1. Which of the following is a primary purpose of derivatives in financial markets?

a)
Speculation b) Hedging c) Arbitrage d) All of the above

2. What is the key difference between forward contracts and futures contracts? a) Forward
contracts are standardized, while futures are not b) Forward contracts are traded on exchanges,
while futures are traded over-the-counter c) Forward contracts are customized agreements, while
futures are standardized d) None of the above

4. Which of the following is NOT a characteristic of a futures contract? a) Standardized

5. The process of settling daily gains and losses in a futures contract is called: a) Netting b)
Mark-to-market c) Expiry settlement d) Delivery obligation

6. Which of the following participants in the derivatives market primarily seek to reduce
risk? a) Hedgers b) Speculators c) Arbitrageurs d) Market makers

7. What is an intrinsic value of an option? a) The difference between the current price and the
strike price b) The premium paid for the option c) The market value of the option d) The time
value of the option

9. The put-call parity theorem is used to: a) Identify mispricing in options b) Determine the
future price of a stock c) Predict market movements d) None of the above

10. In derivatives markets, margin money is required to: a) Ensure contract performance b)
Pay for options premium c) Act as a commission for brokers d) Cover transaction costs

12. What is the key characteristic of a European option? a) It can be exercised at any time
before expiration b) It can only be exercised on the expiration date c) It has no intrinsic value d)
It is always more expensive than an American option

13. The Black-Scholes model is primarily used for: a) Pricing futures contracts b) Pricing
options contracts c) Hedging risk in forex trading d) Predicting market crashes

16. Which of the following is true about implied volatility? a) It is constant over time b) It
reflects the market's expectations of future volatility c) It is always higher than historical
volatility d) It does not affect options pricing

17. What is the primary purpose of open interest in futures trading? a) Measure the liquidity
of the contract b) Determine the premium of an option c) Settle daily gains and losses d)
Establish the contract expiration date

18. Which of the following best describes the role of a market maker in the derivatives
market? a) They speculate on price movements b) They ensure liquidity by providing buy and
sell quotes c) They impose regulatory restrictions d) They eliminate arbitrage opportunities
20. Gamma in options trading is used to measure: a) The change in Delta with respect to price
movements b) The time decay of an option c) The sensitivity of an option's price to volatility d)
The effect of interest rates on an option

21. What is the significance of Vega in options pricing? a) It measures the effect of volatility
on an option’s price b) It measures the option’s intrinsic value c) It tracks the impact of time
decay d) It represents the price sensitivity to strike price changes

23. Which of the following is true about arbitrage opportunities in derivatives markets? a)
They allow traders to make risk-free profits b) They exist indefinitely without correction c) They
are only available to institutional investors d) They cannot be identified using put-call parity

24. What happens in a short squeeze scenario? a) Traders who shorted a stock are forced to
buy back shares at rising prices b) Option holders must exercise their contracts c) Market makers
provide liquidity to counteract the price rise d) A futures contract is automatically settled before
expiration

25. A stock is currently trading at ₹950, and the risk-free rate is 6% per annum. The futures
contract on this stock expires in 3 months. Assuming no dividends, what should be the fair price
of the futures contract?
(A) ₹964.25
(B) ₹967.12
(C) ₹968.50
(D) ₹972.00

26. If the spot price of an index is ₹5,000, the risk-free rate is 8% p.a., and the dividend yield on
the index is 2% p.a., what should be the fair value of a 6-month futures contract?
(A) ₹5,203.80
(B) ₹5,280.50
(C) ₹5,308.90
(D) ₹5,350.00

27. A stock is trading at ₹1,200, and a 1-year futures contract on the stock is priced at ₹1,320. If
the risk-free rate is 7% p.a. and there are no dividends, is there an arbitrage opportunity? If so,
how much is the arbitrage profit per share?
(A) Yes, ₹30
(B) Yes, ₹35
(C) No arbitrage opportunity
(D) Yes, ₹40

28. A trader buys 10 futures contracts at ₹3,000 per contract with an initial margin requirement
of 10%. If the maintenance margin is 7% and the price drops to ₹2,880, will there be a margin
call?
(A) Yes, margin call required
(B) No, margin level is sufficient
(C) Yes, but only if the price drops below ₹2,850
(D) No, as long as the price stays above ₹2,870

