NISM XII Derivatives Markets — Practice Questions
Practise the derivatives chapter of the foundation exam: what forwards, futures and options are, who uses them and why, the risks that leverage introduces, and the basic payoff arithmetic.
62 questions on Derivatives Markets in the ScoreSetu bank — each with a detailed explanation and, where useful, a memory hook.
What this topic covers
- Forwards, futures and options
- Hedging, speculation and arbitrage
- Leverage and its risks
- Basic payoffs
Free sample questions
1. _______ is a financial product whose value is derived from another (an underlying) asset.
- A. Insurance
- B. Financial asset
- C. Debenture
- D. Derivative ✅
Answer: D — Derivative
Why: A derivative refers to a financial product whose value is derived from another. A derivative is always created with reference to the other product, also called the underlying. The underlying can be stocks, currency, commodities etc,
💡 DERIVATIVE = value DERIVED from an underlying asset.
2. A farmer in Maharashtra is planning to grow rice in his fields but is concerned that the rainfall could be inadequate and his crops can fail. What type of derivatives will help him hedge his losses?
- A. Equity derivatives on rice growing companies
- B. Currency derivatives
- C. Nifty futures
- D. Weather derivatives ✅
Answer: D — Weather derivatives
Why: If a farmer faces the risk of crop loss if the monsoons fail, he can enter into a derivative contract whose payoff depends on the amount of rainfall. This is a weather derivative.
💡 Rainfall/crop-failure risk -> WEATHER derivatives (payoff tied to rainfall).
3. What is the NET economic value of all derivatives positions ?
- A. Its impossible to calculate
- B. Its infinite
- C. Depends on the underlying
- D. Zero ✅
Answer: D — Zero
Why: In a derivative market, there is a “long” or buy position of a buyer, and there is a corresponding “short” or sell position of a seller. Therefore by definition, the net economic value of all derivative positions should be zero. There is no new asset or no new underlying created because of derivative contracts on the underlying asset.
💡 Net economic value of ALL derivative positions = ZERO (every long has a matching short).
Practise all 62 Derivatives Markets questions
Plus the full 566-question NISM XII bank and real-feel mock exams.