Introduction to the Securities Market
16 questions. Each answer is explained.
Question 1 of 10Practice · Series VII — Securities Operations and Risk Management
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More units in NISM Series VII
Exam format
| Questions | 100 · 1 mark each |
|---|---|
| Duration | 120 min · 2 hours |
| Pass mark | 50% · 50 of 100 marks |
| Negative marking | 25% · 0.25 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 VII Securities Operations and Risk Management
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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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.
All 16 questions on Introduction to the Securities Market, with answers
Q1A company issues fresh equity shares to the public and receives the subscription money. This transaction takes place in the:
Option A. Secondary market
Why it is wrong: A secondary-market sale transfers an already-issued security between investors.
Option B. Primary market — Correct answer
Option C. Money market
Why it is wrong: The transaction concerns new equity, not a short-term money-market instrument.
Option D. Derivatives market
Why it is wrong: No contract whose value depends on an underlying asset is being traded.
Answer: B. The issuer is raising capital by creating and selling new shares. The company is creating new shares and receiving the money raised. This is a primary-market transaction. A later sale of those shares between investors would be a different transaction. Remember: Look at whether the issuer is creating securities or investors are reselling them.
Hint, shown before you answer in practice mode: Common mistake: Assuming that every transaction involving a listed or soon-to-be-listed company is secondary-market trading.
VII-001easyconceptual
Q2Which set contains the standard Treasury-bill tenors issued by the Government of India?
Option A. 30, 90 and 180 days
Why it is wrong: The inclusion of 30 days does not match the standard three-tenor set.
Option B. 90, 180 and 360 days
Why it is wrong: These are rounded day counts, not the named standard Treasury-bill tenors.
Option C. 91, 182 and 364 days — Correct answer
Option D. 182, 365 and 730 days
Why it is wrong: The inclusion of 730 days extends beyond the Treasury-bill maturity category.
Answer: C. All three day counts match the standard Treasury-bill categories. The standard tenors are expressed as exact day counts. Select 91, 182 and 364 days rather than rounded three-month, six-month and one-year approximations. Remember: Remember the exact sequence 91, 182 and 364.
Hint, shown before you answer in practice mode: Common mistake: Replacing the published tenors with convenient calendar approximations.
VII-002easyregulatory
Q3Which authority regulates financial services within the International Financial Services Centre at GIFT City?
Option A. International Financial Services Centres Authority — Correct answer
Option B. Reserve Bank of India
Why it is wrong: RBI is not the unified IFSC financial-services authority named in this question.
Option C. Insurance Regulatory and Development Authority of India
Why it is wrong: IRDAI is not the unified IFSC financial-services authority named in this question.
Option D. Securities and Exchange Board of India
Why it is wrong: SEBI is not the unified IFSC financial-services authority named in this question.
Answer: A. IFSCA is the authority established for financial services in Indian IFSCs. The location in the question is an International Financial Services Centre. Its financial-services regulatory framework is administered by IFSCA. The question is not asking which authority regulates a comparable domestic activity outside the IFSC. Remember: Identify the IFSC context before selecting a domestic sector regulator.
Hint, shown before you answer in practice mode: Common mistake: Choosing a regulator only from the type of product while ignoring the IFSC location.
VII-003easyregulatory
Q4An investor holds an ordinary, non-convertible corporate bond. Compared with an equity shareholder, the investor is a:
Option A. Residual owner of the company
Why it is wrong: A residual ownership interest describes equity rather than an ordinary bond.
Option B. Guarantor of the company
Why it is wrong: Holding a bond does not by itself create a guarantee of the issuer debts.
Option C. Debtor of the company
Why it is wrong: The issuer owes the bond debt. Buying the bond does not reverse that relationship.
Option D. Creditor of the company — Correct answer
Answer: D. The bondholder has lent money to the issuer through a debt instrument. A bond represents money borrowed by the issuer. Its holder has a creditor claim under the bond terms. Holding the bond does not itself make the investor an equity owner. Remember: A bond creates a debt relationship. An equity share creates an ownership relationship.
Hint, shown before you answer in practice mode: Common mistake: Treating every security issued by a company as an ownership share.
VII-004easyconceptual
Q5Which description correctly identifies commercial paper?
Option A. A secured long-term debt instrument backed by specified assets
Why it is wrong: Security over assets and a long-term classification do not describe commercial paper.
