Forwards and Futures
9 questions. Each answer is explained.
Question 1 of 9Practice · Series VIII — Equity Derivatives
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More units in NISM Series VIII
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 |
| Marks for this unit | 25 of 100 marks (25%) |
That figure belongs to one published unit covered under these headings — Forwards and Futures and Application of Futures — so the marks belong to the whole group. They are quoted together because no source divides them among its headings.
Source: Unit 3: Introduction to Forwards and Futures. One published unit: its objectives 3.9 and 3.10 (using futures to manage risk: hedging, speculation and arbitrage strategies) ARE the futures applications the bank files under a separate heading, so both bank headings share this unit's 25 marks instead of a split we would have to invent.
NISM Series VIII Equity Derivatives
Exam rules read on NISM's site on 3 October 2026. Test objectives in force from 1 May 2022. 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 9 questions on Forwards and Futures, with answers
Q1A company wants a contract tailored to an unusual quantity and a non-standard settlement date negotiated directly with one counterparty. Which instrument is structurally more suited to that requirement?
Option A. A standard exchange-traded futures contract
Why it is wrong: Exchange-traded futures sacrifice customisation for standardisation and liquidity.
Option B. A cash-market market order
Why it is wrong: A cash-market order executes a current securities transaction rather than locking a customised future transaction.
Option C. An index ETF
Why it is wrong: An ETF is a traded fund unit, not a customised derivative contract.
Option D. A customised OTC forward contract — Correct answer
Answer: D. A forward contract can be customised bilaterally, including its quantity and maturity terms. Exchange-traded futures are standardised according to exchange contract specifications. Remember: Customisation is a key advantage of forwards. Standardisation and exchange trading are key characteristics of futures.
Hint, shown before you answer in practice mode: Common mistake: Assuming futures can be customised merely because a trader can choose how many contracts to trade.
VIII-012easyconceptual
Q2Nifty spot is 24,000. Assume no dividends, a simple annual financing rate of 6%, and exactly 30 days to expiry using a 365-day year. Ignoring transaction costs, the theoretical futures value is closest to:
Option A. 23,882
Why it is wrong: This moves the fair value below spot despite a positive financing cost and no dividend benefit.
Option B. 24,000
Why it is wrong: It ignores the financing cost for the 30-day holding period.
Option C. 24,360
Why it is wrong: ₹360 is 1.5% of spot, which is far too much carry for 30 days at 6% annual simple interest.
Option D. 24,118 — Correct answer
Answer: D. With no dividends and simple financing, F ≈ S × [1 + r × (days/365)]. Thus F ≈ 24,000 × [1 + 0.06 × (30/365)] = 24,118.36, so 24,118 is closest. Remember: Under a simple no-dividend cost-of-carry setup, fair futures value is spot plus the financing cost for the remaining time.
Hint, shown before you answer in practice mode: Common mistake: Applying the full annual interest rate to a contract with only a fraction of a year remaining.
VIII-013mediumnumerical
Q3Using the NISM convention that basis = spot price − futures price, a share is at ₹512 in the cash market and its futures contract is at ₹519. What is the basis?
Option A. ₹512
Why it is wrong: ₹512 is the spot price, not the basis.
Option B. +₹7
Why it is wrong: +₹7 would result from reversing the stated basis convention.
Option C. −₹7 — Correct answer
Option D. ₹1,031
Why it is wrong: Basis is a difference, not the sum of spot and futures prices.
Answer: C. Basis = spot − futures = ₹512 − ₹519 = −₹7. The negative sign indicates that the futures price is above the spot price under this convention. Remember: Always check the stated basis convention. In the NISM FAQ convention, basis is cash/spot price minus futures price.
Hint, shown before you answer in practice mode: Common mistake: Using futures minus spot automatically even when the question specifies spot minus futures.
VIII-014easynumerical
Q4A futures contract is trading at a premium to the current spot price, producing an upward-sloping futures relationship under the usual terminology. This condition is called:
Option A. Backwardation
Why it is wrong: Backwardation generally refers to futures trading below spot.
Option B. Assignment
Why it is wrong: Assignment relates to the obligation imposed on an option writer following exercise.
Option C. Exercise
Why it is wrong: Exercise relates to use of an option right.
Option D. Contango — Correct answer
Answer: D. Contango describes a market condition in which futures prices are above the spot price, commonly reflecting positive net cost of carry. Backwardation is the opposite relationship. Remember: Contango: futures above spot. Backwardation: futures below spot, using the standard terminology.
Hint, shown before you answer in practice mode: Common mistake: Reversing contango and backwardation.
VIII-015easyconceptual
Q5As an equity futures contract approaches expiry, what should happen to a persistent difference between its futures price and the corresponding spot price, other things being equal?
Option A. It should tend to converge toward zero by maturity — Correct answer
Option B. It should tend to widen indefinitely
Why it is wrong: A widening gap close to expiry would generally create stronger relative-value pressure, not a normal terminal condition.
Option C. It must remain fixed from the day the contract was listed
Why it is wrong: The basis changes with market prices and time to expiry.
Option D. It becomes unrelated to arbitrage because expiry is near
Why it is wrong: Arbitrage relationships are central to why convergence occurs.
Answer: A. The spot-futures price difference normally narrows as expiry approaches because the remaining cost of carry diminishes and arbitrage pressures discourage a material price gap at maturity. This is the convergence principle. Remember: Time to expiry shrinks toward zero, so the sustainable spot-futures gap also tends toward zero.
Hint, shown before you answer in practice mode: Common mistake: Thinking a futures premium or discount present today must survive unchanged until expiry.