29.A stock is trading at ₹800, and a European call option with a strike price of ₹850 is priced at
₹40. The risk-free rate is 5% p.a., and the corresponding put option with the same strike price is
trading at ₹85. Is there an arbitrage opportunity?
(A) Yes, with profit ₹5
(B) Yes, with profit ₹10
(C) No arbitrage opportunity
(D) Yes, with profit ₹15

30.An at-the-money (ATM) call option on a stock is trading at ₹75. The stock price is ₹900, the
strike price is ₹900, time to expiry is 3 months, and the risk-free rate is 6% p.a. What is the
approximate implied volatility if the option follows the Black-Scholes model?
(A) 22%
(B) 24%
(C) 26%
(D) 28%

30. A trader has a portfolio of 500 call options with a delta of 0.6. If the trader wants to hedge
this position using the underlying stock, how many shares should be bought/sold?
(A) Buy 300 shares
(B) Sell 300 shares
(C) Buy 500 shares
(D) Sell 500 shares

31. A trader buys a put option on a stock with a strike price of ₹1,000 by paying a premium of
₹50. At expiry, if the stock price is ₹920, what is the net profit/loss?
(A) ₹30 loss
(B) ₹20 profit
(C) ₹50 loss
(D) ₹30 profit
32. A call option with a strike price of ₹1,500 is trading at ₹100 while the underlying stock is at
₹1,580. What is the time value of the option?
(A) ₹80
(B) ₹100
(C) ₹20
(D) ₹180
33. A portfolio worth ₹10 crores has a beta of 1.2. The index futures contract is trading at
₹20,000 with a lot size of 50. How many futures contracts should be sold to hedge the portfolio
completely?
(A) 1,000
(B) 1,200
(C) 1,500
(D) 2,000
34. A trader enters into a futures contract on an index at ₹18,500. At expiry, the index is trading
at ₹18,700, while the futures price is ₹18,750. What is the basis at expiry?
(A) ₹0
(B) ₹50
(C) ₹250
(D) ₹-50

35. A trader holds 200 call options, and the delta of each option is 0.5. If the gamma of each
option is 0.02, how much will the delta change if the stock price moves up by ₹10?
(A) 0.2
(B) 0.4
(C) 0.6
(D) 0.8

37. An investor buys a stock at ₹950 and writes a call option with a strike price of ₹1,000 for a
premium of ₹40. At expiry, the stock price is ₹1,020. What is the net profit/loss from the
strategy?
(A) ₹90 profit
(B) ₹50 profit
(C) ₹40 profit
(D) ₹70 profit

38. A portfolio manager holds ₹5 crore worth of stock and wants to hedge against a potential
downturn using put options with a strike price of ₹10,000. Each put option contract has a lot size
of 100. If the portfolio has a beta of 1, how many put options should be bought for full
protection?
(A) 500
(B) 1,000
(C) 1,500
(D) 2,000

39. In which year were index futures first introduced in India?

40. SEBI first allowed stock exchanges in India to introduce equity derivatives trading in which
year?
(A) 1999
(B) 2000
(C) 2001
(D) 2002
41. The first index futures contract in India was launched on which stock exchange?
(A) Bombay Stock Exchange (BSE)
(B) National Stock Exchange (NSE)
(C) Multi Commodity Exchange (MCX)
(D) Calcutta Stock Exchange (CSE)
42. Options trading was introduced in the Indian stock market in which year?
(A) 1999
(B) 2001
(C) 2003
(D) 2005

43. The global financial crisis of which year significantly affected derivative markets
worldwide?
(A) 1997
(B) 2001
(C) 2008
(D) 2013

44. In a futures contract, the buyer is obligated to buy and the seller is obligated to sell the
underlying asset at the agreed price on the expiry date. (A) true (B) False

45. The fair value of a futures contract is always lower than the spot price due to the cost of
carry model. (A) true (B) False

46. The margin required for trading futures contracts remains fixed throughout the contract
period. (A) true (B) False

47. At expiry, the price of the futures contract and the spot price can differ significantly. (A)
true (B) False

48. Options have symmetric risk-reward profiles for both buyers and sellers. (A) true (B) False

49. The Put-Call Parity theorem applies to both European and American options (A) true (B)
False

50. A trader can only take a long position in futures contracts and cannot take a short
position. (A) true (B) False
51. A call option will always have value at expiry if the stock price is above the strike price. (A)
true (B) False.