Option B. An unsecured money-market instrument issued as a promissory note — Correct answer
Option C. A deposit receipt issued against an investor savings account
Why it is wrong: A savings-account deposit receipt is not the instrument described by the CP definition.
Option D. An equity instrument giving its holder a residual ownership claim
Why it is wrong: Commercial paper is debt, not a residual equity interest.
Answer: B. This combines the relevant money-market, unsecured and promissory-note features. Commercial paper is a debt instrument in the money market. Its defining features here are its unsecured status and promissory-note form. These distinguish it from secured bonds, deposits and equity. Remember: Associate commercial paper with unsecured short-term borrowing, not equity or a bank deposit.
Hint, shown before you answer in practice mode: Common mistake: Assuming that the word paper implies a deposit certificate or a secured bond.
VII-005easyconceptual
Q6A listed company offers existing shareholders one additional share for every four held, against payment of a subscription price. Which corporate action does this describe?
Option A. Bonus issue
Why it is wrong: A bonus allotment does not ask the holder to pay this subscription price.
Option B. Rights issue — Correct answer
Option C. Stock split
Why it is wrong: A split changes the division of existing share capital rather than inviting paid subscriptions for new shares.
Option D. Offer for sale by a shareholder
Why it is wrong: The company’s offer of additional shares is not a sale of existing shares by another shareholder.
Answer: B. The paid pro-rata offer to existing shareholders is a rights issue. The company is inviting its existing shareholders to subscribe for additional shares in proportion to their holdings. The subscription payment distinguishes the offer from a bonus issue. The transaction is not merely dividing existing shares or reselling a shareholder’s holding. Remember: Look for existing-holder entitlement together with paid subscription.
Hint, shown before you answer in practice mode: Common mistake: Calling every proportionate increase in a shareholder’s shares a bonus issue.
VII-041easyconceptual
Q7A bond has a face value of ₹1,000, an annual coupon rate of 8% and a market price of ₹1,250. What is its current yield?
Option A. 8.00%
Why it is wrong: This is the coupon rate. It uses face value as the denominator.
Option B. 10.00%
Why it is wrong: This reverses the price adjustment by multiplying 8% by ₹1,250 ÷ ₹1,000.
Option C. 6.40% — Correct answer
Option D. 0.64%
Why it is wrong: The decimal point is misplaced by a factor of ten.
Answer: C. ₹80 of annual coupon divided by the ₹1,250 market price gives 6.40%. Annual coupon = face value × coupon rate = ₹1,000 × 8% = ₹80. Current yield = annual coupon ÷ market price × 100 = ₹80 ÷ ₹1,250 × 100 = 6.40%. This is current yield, not yield to maturity. No redemption gain or loss is included. Remember: Compute the coupon from face value, then divide it by market price for current yield.
Hint, shown before you answer in practice mode: Common mistake: Using the 8% coupon rate as the answer even though the bond trades above face value.
VII-051mediumnumerical
Q8Under a put option, its buyer obtains which contractual right, subject to the option terms?
Option A. The right to sell the underlying at the strike price — Correct answer
Option B. The right to buy the underlying at the strike price
Why it is wrong: This is the direction associated with a call buyer.
Option C. The obligation to sell the underlying at the strike price
Why it is wrong: It replaces the buyer’s right with an obligation.
Option D. The obligation to buy the underlying at the strike price
Why it is wrong: It describes the opposite direction and an obligation.
Answer: A. This answer correctly combines the put direction with the buyer’s right. A put gives its holder the right to sell at the strike price. The buyer holds a right, not a mandatory trade obligation merely from purchasing the option. Remember: Put buyer means a right to sell.
Hint, shown before you answer in practice mode: Common mistake: Remembering only buy or sell while ignoring whether the party holds a right or an obligation.
VII-052easyconceptual
Q9A Treasury bill is bought for ₹98 per ₹100 face value and redeemed for ₹100 after 182 days. Using simple annualisation on a 365-day year, what is the annualised return on the amount invested, rounded to two decimals?
Option A. 2.04%
Why it is wrong: This is the 182-day holding-period return, without annualisation.
Option B. 4.01%
Why it is wrong: It annualises the discount relative to face value rather than the amount invested.
Option C. 2.00%
Why it is wrong: It divides the gain by face value and does not annualise.
