NISM VIII Basics of Derivatives — Practice Questions
Practise the foundations of the Equity Derivatives exam: what a derivative is, forwards, futures, options and swaps, the participants (hedgers, speculators and arbitrageurs) and how derivatives markets developed in India.
51 questions on Basics of Derivatives in the ScoreSetu bank — each with a detailed explanation and, where useful, a memory hook.
What this topic covers
- Types of derivative contracts
- Hedgers, speculators, arbitrageurs
- Exchange-traded vs OTC
- History of Indian derivatives
Free sample questions
1. The risk that cannot be controlled by diversification of portfolio is _____ .
- A. Systematic Risk ✅
- B. Unsystematic Risk
- C. Credit Risk
- D. Operational Risk
Answer: A — Systematic Risk
Why: An investor can diversify his portfolio and eliminate major part of price risk i.e. the diversifiable/unsystematic risk but what is left is the non-diversifiable portion or the market risk-called Systematic risk. Systematic risk refers to market-wide risks that cannot be mitigated through diversification. This includes factors such as economic recessions, interest rate fluctuations, geopolitical events, and inflation—all of which impact the entire market rather than specific sectors or companies.
💡 Systematic (market) risk = NON-diversifiable; unsystematic = diversifiable away.
2. Trading is allowed in Indian Equity markets in which of the following -
- A. Index Options
- B. Individual stock options
- C. Individual stock futures
- D. All of the above ✅
Answer: D — All of the above
Why: Trading is permitted in all the mentioned derivatives in Indian equity markets: Index Options – Options contracts based on stock indices like Nifty 50 and Bank Nifty. Individual Stock Options – Options on specific stocks that meet exchange requirements. Individual Stock Futures – Futures contracts on individual stocks that allow directional trading and hedging. Indian exchanges such as NSE (National Stock Exchange) and BSE (Bombay Stock Exchange) actively facilitate trading in index and stock-based derivatives.
💡 India equity derivatives: index options + stock options + stock futures -> ALL traded.
3. Speculators are those who take risk whereas hedgers are those who wish to reduce risk - State True or False ?
- A. True ✅
- B. False
Answer: A — True
Why: Hedgers - They face risk associated with the prices of underlying assets and use derivatives to reduce their risk. Speculators/Traders - They try to predict the future movements in prices of underlying assets and based on the view, take positions in derivative contracts.
💡 Hedger REDUCES risk; speculator TAKES risk. TRUE.
Practise all 51 Basics of Derivatives questions
Plus the full 697-question NISM VIII bank and real-feel mock exams.