National Board of Examinations (NBE) Ncfm derivatives University model question papers



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Posted Date: 14 Jun 2010      Posted By:: surabhi kapoor    Member Level: Silver  Points: 5 (₹ 1)

2008 National Board of Examinations (NBE) Diploma Accounting & Finance Ncfm derivatives University Question paper



Course: Diploma Accounting & Finance   University/board: National Board of Examinations (NBE)






Test paper-2
Marks:50

Multiple Choice Single Answers


Q1. Which of the following is NOT an example of a forward contract?

a) An agreement to buy a car in the future at a specified price.
b) An agreement to buy an airplane ticket at a future date for a certain price.
c) An agreement to buy a refrigerator today at the posted price.
d) An agreement to subscribe to a newspaper at a specified price at a future date.


Q2. The market price of a product or commodity is?

a) Determined by demand only.
b) Determined by supply only.
c) Influenced by government manipulation.
d) Determined by demand & supply.


Q3. Futures on individual stocks are allowed?

a) On all stocks listed on the stock exchange.
b) On few selected stocks only.
c) On all stocks listed on all stock exchanges in India.
d) On all stocks where price is more than Rs 100 per share.


Q4. If someone is bearish in the market?

a) He expects the market to rise.
b) He expects the market to fall
c) He expects the market to move sideways.
d) He expects the market to close.


Q5. A rice exporter will be purchasing rice soon. He is afraid that higher prices could wipe out his potential profits. What can the rice exporter do in the futures market to minimize his price uncertainty?
a) He can sell Rice Futures.
b) He should buy Rice Futures.
c) He cannot get any help from Futures and Options.
d) He should not get into Rice business.


Q6. The closing index value of the BSE Sensitive Index is calculated using?

a) Last traded price of the index scrips.
b) Weighted average of the last 120 minutes trades of the index scrips.
c) The algorithm used to calculate closing Sensex value.
d) None of the above.


Q7. The value of a derivative instrument?

a) Is fixed
b) Depends on the value of an underlying asset.
c) Is reset at fixed intervals.
d) None of the above.


Q8. An exchange traded futures contract is similar to an OTC(over the counter) derivative. Some common features are:

a) Both are tailored (e.g. non-standardised) instruments.
b) Both require margin collection by a clearing house.
c) Both are exposed to credit-risk i.e. risk of non-performance by counter party.
d) None of the above.


Q9. Futures contracts can be reversed with any member of the derivatives segment of the exchange?

a) True
b) False
c) Cannot be reversed
d) Cannot be reversed for the next one month.


Q10. Which is the oldest index in India?

a) BSE 30 Sensex
b) BSE100
c) S&P CNX Nifty
d) BSE200
Q11. Taking position in futures opposite to that in cash market for protecting cash market holdings is?

a) Speculating
b) Arbitrage
c) Hedging
d) None of the above.


Q12. Derivatives are highly leveraged, which implies that?

a) You can take a higher position with smaller investments using derivatives.
b) You can take a lower position with higher investments using derivatives.
c) You can take a higher position if you the underlying assets instead of buying derivatives.
d) You should buy the underlying assets as you might make more profit on them rather than derivatives.


Q13. At the point of entering into the futures contract?

a) Both the buyer & the seller pay initial margin to the exchange.
b) The buyer alone pays initial margin to the exchange.
c) The seller alone pays initial margin to the exchange.
d) No margins are payable to the exchange by the buyer or the seller.


Q14. If you have bought a futures contract & the price drops, you will be making a profit?

a) True
b) False
c) Sometimes true
d) Sometimes false


Q15. Each forward contract

a) Can be structured as required by the buyer and seller
b) Will have the same specifications
c) Specifications are decided by the RBI
d) None of the above




Q16. Cash market is a market with immediate or near immediate delivery?

a) True
b) False
c) True only in USA
d) True only in Europe


Q17. On line trading is a system where is accomplished through terminals which are connected to a central computer?

a) True
b) False
c) Sometimes true
d) Partially false


Q18. In futures contracts, the contract maturity period is defined?

a) By the exchange
b) By the RBI
c) By the parties to the contract
d) By the Government


Q19. A forward contract is an agreement to enter into a contract at a pre-specified future date?

a) True
b) False
c) True only in Europe
d) True only in Africa


Q20. A forward contract is an agreement to buy a certain asset at a certain future date for a price to be determined in the future?

a) True
b) False
c) True only in Europe
d) True only in Africa


Q21. If you have a long position in a forward contract & the underlying price falls, you will make a profit?

a) True
b) False
c) True only in Europe
d) True only in Africa


Q22. The greater the number of participants in any market, generally lower the liquidity?

a) True
b) False
c) True only for the year 2002
d) True only for the year 2001


Q23. In the olden days, the area within the exchange where trading was conducted through open outcry, was known as the Pit?