VIII-016easyconceptual
Q6A share trades at ₹1,200. A dividend with a present value of ₹8 is due before expiry. With a simple financing rate of 6% a year, 90 days to expiry and a 360-day year, what is the theoretical futures price?
Option A. ₹1,192.00
Why it is wrong: This subtracts the dividend but ignores financing cost to expiry.
Option B. ₹1,200.00
Why it is wrong: It ignores both the dividend adjustment and the net financing effect.
Option C. ₹1,209.88 — Correct answer
Option D. ₹1,218.00
Why it is wrong: It effectively finances the unadjusted spot amount and does not correctly account for the stated dividend present value.
Answer: C. First reduce spot by the present value of the known dividend: ₹1,200 − ₹8 = ₹1,192. The financing period is 90/360 = 0.25 year, so the carry factor is 1 + 0.06 × 0.25 = 1.015. Therefore the theoretical futures value is ₹1,192 × 1.015 = ₹1,209.88. Remember: Known dividends expected before expiry reduce fair futures value relative to an otherwise identical no-dividend contract.
Hint, shown before you answer in practice mode: Common mistake: Adding the dividend to spot instead of subtracting its present value before applying carry.
VIII-026hardnumerical
Q7A non-dividend-paying share is at ₹800 and its no-arbitrage futures value is ₹812, but the quoted futures price is only ₹790. Ignoring costs and assuming the share can be borrowed and sold short, which trade is consistent with reverse cash-and-carry arbitrage?
Option A. Buy the share and sell the futures
Why it is wrong: This is the cash-and-carry direction used when futures are sufficiently overpriced.
Option B. Sell the share short and buy the futures — Correct answer
Option C. Buy both the share and the futures
Why it is wrong: Buying both legs creates directional exposure rather than locking a relative-value spread.
Option D. Sell both the share and the futures
Why it is wrong: Selling both legs also leaves directional exposure and does not exploit the relative mispricing.
Answer: B. The futures is underpriced relative to its no-arbitrage value. The reverse cash-and-carry direction is to sell/short the relatively expensive spot asset and buy the relatively cheap futures contract, subject to the feasibility and cost assumptions stated in the question. Remember: Underpriced futures point to reverse cash-and-carry: short spot and buy futures, when shorting is feasible.
Hint, shown before you answer in practice mode: Common mistake: Choosing the arbitrage direction from the absolute futures price rather than comparing it with fair value.
VIII-027mediumapplication
Q8Under a simple expectations view of futures pricing, what is the central idea?
Option A. The futures price is set solely by the exchange and cannot respond to what the market expects
Why it is wrong: Market prices arise from trading and valuation relationships, not an arbitrary exchange-set number.
Option B. The futures price must always equal the current spot price throughout the life of the contract
Why it is wrong: Spot and futures can differ before expiry.
Option C. The futures price can reflect the market's expected future spot price, but actual outcomes can differ — Correct answer
Option D. The expected future spot price is guaranteed to equal the quoted futures price when the contract matures
Why it is wrong: A forecast embedded in price can be wrong.
Answer: C. The expectations approach links futures prices conceptually to market expectations about future spot prices. It is not a guarantee: risk premia, carry considerations and changing information mean the realised future spot price can differ from today's futures quote. Remember: A pricing model or market expectation is not a promise about the realised future spot price.
Hint, shown before you answer in practice mode: Common mistake: Treating futures price as a guaranteed forecast.
VIII-108mediumconceptual
Q9A company wants to exit a customised bilateral forward before maturity but cannot easily find a willing replacement counterparty on identical terms. Which drawback of forwards does this illustrate?
Option A. Standardised maturity dates fixed in advance by the exchange
Why it is wrong: Standardised maturities are a futures-market feature.
Option B. Automatic daily mark-to-market settlement through a clearing corporation
Why it is wrong: Daily clearing-corporation settlement describes exchange-traded futures, not the bilateral forward in the scenario.
Option C. Guaranteed anonymity from the original counterparty until the contract ends
Why it is wrong: Bilateral forwards do not guarantee anonymity.
Option D. Limited liquidity and transferability of a customised OTC contract — Correct answer
Answer: D. Customisation can make a forward fit a user's needs, but the same custom terms can reduce secondary-market liquidity and make early termination or transfer more difficult than closing a liquid exchange-traded futures contract. Remember: The benefits of OTC customisation come with trade-offs such as counterparty risk and potentially weaker liquidity.
Hint, shown before you answer in practice mode: Common mistake: Seeing customisation as an advantage without considering exit difficulty.
VIII-109mediumapplication
Forwards and Futures: common questions
How many practice questions are there on Forwards and Futures?
9 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 11 practice topics for NISM Series VIII, which has 150 questions in total.
Are these real NISM Series VIII questions on Forwards and Futures?
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 VIII exam is Forwards and Futures?
NISM's published syllabus outline gives it 25 of the paper's 100 marks, or 25% of the exam. That figure covers one published unit taught here under more than one heading (Forwards and Futures and Application of Futures). So it is the marks for the group, not for this page alone. No source splits it, so it is not split here. The published unit it comes from: Unit 3: Introduction to Forwards and Futures. One published unit: its objectives 3.9 and 3.10 (using futures to manage risk: hedging, speculation and arbitrage strategies) ARE the futures applications the bank files under a separate heading, so both bank headings share this unit's 25 marks instead of a split we would have to invent.
Does negative marking apply to NISM Series VIII?
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.
Application of Futures
13 questions on Application of Futures. Its quiz opens on that unit.
Open Application of Futures