NISM V-D Interest Rate Derivatives — Practice Questions
A short chapter on the derivatives written on interest rates — FRAs, interest rate swaps, futures and options — who uses them and why.
12 questions on Interest Rate Derivatives in the ScoreSetu bank — each with a detailed explanation and, where useful, a memory hook.
What this topic covers
- FRAs and swaps
- Interest rate futures and options
- Users of interest rate derivatives
- OTC vs exchange-traded
Free sample questions
1. According to the ICAI, derivatives used to hedge recognized assets or liabilities must be classified as __________ .
- A. Current asset
- B. Current liability
- C. Current or non current based on classification of hedge ✅
- D. None of these
Answer: C — Current or non current based on classification of hedge
Why: As per The Institute of Chartered Accountants of India (ICAI) guidance notes - Derivatives that are hedges of recognised assets or liabilities should be classified as current or non-current based on the classification of the hedged item.
💡 ICAI: hedging derivative classified CURRENT/NON-CURRENT matching the hedged item.
2. Losses incurred from derivative transactions executed on a recognized Stock Exchange are eligible for offset against various other income sources within the same fiscal year, with the exception of which particular income type?
- A. Business Income
- B. Salary Income ✅
- C. Income from other sources
- D. None of these
Answer: B — Salary Income
Why: Under the Indian Income Tax Act, losses from derivative transactions that are carried out on a recognized stock exchange can be set off against certain types of income, but not against salary income. Derivative transactions are considered speculative business losses, and as such, they can only be set off against other business income or speculative business income in the same financial year. Salary income is not considered part of business income and therefore cannot be offset against speculative losses (such as from derivatives).
💡 Derivative (speculative) losses set off against any income EXCEPT SALARY.
3. If an FPI holds derivative positions for a period less than 12 months, the resulting gain or loss will be taxed under the category of __________.
- A. Long term capital gain or loss
- B. Short term capital gain or loss ✅
- C. Not taxable
- D. As per the tax bracket
Answer: B — Short term capital gain or loss
Why: According to the Indian tax laws: - If a Foreign Portfolio Investor (FPI) holds derivatives positions for less than 12 months, the gain or loss arising from these transactions is considered as a short-term capital gain or short-term capital loss. - Derivatives are typically treated as securities under the Income Tax Act, and gains from securities held for less than 12 months are taxed as short-term capital gains.
💡 FPI derivatives held <12 months -> SHORT-TERM capital gain/loss.
Practise all 12 Interest Rate 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 SelectionBasics of DerivativesUnderstanding the IndexForwards & FuturesOptionsEquity Derivative StrategiesInterest Rates & Fixed IncomeInterest Rate FuturesInterest Rate OptionsInterest Rate Strategies