Introduction to Capital Market
15 questions. Each answer is explained.
Question 1 of 10Practice · Series IX — Merchant Banking
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Learn these topics
More units in NISM Series IX
- Introduction to the Merchant Banking20
- Registration, Code of Conduct & General Obligations of Merchant Bankers in India20
- Issue Management – Important Terms15
- Issue Management – Process and Underwriting25
- Issue Management – General Obligations of Merchant Bankers and Due Diligence20
- Other Merchant Banking Activities-Mergers, Acquisitions & Takeovers20
- Other Merchant Banking Activities – Disinvestment, Buyback of Equity Shares15
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 | Not published by NISM |
NISM Series IX Merchant Banking
Exam rules read on NISM's site on 17 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 17 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 15 questions on Introduction to Capital Market, with answers
Q1Which market allows a company to raise money by issuing new shares to investors?
Option A. Money market
Why it is wrong: The money market mainly deals in short-term funding instruments.
Option B. Foreign exchange market
Why it is wrong: This market trades currencies rather than new company shares.
Option C. Primary market — Correct answer
Option D. Secondary market
Why it is wrong: The secondary market transfers securities that already exist.
Answer: C. The primary market lets issuers raise capital by selling newly issued securities to investors. Remember: New securities are issued in the primary market.
Hint, shown before you answer in practice mode: Common mistake: Confusing a new issue with trading in existing shares. Think about whether the securities are being created or resold.
IX-001easyconceptual
Q2What does an ordinary equity share principally represent for its holder?
Option A. A guaranteed redemption amount
Why it is wrong: An ordinary share is not a guaranteed repayment promise.
Option B. An ownership interest — Correct answer
Option C. A contractual lending claim
Why it is wrong: A lender has a debt claim rather than the ownership interest represented by ordinary equity.
Option D. A right to a fixed coupon
Why it is wrong: Ordinary equity does not carry the fixed coupon obligation associated with a bond.
Answer: B. An ordinary equity share represents an ownership interest in the company. Remember: Equity holders participate as owners rather than lenders.
Hint, shown before you answer in practice mode: Common mistake: Treating a shareholder as a creditor. Recall the difference between an owner and a lender.
IX-002easyconceptual
Q3Which instrument derives its value from an underlying stock index rather than directly representing company ownership?
Option A. A fixed-coupon corporate bond
Why it is wrong: A conventional fixed-coupon bond is a debt claim rather than an index derivative.
Option B. A fixed-term bank deposit
Why it is wrong: A fixed-term deposit is a banking claim rather than a stock-index derivative.
Option C. An ordinary equity share
Why it is wrong: An ordinary equity share directly represents company ownership rather than being the futures contract described.
Option D. A stock-index futures contract — Correct answer
Answer: D. A stock-index futures contract is a derivative because its value depends on the underlying index. Remember: Index futures are derivatives rather than direct ownership of each underlying company.
Hint, shown before you answer in practice mode: Common mistake: Assuming every financial document is a derivative. Think about a contract whose value depends on something else.
IX-003easyconceptual
Q4Which institution maintains securities in electronic form through its account system?
Option A. A credit rating agency
Why it is wrong: A rating agency assesses credit risk rather than keeping electronic securities accounts.
Option B. A merchant banker
Why it is wrong: A merchant banker manages or advises on securities transactions rather than operating a depository.
Option C. A stock exchange
Why it is wrong: An exchange provides a trading venue rather than the depository account system.
Option D. A depository — Correct answer
Answer: D. A depository maintains securities electronically and supports transfers through its account system. Remember: Dematerialised securities are maintained within the depository system.
Hint, shown before you answer in practice mode: Common mistake: Confusing the place of trading with the system that holds securities. Think about the infrastructure behind dematerialised holdings.
IX-004easyconceptual
Q5Which financial-market function helps investors convert existing securities into money?
Option A. Transferring a particular risk
Why it is wrong: Risk transfer changes exposure rather than specifically describes converting a security into cash.
Option B. Establishing a reference price
Why it is wrong: Price discovery estimates transaction value rather than itself guarantees an ability to sell.
Option C. Providing liquidity — Correct answer
Option D. Raising fresh capital
Why it is wrong: Fresh capital formation funds issuers rather than directly provides an exit from existing holdings.
Answer: C. Providing liquidity helps investors sell existing securities and convert their holdings into money. Remember: Liquidity concerns the ability to transact in a security.
Hint, shown before you answer in practice mode: Common mistake: Equating liquidity with a guaranteed sale price. Recall the term for being able to buy or sell with relative ease.
