NISM V-D Basics of Derivatives — Practice Questions
Module 2 opens here: what a derivative is, forwards, futures, options and swaps, the participants and their motives, and the economic purpose and risks of derivative markets.
60 questions on Basics of Derivatives in the ScoreSetu bank — each with a detailed explanation and, where useful, a memory hook.
What this topic covers
- Forwards, futures, options and swaps
- Hedgers, speculators and arbitrageurs
- Economic purpose of derivatives
- Risks in derivative markets
Free sample questions
1. From the various complaints against a trading member given below, identify which one can be taken up by the exchange for redressal ?
- A. Complaints in respect of transactions which are already subject matter of arbitration proceedings
- B. Non-receipt of funds or securities ✅
- C. Complaints relating to land dealings between a client and a trading member
- D. Claims for notional loss for the disputed period
Answer: B — Non-receipt of funds or securities
Why: Exchanges provide assistance if the complaints fall within the purview of the Exchange and are related to trades that are executed on the Exchange Platform. ‘Non-receipt of funds / securities’ comes under this assistance.
💡 Exchange redresses only exchange-platform trade complaints, e.g. NON-RECEIPT of funds/securities.
2. A client has asked for a quarterly settlement of his running account. In this connection, identify the INCORRECT statements. A. The settlement will be done on first Friday of the quarter B. The settlement will be done on last Friday of the quarter C. The settlement will be done on any trading day of the quarter
- A. Both A and B are incorrect
- B. Both B and C are incorrect ✅
- C. Both A and C are incorrect
- D. None of the above
Answer: B — Both B and C are incorrect
Why: With a view to prevent any misuse of a client’s funds by the broker, SEBI has made it mandatory for brokers to settle the running account of client funds on a monthly or quarterly basis as per the mandate of the client. To bring uniformity in the settlement of running accounts, brokers are now required to settle the running account after considering the client’s EOD obligations as on the date of settlement across all the Exchanges on the first Friday of the quarter , in case of clients requiring a quarterly settlement.
💡 Quarterly running-account settlement = FIRST Friday of the quarter (B & C are the wrong statements).
3. Which of these is an example of derivative contract?
- A. Treasury Bills of Government of India
- B. Equity shares of XYZ Ltd
- C. S&P 500 futures ✅
- D. Certificate of Deposit
Answer: C — S&P 500 futures
Why: A derivative contract is a financial instrument whose value is derived from an underlying asset (like equity, index, commodity, or currency). Treasury Bills, Equity Shares, and Certificates of Deposit are direct securities. S&P 500 futures are based on the S&P 500 index, so their value depends on the performance of that underlying index. Hence, S&P 500 futures is the example of a derivative contract.
💡 Derivative = value derived from an underlying -> S&P 500 futures (T-bills/shares/CDs are direct securities).
Practise all 60 Basics of Derivatives questions
Plus the full 853-question NISM V-D bank and real-feel mock exams.
Other NISM V-D topics
Investment LandscapeConcept & Role of Mutual FundsLegal StructureLegal & RegulatoryScheme Related InformationDistribution & ChannelsNAV, TER & PricingTaxationInvestor ServicesRisk, Return & PerformanceScheme PerformanceScheme SelectionUnderstanding the IndexForwards & FuturesOptionsEquity Derivative StrategiesInterest Rates & Fixed IncomeInterest Rate DerivativesInterest Rate FuturesInterest Rate OptionsInterest Rate Strategies