Option D. 4.09% — Correct answer
Answer: D. This answer annualises the ₹2 gain relative to the ₹98 investment. Gain per ₹100 face value = ₹100 − ₹98 = ₹2. Holding-period return = ₹2 ÷ ₹98 = 0.02040816. Simple annualised return = (₹2 ÷ ₹98) × (365 ÷ 182) × 100 = 4.0928459%. Rounded answer = 4.09% per year. This is not a compounded annual return. Remember: Use the invested amount, then apply the stated day-count and annualisation method.
Hint, shown before you answer in practice mode: Common mistake: Confusing an investment-yield calculation with a face-value discount rate.
VII-076mediumnumerical
Q10A fixed-rate bond has unchanged promised cash flows and maturity. If the market-required yield rises, what happens to its present value, other things unchanged?
Option A. It rises.
Why it is wrong: This reverses the effect of the higher discount rate.
Option B. It falls. — Correct answer
Option C. It remains unchanged.
Why it is wrong: A fixed coupon does not imply a fixed present value.
Option D. It becomes equal to face value.
Why it is wrong: A yield change does not automatically make the bond trade at par.
Answer: B. The unchanged future payments are discounted at a higher rate. Each future payment is discounted to the present using the required yield. A higher discount rate reduces those present values, so their sum falls. The coupon itself has not changed. Remember: For unchanged fixed cash flows, price and required yield move in opposite directions.
Hint, shown before you answer in practice mode: Common mistake: Assuming a fixed coupon means the market value is fixed.
VII-077easyconceptual
Q11An Indian importer must pay a fixed US-dollar amount in three months. Which USDINR futures position offsets the risk of a higher rupee cost? Assume an eligible, correctly sized hedge with a matching maturity.
Option A. Buy futures because a rise in USDINR increases the payable’s rupee cost. — Correct answer
Option B. Sell futures because a rise in USDINR increases the payable’s rupee cost.
Why it is wrong: It identifies the risk but chooses a futures position that loses when USDINR rises.
Option C. Buy futures because a rise in USDINR reduces the payable’s rupee cost.
Why it is wrong: The position direction is suitable, but the reason reverses the currency conversion.
Option D. Sell futures because a rise in USDINR reduces the payable’s rupee cost.
Why it is wrong: Both the cost effect and the selected hedge direction are wrong.
Answer: A. A long futures position gains as the quoted rupees per dollar rise, offsetting the adverse payable movement. USDINR states the number of rupees required to buy one US dollar. For a fixed dollar payable, a higher USDINR rate means more rupees must be paid. A long USDINR futures position gains when that futures quotation increases, offsetting the stated exposure. Remember: A dollar payable is exposed to dollar appreciation. A matched long USDINR futures position offsets that direction.
Hint, shown before you answer in practice mode: Common mistake: Using the hedge direction appropriate to a dollar receivable.
VII-078mediumapplication
Q12A bank raises cash by selling government securities with an agreement to repurchase them on a specified future date at an agreed price. From the bank’s perspective, this is a:
Option A. Reverse repo
Why it is wrong: Reverse repo describes the cash lender’s side of the same arrangement.
Option B. Repo — Correct answer
Option C. Outright sale
Why it is wrong: An outright sale does not include this linked repurchase commitment.
Option D. Securities lending transaction
Why it is wrong: The stated structure is cash borrowing through a sale and repurchase, not merely lending securities.
Answer: B. The bank obtains funding through a sale with an agreed repurchase. The bank receives cash now and commits to repurchase the securities later. From the cash borrower’s side, this is a repo. The opposite cash-lending side is the reverse repo. Remember: Identify whether the participant is borrowing cash or lending it.
Hint, shown before you answer in practice mode: Common mistake: Naming the transaction from the counterparty’s perspective.
VII-101easyconceptual
Q13A zero-coupon bond will pay ₹2,420 exactly two years from today. At a required yield of 10% a year, compounded annually, what is its present value, ignoring credit risk and charges?
Option A. ₹2,420.00
Why it is wrong: It leaves the future payment undiscounted.
Option B. ₹2,200.00
Why it is wrong: It discounts for only one year: ₹2,420 ÷ 1.10.
Option C. ₹2,016.67
Why it is wrong: It uses simple-interest discounting: ₹2,420 ÷ 1.20.