IX-005easyconceptual
Q6An investor buys already-listed shares from another investor on an exchange. Who receives the sale proceeds, ignoring transaction charges?
Option A. The issuing company
Why it is wrong: The company does not receive new capital from this resale.
Option B. The securities regulator
Why it is wrong: The regulator does not receive the investor’s sale proceeds.
Option C. The selling investor — Correct answer
Option D. The clearing corporation as income
Why it is wrong: The clearing corporation processes settlement rather than earning the share price as income.
Answer: C. The selling investor receives the proceeds because this is a secondary-market sale of existing shares. Remember: Secondary-market trading does not itself raise fresh capital for the issuer.
Hint, shown before you answer in practice mode: Common mistake: Assuming every purchase of company shares funds the company. Follow the ownership transfer between the two investors.
IX-006mediumapplication
Q7Which risk most directly concerns a bond issuer failing to make a promised interest payment?
Option A. Inflation risk
Why it is wrong: Inflation risk concerns reduced purchasing power rather than a missed contractual payment.
Option B. Credit risk — Correct answer
Option C. Reinvestment risk
Why it is wrong: Reinvestment risk concerns the rate earned when cash flows are reinvested.
Option D. Liquidity risk
Why it is wrong: Liquidity risk concerns difficulty selling the bond rather than the issuer missing payment.
Answer: B. Credit risk concerns the issuer’s ability and willingness to meet promised debt payments. Remember: A missed contractual debt payment is a credit-risk event.
Hint, shown before you answer in practice mode: Common mistake: Confusing the issuer’s payment failure with difficulty selling a bond. Identify which party has failed to meet an obligation.
IX-007mediumconceptual
Q8A ₹1,000 face-value bond pays an annual coupon of 8%. What is its annual coupon payment?
Option A. ₹100
Why it is wrong: This applies a 10% coupon instead of the stated 8%.
Option B. ₹80 — Correct answer
Option C. ₹8
Why it is wrong: This treats 8% as 0.8% of face value.
Option D. ₹800
Why it is wrong: This applies an 80% coupon instead of 8%.
Answer: B. The annual coupon is ₹80 because the rate applies to face value. Annual coupon = ₹1,000 × 8 ÷ 100 = ₹80. Remember: Coupon payments use face value rather than market price.
Hint, shown before you answer in practice mode: Common mistake: Applying the percentage with the wrong decimal position. The coupon rate applies to the bond’s face value.
IX-008mediumnumerical
Q9A bond pays ₹90 annually and trades at ₹900. What is its current yield?
Option A. 10% — Correct answer
Option B. 9%
Why it is wrong: This uses an assumed ₹1,000 face value instead of the stated ₹900 market price.
Option C. 90%
Why it is wrong: This misplaces the decimal when converting the income-to-price ratio into a percentage.
Option D. 11.11%
Why it is wrong: This wrongly uses ₹100 annual income instead of the stated ₹90.
Answer: A. The current yield is 10% because annual income is measured against the market price. Current yield = ₹90 ÷ ₹900 × 100 = 10%. Remember: Current yield compares annual coupon income with current market price.
Hint, shown before you answer in practice mode: Common mistake: Confusing current yield with the coupon rate or yield to maturity. Compare one year’s income with the price paid today.
IX-009mediumnumerical
Q10A company has 2 crore outstanding shares trading at ₹150 each. What is its equity market capitalisation?
Option A. ₹30 crore
Why it is wrong: This understates the product of share count and price by ten times.
Option B. ₹150 crore
Why it is wrong: This ignores half of the 2 crore outstanding shares.
Option C. ₹300 crore — Correct answer
Option D. ₹3,000 crore
Why it is wrong: This overstates the product of share count and price by ten times.
Answer: C. Equity market capitalisation is ₹300 crore because all outstanding shares are valued at the market price. Market capitalisation = 2 crore × ₹150 = ₹300 crore. Remember: Market capitalisation values the company’s outstanding equity at market prices.
Hint, shown before you answer in practice mode: Common mistake: Using the share price alone as the company’s total equity value. Value every outstanding share at the quoted market price.
IX-010mediumnumerical
Q11A company needs funds for a ten-year factory project. Which financing instrument most directly matches this long-term requirement?
Option A. A ten-year debenture — Correct answer
Option B. An overnight borrowing
Why it is wrong: Overnight funding would require repeated refinancing for a long-term project.
Option C. A thirty-day borrowing
Why it is wrong: This would create a large maturity mismatch with the project.
