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Question and Answer Bank in Financial Markets - Part 3

(200 questions and answers)

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1. Interest rate swaps and interest rate derivatives are one and the same?{Derivatives}
   1. True
   2. False



2. Fixed rate payer and Floating rate receiver in a plain vanilla IRS refers to the same party?{Derivatives}
   1. True
   2. False



3. The market quotation for an IRS is always with reference to the fixed rate.{Derivatives}
   1. True
   2. False



4. The payer of a swap refers to the fixed rate payer and the receiver of the swap refers to the floating rate payer.{Derivatives}
   1. True
   2. False



5. Reset date is the date on which the floating rate benchmark is fixed.{Derivatives}
   1. True
   2. False



6. Basis swap involves the exchange of _____________{Derivatives}
   1. Fixed for fixed interest rates
   2. Fixed for floating
   3. Floating for floating
   4. None of the above



7. Consider the following statements.{Derivatives}
   1. Forward and futures deal with buy/sell of underlying assets
   2. Swaps deal with buy/sell of returns from underlying assets
   3. Options deal with buy/sell of right on underlying assets
   
   Which of the above statements are correct?
   
   
   1. Only I
   2. I and II
   3. I and III
   4. All of them



8. CCP clearing applies to which of the following markets?{Derivatives}
   1. Cleared OTC derivatives market
   2. Exchange trade derivatives market
   3. Both (a) and (b)
   4. None of them



9. A 3 x 9 FRA has a duration of ___________{Derivatives}
   1. 3 months
   2. 9 months
   3. 6 months
   4. 7 months



10. Fixing date is ______ days prior to the trade date.{Derivatives}
    1. 2 days
    2. 3 days
    3. 5 days
    4. Depends on the parties



11. FRA is a long term risk management tool.{Derivatives}
    1. True
    2. False



12. The credit risk in a FRA is mitigated by ____________{Derivatives}
    1. Applying netting
    2. Advancement of payment to the start date
    3. Mark-to-market
    4. Central clearing



13. The settlement risk in a FRA is mitigated by ____________{Derivatives}
    1. Netting
    2. Advancement of payment to the start date



14. FRA-Yield discounting is applicable in ___________{Derivatives}
    1. FRAs involving USD and GBP
    2. FRAs involving EUR and USD
    3. FRAs involving AUD and NZD
    4. All of the above



15. The discounting rate applied in a FRA is __________{Derivatives}
    1. The floating rate determined on the fixing date
    2. The fixed rate of the FRA



16. FRA buyer refers to ___________{Derivatives}
    1. Payer of fixed rate
    2. Payer of floating rate



17. Interest rate futures are OTC products{Derivatives}
    1. True
    2. False



18. The ____________ is NOT a feature of interest rate futures.{Derivatives}
    1. Cash settlement
    2. Easier and cheaper access to rates trading
    3. Low transaction costs
    4. Customised risk management



19. The quotation of an interest rate future is __________{Derivatives}
    1. Rate based
    2. Price based



20. If one has a strong view that interest rates will rise in the near future, he/she has to _____________.{Derivatives}
    1. Sell a FRA
    2. Buy a FRA



21. A Long Call in an interest rate option means ____________{Derivatives}
    1. A right to pay fixed rate and receive floating rate
    2. A right to pay floating and receive fixed



22. A Short Put in an interest rate option means ___________{Derivatives}
    1. An obligation to pay fixed and receive floating
    2. A right to receive fixed and pay floating



23. A writer of an interest rate put option has ____________{Derivatives}
    1. An obligation to receive fixed and pay floating rate
    2. A right to receive fixed and pay floating rate
    3. An obligation to pay fixed and receive floating
    4. None of the above



24. The notional amount for the calculation of interest in an interest rate option is effective from _____________.{Derivatives}
    1. Trade date
    2. Expiry date
    3. Exercise date
    4. Any of the above dates



25. Interest rate options are _________{Derivatives}
    1. Cash settled
    2. Physically settled
    3. Both



26. Consider the following market quotation of a dealer:{Derivatives}
    
    Against 3-month LIBOR, Quarterly, Actual/360, Following day
    
    

    Term	Rate (SA, A/A, F)
    2Y	5.00 / 5.05
    5Y	5.15 / 5.25
    10Y	5.40 / 5.55

    
    26(A) If you are the buyer of a swap of 10Y duration, you would be paying __________
    
