Derivatives: NISM Series XXI-A notes and practice questions

Q1. Which statement best describes “Futures”?

1. An ETF is a fund traded on exchanges, typically tracking an index at low cost.
2. Evaluating a manager involves return, risk, consistency, process and costs, not just headline returns.
3. A futures contract is an exchange-traded agreement to buy or sell an asset at a fixed price on a future date.
4. NAV is the per-unit value of a scheme, equal to net assets divided by units outstanding.

Q2. Which term is described here? Derivatives allow large exposure for small margin, magnifying gains and losses.

1. Rebalancing
2. Leverage risk
3. SEBI
4. Consistency

Q3. Which term is described here? An option gives the buyer the right, but not the obligation, to buy or sell at a fixed price for a premium.

1. Dividend
2. Growth investing
3. Grievance redressal
4. Options

Q4. Which statement best describes “Hedging”?

1. A concentrated portfolio holds few stocks, offering higher potential returns with higher risk.
2. Compounding generates returns on past returns, growing wealth faster over long horizons.
3. Hedging uses derivatives to offset an existing risk, reducing the portfolio's exposure to adverse moves.
4. Good governance, with independent boards and transparent disclosure, reduces the risk of value loss to minority shareholders.

Q5. Which statement best describes “Derivative”?

1. A derivative is a contract whose value depends on an underlying asset, such as a share or an index.
2. Higher expected return generally requires acceptance of higher risk; investors are paid for bearing risk.
3. Portfolio managers must be registered with SEBI and meet net-worth requirements; the minimum net worth is ₹5 crore.
4. An AIF is a privately pooled vehicle for sophisticated investors with a minimum of ₹1 crore.

Q6. Which term is described here? A futures contract is an exchange-traded agreement to buy or sell an asset at a fixed price on a future date.

1. Futures
2. Portfolio manager
3. Top-down approach
4. Derivative