Strategies Using Interest Rate Derivatives
6 questions. Each answer is explained.
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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
- Exchange Traded Interest Rate Options6
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 22: Strategies Using 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.
- 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 Strategies Using Interest Rate Derivatives, with answers
Q1A bond portfolio loses approximately ₹15,000 when yields rise by one basis point. One selected bond futures contract gains approximately ₹250 for a one-basis-point yield rise when held short. Under this fixed sensitivity approximation, which position offsets the portfolio’s interest-rate sensitivity? Assumptions: Sensitivities are fixed illustrative values. Basis and convexity effects are ignored.
Option A. Sell 60 futures contracts. — Correct answer
Option B. Sell 600 futures contracts.
Why it is wrong: This would hedge ten times the stated portfolio sensitivity.
Option C. Sell 6 futures contracts.
Why it is wrong: Six contracts offset only ₹1,500 per basis point, one-tenth of the portfolio sensitivity.
Option D. Buy 60 futures contracts.
Why it is wrong: The long side has the opposite sensitivity and would add to the portfolio’s loss when yields rise.
Answer: A. Required contracts = ₹15,000/₹250 = 60. The short side gains when yields rise, offsetting the portfolio’s stated loss under the approximation. Remember: A hedge must match both the size and direction of the risk sensitivity.
Hint, shown before you answer in practice mode: Divide portfolio sensitivity by contract sensitivity and choose the offsetting direction.
V-D-145mediumnumerical
Q2During a stress period a corporate-bond portfolio loses ₹2,00,000, while its short government-bond futures hedge earns ₹1,60,000. Ignore costs and all other cash flows. What is the combined result, and what does it show about the hedge? Assumptions: The two supplied profit-and-loss amounts are the only components of the result.
Option A. Zero. All futures hedges eliminate the underlying loss.
Why it is wrong: The two supplied amounts do not offset exactly, and hedges can leave basis or spread risk.
Option B. A net loss of ₹3,60,000. Both legs lost money.
Why it is wrong: The futures leg made a profit and must be added, not treated as another loss.
Option C. A net loss of ₹40,000. The hedge reduced but did not eliminate the loss. — Correct answer
Option D. A net gain of ₹40,000. The hedge fully protected the portfolio.
Why it is wrong: This reverses the sign of the combined result.
Answer: C. Combined result = −₹2,00,000 + ₹1,60,000 = −₹40,000. A government-bond futures hedge may leave risks such as changing credit spreads or imperfect sensitivity matching in a corporate-bond portfolio. Remember: Assess the combined hedge result and identify the risk that remains.
Hint, shown before you answer in practice mode: Add the underlying loss and the hedge gain with their correct signs.
V-D-146mediumnumerical
Q3An investor buys a bond for 100 price units and simultaneously buys a European put on the same bond with strike 98 for a premium of 1 price unit. Both are held to the put’s expiry. The put pays max(98 − final bond price, 0). Ignore coupons, costs and premium financing. What is the maximum loss of the combined position per bond under these assumptions? Assumptions: The put exactly matches the bond and is held to expiry. No coupon or other cash flow occurs.
Option A. 2 price units
Why it is wrong: This counts the purchase-to-strike gap but omits the option premium.
Option B. 1 price unit
Why it is wrong: This counts only the option premium and ignores the two-unit gap between purchase price and strike.
Option C. 3 price units — Correct answer
Option D. No loss is possible.
Why it is wrong: The protection floor lies below the total initial outlay of 101 units.
Answer: C. The initial outlay is 100 + 1 = 101 units. The bond plus put is worth at least 98 at expiry, so the maximum loss is 101 − 98 = 3 units. Remember: A protective put creates a floor, but its strike gap and premium still determine the maximum loss.
Hint, shown before you answer in practice mode: Compare total initial outlay with the minimum combined expiry value.
