk for both sides because it is standardised and cleared.

      Why it is wrong: Clearing and standardisation do not eliminate price risk, basis risk or cash-flow needs.

    Answer: B. OTC agreements can be customised, whereas exchange products use specified standard terms and clearing arrangements. Neither feature means that all risks disappear. The risk types and controls differ. Remember: Customisation, counterparty arrangements and market risk are separate features.

    Hint, shown before you answer in practice mode: Separate contract customisation from risk management through clearing.

    V-D-128easyconceptual

    Study this unit

Interest Rate Derivatives: common questions

How many practice questions are there on Interest Rate Derivatives?

2 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 Interest Rate 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.

How much of the NISM Series V-D exam is Interest Rate Derivatives?

NISM's published syllabus outline gives it 2 of the paper's 150 marks, or 1.3% of the exam. It is quoted from the outline, not estimated. The published unit it comes from: July 2026 Annexure I, Chapter 19: Interest Rate Derivatives

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.

Next unit

Exchange Traded Interest Rate Futures

10 questions on Exchange Traded Interest Rate Futures. Its quiz opens on that unit.

Open Exchange Traded Interest Rate Futures

Paper Trading Try it on the practice trading desk