a) True
b) False
c) True only for the year 2002
d) True only for the year 2001


Q24. Futures contracts may or may not be traded on an exchange?

a) True
b) False
c) True only for the year 2002
d) True only for the year 2001


Q25. If the price of the underlying asset rises sharply after the initiation of a futures contract?

a) The long position becomes profitable
b) The long position becomes unprofitable
c) The short position becomes profitable
d) None of the above


Q26. A fund manager is bullish on the market. What should be his course of action?

a) Buy the index future
b) Sell the index future
c) Sell his entire portfolio
d) None of the above
Q27. You have purchased shares & sent them for transfer. In the meantime, market is likely to fall due to some adverse development. What should you do?

a) Do nothing
b) Buy the index futures
c) Sell the index futures
d) None of the above


Q28. Tick size is?

a) The maximum daily movement permitted in the price of the contract
b) The maximum permitted price movement during the entire life of the contract
c) The minimum permitted price movement in a futures contract
d) None of the above


Q29. A long or short position in a futures contract can be closed easily by initiating a reverse trade?

a) True
b) False
c) True only in Europe
d) True only in Africa


Q30. You can buy stock futures in India regardless of whether you own the shares or not?


a) True
b) False
c) True only in Mumbai
d) True only in Delhi


Q31. You can buy index futures in India regardless of whether you own the index shares or not?

a) True
b) False
c) True only in Mumbai
d) True only in Delhi


Q32. A futures contract is a very standardised contract that leaves very little (except the price) open to negotiation?
a) True
b) False
c) True only in Mumbai
d) True only in Delhi


Q33. In a futures market a buyer of a contract is obliged to buy the underlying at the contract price from the clearing house & not to the actual seller?

a) True
b) False
c) True only in Mumbai
d) True only in Delhi


Q34. In case of futures, the initial margin is paid only by the seller & not the buyer?

a) True
b) False
c) True only in Mumbai
d) True only in Delhi


Q35. A scarce supply of the actual commodity generally causes futures price to fall?

a) True
b) False
c) True only in Mumbai
d) True only in Delhi


Q36. If you have sold June Sensex Futures @ 4800, You will make profit if?

a) Futures prices go up
b) Future prices go down
c) None of the above


Q37. A warrant could be understood as?

a) A derivative instrument
b) A kind of equity share
c) A kind of debenture
d) A kind of financial bond


Q38. In November, a trader feels that the interest rates as reflected in futures prices are going to fall in the next few days. The trader wants to take a spread position based on his view. What action will he take?

a) Buy near month & sell far month
b) Buy far month & sell near month
c) Buy near month & far month both
d) Sell near month & far month both


Q39. An Indian businessman imports regularly from the US. If he buys dollars in a forward contact, What is his plan?

a) Creating a hedge
b) Taking risk
c) Speculating on the dollar
d) None of the above


Q40. Use of Index Futures for hedging helps us eliminate the following risk:

a) Stock specific risk
b) All possible risk
c) No risk
d) Market risk


Q41. If you wanted to create a perfect hedge for your portfolio, the value of index futures you would sell should equal?

a) Value of your portfolio/ Beta of your portfolio
b) Value of your portfolio* Beta of your portfolio
c) Value of your portfolio- Beta of your portfolio*100
d) Value of your portfolio+ Beta of your portfolio*100


Q42. Generally higher the price volatility, higher would be the initial margin requirement?

a) True
b) False
c) True only in Africa
d) True only in Japan





Q43. Systematic risk is an investment risk peculiar to a company which can be reduced by diversifying one's portfolio?

a) True
b) False
c) True only in Africa
d) True only in Japan

Q44. Credit risk on a derivative transaction includes?

a) Power Outage
b) Riots in the country
c) Credit exposure in the event of default & the probability of a counter party's default
d) Bank strikes


Q45. A derivative exchange faces?

a) Legal risk
b) Operational risk
c) Liquidity risk
d) All of the above


Q46. Liquidity risk can be caused by?

a) Sale of large number of shares which depress price significantly
b) High market capitalization
c) Failure of VSAT
d) Low market capitalization


Q47. Operational risks include losses due to?

a) Inadequate contingency planning
b) Limit on gross exposure
c) Market movement
d) Strict management control


Q48. Which of the following kind of loss would you attribute to legal risk?

a) IT department has seized books of accounts of a broker
b) Police department has arrested a broker
c) A contract cannot be enforced because of signature mismatch
d) None of the above


Q49. One of the methods to control financial risk is to have?

a) Exposure limits
b) Un-interrupted power supply limit
c) Speculate heavily
d) None of the above


Q50. When a deal is executed within the two investors of the same broker in his office & then reported on BOLT, it is called?

a) Negotiated deal
b) Kerb deal
c) Cross deal
d) None of the above







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