V-D-147hardnumerical
Q4A trader builds three identical bull call spreads on the same hypothetical interest-rate futures contract and expiry. Each spread buys a 98-strike call for 2.50 points and sells a 102-strike call for 0.80 points. Each point is worth ₹2,000 per option contract. Ignoring costs and financing, what is the maximum total expiry profit? Assumptions: The two option legs share the same underlying, multiplier and expiry.
Option A. ₹4,600
Why it is wrong: This is the maximum profit on only one of the three spreads.
Option B. ₹24,000
Why it is wrong: This is the maximum gross spread payoff before deducting the net premiums.
Option C. ₹13,800 — Correct answer
Option D. ₹10,200
Why it is wrong: This is the total net premium paid, not the maximum profit.
Answer: C. The strike width is 102 − 98 = 4 points and net premium is 2.50 − 0.80 = 1.70 points. Maximum profit = (4 − 1.70) × ₹2,000 × 3 = ₹13,800. Remember: A debit spread’s maximum profit equals its capped payoff less the initial net debit.
Hint, shown before you answer in practice mode: Subtract net premium from strike width, then multiply by point value and number of spreads.
V-D-148hardnumerical
Q5A trader buys five near-month bond futures at 98.00 and sells five far-month futures at 99.00. Each one-point change is worth ₹1,000 per contract for either maturity. Both legs are closed when the near-month price is 99.00 and the far-month price is 99.40. Ignoring costs, what is the spread’s total profit? Assumptions: The two illustrative futures contracts have identical point values and all positions are closed together.
Option A. ₹7,000
Why it is wrong: This adds the gain on the long leg to the price rise on the short leg instead of treating the latter as a loss.
Option B. ₹3,000 — Correct answer
Option C. ₹5,000
Why it is wrong: This includes only the long near-month profit.
Option D. A loss of ₹3,000
Why it is wrong: This reverses the signs of the long and short positions.
Answer: B. The long leg gains (99 − 98) × ₹1,000 × 5 = ₹5,000. The short leg loses (99.40 − 99) × ₹1,000 × 5 = ₹2,000, leaving a net profit of ₹3,000. Remember: A calendar spread depends on the relative movement of its maturities, not just their common direction.
Hint, shown before you answer in practice mode: Calculate each leg separately before adding them.
V-D-149mediumnumerical
Q6A bond costs ₹98 per ₹100 face value and pays no income during the next three months. A trader can finance this purchase for three months at 12% annual simple interest. A cash-settled futures contract on the same bond is priced at 102.50 and settles to the bond’s market price on that date. The trader buys ₹10,00,000 face value of the bond, shorts matching futures and sells the bond at expiry. Assume perfect price matching and ignore all fees, margin-funding costs and constraints. What profit is locked in under these assumptions? Assumptions: The cash bond and final futures settlement reference match exactly. Borrowing and trading are assumed permitted and available. Margin timing, costs, credit risk and constraints are excluded.
Option A. ₹29,400
Why it is wrong: This is the financing cost on the bond purchase, not the arbitrage profit.
Option B. ₹15,600 — Correct answer
Option C. A loss of ₹15,600
Why it is wrong: This reverses the profit sign when the futures price exceeds the supplied financed spot cost.
Option D. ₹45,000
Why it is wrong: This takes the futures-minus-spot difference without deducting the three-month financing cost.
Answer: B. The financed cost per ₹100 face value is 98 × (1 + 0.12 × 3/12) = 100.94. The bond sale and matching short-futures settlement together realise 102.50, giving (102.50 − 100.94) × ₹10,00,000/100 = ₹15,600. Remember: An arbitrage calculation must include financing and state the assumptions that make the cash flows match.
Hint, shown before you answer in practice mode: The cash sale plus short-futures settlement locks in 102.50 per ₹100 face. Subtract the financed purchase cost.
V-D-150hardnumerical
Strategies Using Interest Rate Derivatives: common questions
How many practice questions are there on Strategies Using Interest Rate Derivatives?
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 Strategies Using 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 Strategies Using Interest Rate Derivatives?
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 22: Strategies Using 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.
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