Option D. ₹2,000.00 — Correct answer
Answer: D. This answer discounts both years with annual compounding. Present value = future payment ÷ (1 + annual yield)^years. Substitute: ₹2,420 ÷ 1.10² = ₹2,420 ÷ 1.21 = ₹2,000. Forward check: ₹2,000 × 1.10 × 1.10 = ₹2,420. The answer is a current rupee value, not an annual income. Remember: Use the number of compounding periods stated in the question.
Hint, shown before you answer in practice mode: Common mistake: Replacing compound discounting with a one-period or simple-interest calculation.
VII-102mediumnumerical
Q14How can an active secondary market make investors more willing to subscribe to a company’s new equity issue?
Option A. It transfers the proceeds of every later resale to the company.
Why it is wrong: A resale between investors does not send its consideration to the issuer.
Option B. It requires the company to redeem the shares whenever a holder exits.
Why it is wrong: Resale does not require the issuer to redeem each departing holder’s shares.
Option C. It provides an opportunity to sell the shares to another investor later. — Correct answer
Option D. It converts the equity holding into a fixed-interest deposit.
Why it is wrong: Liquidity does not change equity into an interest-bearing deposit.
Answer: C. A resale opportunity can support willingness to invest at issuance. An investor considering a new equity issue may value the ability to sell later rather than hold indefinitely. Secondary-market trading provides a resale route. The buyer in that later trade pays the selling holder, rather than making the issuer redeem the share. Liquidity is not a promise that resale will be immediate or profitable. The point is the availability of a market exit route. Remember: A resale market supports initial investment by providing a potential exit route.
Hint, shown before you answer in practice mode: Common mistake: Confusing a secondary-market sale with issuer repayment or new capital raised by the issuer.
VII-126easyconceptual
Q15A bank issues a negotiable, unsecured money-market instrument against funds deposited with it. Which instrument is described?
Option A. Certificate of Deposit — Correct answer
Option B. Commercial paper issued by a company
Why it is wrong: Corporate commercial paper is not the bank deposit-based instrument described.
Option C. Treasury bill
Why it is wrong: A Treasury bill is a government instrument, not this bank-issued deposit instrument.
Option D. Bank equity share
Why it is wrong: An equity share is an ownership interest rather than the stated money-market instrument.
Answer: A. This answer matches the negotiable bank-deposit instrument in the stem. The issuer is a bank and the instrument is issued against a deposit. Those features identify a Certificate of Deposit under the RBI definition. The question does not ask about current issue denominations or permitted investor categories. Remember: Connect the bank-issued negotiable deposit instrument with a Certificate of Deposit.
Hint, shown before you answer in practice mode: Common mistake: Treating all unsecured money-market instruments as commercial paper.
VII-127easyconceptual
Q16A bond has ₹1,000 face value, a 9% annual coupon and a clean price of ₹1,012 per bond. Assume 90 accrued days on a 360-day year, ordinary cum-interest settlement and no charges. What is the dirty price?
Option A. ₹1,012.00
Why it is wrong: It leaves out accrued interest.
Option B. ₹1,102.00
Why it is wrong: It adds the whole ₹90 annual coupon instead of the accrued quarter-year amount.
Option C. ₹989.50
Why it is wrong: It subtracts ₹22.50 instead of adding it.
Option D. ₹1,034.50 — Correct answer
Answer: D. This answer adds the correctly accrued ₹22.50 to the ₹1,012 clean price. Annual coupon = ₹1,000 × 9% = ₹90. Accrued interest = ₹90 × 90 ÷ 360 = ₹22.50 per bond. Dirty price = clean price + accrued interest = ₹1,012 + ₹22.50 = ₹1,034.50 per bond. The stated 360-day basis is an assumption for this calculation, not a universal convention for every debt security. Remember: Calculate accrued interest using the stated convention, then add it to clean price.
Hint, shown before you answer in practice mode: Common mistake: Using the full annual coupon or subtracting accrued interest from the clean price.
VII-128mediumnumerical
Introduction to the Securities Market: common questions
How many practice questions are there on Introduction to the Securities Market?
16 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 8 practice topics for NISM Series VII, which has 150 questions in total.
Are these real NISM Series VII questions on Introduction to the Securities Market?
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 VII?
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.
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.
Market Participants in the Securities Market
15 questions on Market Participants in the Securities Market. Its quiz opens on that unit.
Open Market Participants in the Securities Market