Option D. A ninety-day bill
Why it is wrong: A ninety-day instrument does not match the project’s funding horizon.
Answer: A. A ten-year debenture directly matches the project’s stated long-term funding horizon. Remember: Funding maturity should be considered alongside the asset’s funding horizon.
Hint, shown before you answer in practice mode: Common mistake: Choosing short maturity solely because the borrowing is initially available. Compare the project’s horizon with each instrument’s maturity.
IX-011mediumapplication
Q12What mainly distinguishes a depository participant from a depository for an individual account holder?
Option A. It connects the investor to depository services — Correct answer
Option B. It issues the company’s shares on its own account
Why it is wrong: A participant does not become the corporate issuer of the account holder’s securities.
Option C. It replaces the depository’s central securities records
Why it is wrong: The participant provides access to the depository system rather than replacing that system.
Option D. It determines the beneficial owner’s trading decisions
Why it is wrong: Account services do not give the participant automatic authority to choose the investor’s trades.
Answer: A. A depository participant connects investors to the depository’s services through their securities accounts. Remember: The participant is the investor-facing access point to depository services.
Hint, shown before you answer in practice mode: Common mistake: Assuming the depository and its participant are identical entities. Think about the entity through which an investor accesses the account system.
IX-012mediumconceptual
Q13A private equity investor invests ₹20 crore in new shares at an ₹80 crore pre-money valuation. What post-investment ownership results?
Option A. 16.67%
Why it is wrong: This adds the investment twice to the valuation denominator.
Option B. 80%
Why it is wrong: This is the existing holders’ remaining ownership, not the new investor’s.
Option C. 25%
Why it is wrong: This divides the investment by pre-money value rather than post-money value.
Option D. 20% — Correct answer
Answer: D. The investor owns 20% because the new funds increase the valuation denominator. Post-money value = ₹80 crore + ₹20 crore = ₹100 crore. Ownership = ₹20 crore ÷ ₹100 crore × 100 = 20%, assuming no other dilution. Remember: Fresh-equity ownership uses the post-money valuation.
Hint, shown before you answer in practice mode: Common mistake: Dividing the investment by the pre-money valuation. The new investment becomes part of the company’s post-investment value.
IX-013hardnumerical
Q14An investor buys 200 shares at ₹120 and receives ₹4 dividend per share before selling at ₹132. What is the total return?
Option A. 3.33%
Why it is wrong: This includes the dividend but excludes the price gain.
Option B. 12.12%
Why it is wrong: This divides the total gain by the selling price instead of the purchase price.
Option C. 13.33% — Correct answer
Option D. 10.00%
Why it is wrong: This includes the price gain but excludes the dividend.
Answer: C. The total return is 13.33% because it includes the dividend and the price gain. Initial cost = 200 × ₹120 = ₹24,000. Total gain = 200 × (₹132 − ₹120 + ₹4) = ₹3,200. Return = ₹3,200 ÷ ₹24,000 × 100 = 13.33%, ignoring charges and taxes. Remember: Holding-period return includes both income and capital gain.
Hint, shown before you answer in practice mode: Common mistake: Ignoring dividends when measuring the investment’s total return. Include both the change in price and the cash received during ownership.
IX-014hardnumerical
Q15Market yields rise after a fixed-rate bond is issued. Its promised payments and credit risk remain unchanged. What happens to its theoretical price?
Option A. It changes only when the coupon changes
Why it is wrong: The discount rate can change price even when the coupon is unchanged.
Option B. It falls as the discount rate rises — Correct answer
Option C. It stays fixed at its face value
Why it is wrong: Face value does not keep a traded bond’s present value constant.
Option D. It rises as the discount rate rises
Why it is wrong: A higher discount rate lowers the present value of unchanged payments.
Answer: B. The theoretical price falls because a higher market yield discounts the same future payments more heavily. Remember: Fixed-rate bond prices and required yields move in opposite directions, other things unchanged.
Hint, shown before you answer in practice mode: Common mistake: Assuming an unchanged coupon means an unchanged market price. Consider the present value of the same future payments at a higher required return.
IX-015hardapplication
Introduction to Capital Market: common questions
How many practice questions are there on Introduction to Capital Market?
15 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 IX, which has 150 questions in total.
Are these real NISM Series IX questions on Introduction to Capital 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 IX?
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.
Introduction to the Merchant Banking
20 questions on Introduction to the Merchant Banking. Its quiz opens on that unit.
Open Introduction to the Merchant BankingPaper Trading Try it on the practice trading desk