Unit study guide · NISM Series II-A
Characteristics of Other Securities
10 questions in this unit
What this unit covers
- What does an equity warrant normally give its holder under the stated issue terms?
- What does a depository receipt generally represent for an investor in an overseas market?
- Which pairing correctly matches the primary assets of a Real Estate Investment Trust (REIT) and an Infrastructure Investment Trust (InvIT)?
- Ten ₹1,000 debentures convert fully at ₹50 per share of ₹10 face value. How many shares are received?
- How does an ordinary retail investor normally buy or sell listed exchange-traded fund units during market hours?
- An unhedged foreign-currency bond requires USD 10,000 repayment. The exchange rate rises from ₹80 to ₹85 per dollar. What is the extra rupee cost?
- A person places money in a company fixed deposit rather than buying its ordinary shares. Which claim normally follows?
- Which description best fits an Alternative Investment Fund rather than a personal trading account?
- A warrant bought for ₹12 permits purchase of one share for ₹80. At exercise, the share is worth ₹105. What is the net benefit before transaction costs?
- Two funds follow the same index. One trades on an exchange and the other accepts eligible purchases at an applicable net asset value. Which comparison is sound?
Key ideas
From the practice bank · 1
What does an equity warrant normally give its holder under the stated issue terms?
An equity warrant normally gives a right to subscribe for shares on the terms set for exercise. Remember: A warrant is a right governed by its exercise terms.
Hint Distinguish an exercisable right from an obligation or a guaranteed outcome. Common mistake: Treating an optional exercise right as a guaranteed profit.
II-A-031From the practice bank · 2
What does a depository receipt generally represent for an investor in an overseas market?
A depository receipt generally represents an interest in underlying company shares held through a depositary arrangement. Remember: A depository receipt gives exposure to underlying shares through a separate instrument.
Hint Think about a marketable receipt backed by securities held through a depositary arrangement. Common mistake: Confusing a securities receipt with a bank deposit receipt.
II-A-032From the practice bank · 3
Which pairing correctly matches the primary assets of a Real Estate Investment Trust (REIT) and an Infrastructure Investment Trust (InvIT)?
A REIT primarily concerns real estate assets, while an InvIT concerns infrastructure assets. Remember: A REIT and an InvIT differ principally in their underlying asset focus.
Hint Match each trust structure with its principal asset category. Common mistake: Interchanging real estate trusts and infrastructure trusts.
II-A-033From the practice bank · 4
Ten ₹1,000 debentures convert fully at ₹50 per share of ₹10 face value. How many shares are received?
The investor receives 200 shares. Amount converted = 10 × ₹1,000 = ₹10,000. Shares = ₹10,000 ÷ ₹50 = 200. Remember: Conversion quantity depends on the amount converted and the conversion price.
Hint First identify the total debt amount being converted. Common mistake: Forgetting to include every debenture in the holding.
II-A-034From the practice bank · 5
How does an ordinary retail investor normally buy or sell listed exchange-traded fund units during market hours?
Listed exchange-traded fund units normally trade through a broker at exchange prices, which can differ from net asset value. Remember: An ETF’s exchange price need not exactly equal its net asset value.
Hint The way the instrument trades is part of its name. Common mistake: Assuming every trade occurs at the last published net asset value.
II-A-035From the practice bank · 6
An unhedged foreign-currency bond requires USD 10,000 repayment. The exchange rate rises from ₹80 to ₹85 per dollar. What is the extra rupee cost?
The extra rupee cost is ₹50,000. Exchange-rate increase = ₹85 − ₹80 = ₹5 per dollar. Additional cost = USD 10,000 × ₹5 = ₹50,000. Remember: An unhedged foreign-currency obligation can become costlier when the rupee weakens.
Hint Only the change in rupees per dollar creates the additional cost. Common mistake: Reporting the total repayment instead of the additional currency cost.
II-A-036From the practice bank · 7
A person places money in a company fixed deposit rather than buying its ordinary shares. Which claim normally follows?
A company fixed deposit normally creates a contractual repayment and interest claim, rather than ordinary equity ownership. Remember: A company deposit is a credit exposure, not an ordinary equity stake.
Hint Identify whether the investor is lending to the company or contributing ownership capital. Common mistake: Assuming every investment in a company creates shareholder rights.
II-A-037From the practice bank · 8
Which description best fits an Alternative Investment Fund rather than a personal trading account?
An Alternative Investment Fund is a privately pooled investment vehicle that invests under a defined policy for its investors. Remember: An AIF is a pooled structure, not simply any alternative way to invest.
Hint Look for pooling and a defined investment policy, not merely the word investment. Common mistake: Calling an individual’s unusual portfolio an AIF.
II-A-038From the practice bank · 9
A warrant bought for ₹12 permits purchase of one share for ₹80. At exercise, the share is worth ₹105. What is the net benefit before transaction costs?
The net benefit is ₹13 per warrant. Share value less = ₹105 − ₹80 = ₹25. Less warrant cost = ₹25 − ₹12 = ₹13. Remember: Total warrant economics include both purchase cost and exercise cost.
Hint Consider both the exercise payment and the amount already paid for the warrant. Common mistake: Treating the amount paid for the warrant as free.
II-A-039From the practice bank · 10
Two funds follow the same index. One trades on an exchange and the other accepts eligible purchases at an applicable net asset value. Which comparison is sound?
Trading method can differ despite a shared benchmark because an ETF trades on an exchange while a conventional index fund uses its applicable net asset value. Remember: Compare the trading structure separately from the investment benchmark.
Hint Sharing a benchmark does not make every trading and pricing feature identical. Common mistake: Assuming two index-tracking products work identically in every respect.
II-A-040The strike price is the level at which an option can be exercised.
Read more