    
    1. Fixed rate of 5.4%
    2. Floating rate of 3M LIBOR
    3. Fixed rate of 5.55%
    4. None of the above
    
    
    26(B) If the dealer sells a 5Y swap on the above quote, the dealer will receive ____________
    
    
    1. Fixed rate of 5.25% against a 3M LIBOR
    2. Floating rate of 3M LIBOR
    3. Fixed rate of 5.25%
    4. None of the above
    
    
    26(C) If the dealer buys a 2Y swap on the above quote, the dealer will receive ______________
    
    
    1. Floating rate of 3M LIBOR
    2. Fixed rate of 5%



27. The frequency of the fixed rate payment and the floating rate payment should be the same.{Derivatives}
    1. True
    2. False



28. The seller of a swap and the floating rate receiver are one and the same{Derivatives}
    1. True
    2. False



29. The effective date of a plain vanilla IRS is usually _________ days from the trade date.{Derivatives}
    1. 2 days
    2. 3 days
    3. 5 days
    4. 1 day



30. The fixing date of a plain vanilla IRS is usually _________ days from the reset date.{Derivatives}
    1. 2 days
    2. 1 day



31. In a plain vanilla IRS, the period-end-date is also the Reset Date.{Derivatives}
    1. True
    2. False



32. In a Constant Maturity Spread (CMS) swap, the benchmarks are usually _____________.{Derivatives}
    1. From the long-term swap market
    2. From the short-term swap market
    3. From treasury bond market
    4. From short-term money markets



33. In a delayed start swap, the effective date is _________ days from the trade date, and in a forward start swap, the effective date is __________ days from the trade date.{Derivatives}
    1. Less than 6 months, more than 3 days
    2. More than 6 months, more than 3 days
    3. More than 2 days and less than 6 months, more than 6 months
    4. More than 2 days, more than 2 days and less than 6 months



34. Which of the following is NOT a fixed or pre-determined feature of MAC swaps.{Derivatives}
    1. Floating rate benchmark
    2. Fixed rate
    3. Tenor
    4. Trade date



35. Currency swap and FX swap are one and the same.{Derivatives}
    1. True
    2. False



36. The settlement on a CDS contract is contingent upon the occurence of a credit event. {Derivatives}
    1. True
    2. False



37. The credit default in a CDS contract refers to _____________{Derivatives}
    1. Bankruptcy
    2. Liquidation
    3. Repudiation
    4. Defined credit event as per contract



38. Buyer of a CDS and protection buyer refers to the same thing. {Derivatives}
    1. True
    2. False



39. Under the ISDA Big Bang Protocol, auction is mandatory? {Derivatives}
    1. True
    2. False



40. CDS can be settled either physically or in cash. {Derivatives}
    1. True
    2. False



41. The auction terms are determined by ____________{Derivatives}
    1. Determination committee
    2. Parties
    3. Creditex and Market
    4. Regulators



42. Restructuring credit event is applicable to all CDS contracts. {Derivatives}
    1. True
    2. False



43. CDS can only be used for hedging. {Derivatives}
    1. True
    2. False



44. In a basket CDS, the protection buyer is ___________{Derivatives}
    1. CDS seller
    2. CDS buyer
    3. Reference entity
    4. None of the above



45. Restructuring as a credit event is usually excluded from _____________. {Derivatives}
    1. European CDS contracts
    2. North American CDS contracts
    3. Asian CDS contracts
    4. None of the above



46. Structured products are also termed as "Exotic products". {Structured Products}
    1. True
    2. False



47. Who among the following is not an investor in structured products? {Structured Products}
    1. Financial institutions
    2. High net-worth individuals
    3. Retail investors
    4. Investment banks



48. Which among the following is NOT a feature of a structured product.{Structured Products}
    1. Maturity
    2. Principal protection
    3. Embedded option
    4. Wrapper
    5. Guaranteed return



49. The two categories of structured investment products are:{Structured Products}
    1. Structured notes and Credit linked notes
    2. Structured notes and Credit linked obligations
    3. Structured credit and Structured investments
    4. None of the above



50. A floating rate note can be viewed as a combination of a fixed rate note and an interest rate swap. {Structured Products}
    1. True
    2. False



51. Which one of the following is NOT an advantage of structured products? {Structured Products}
    1. Administrative efficiency
    2. Diversification and Hedging
    3. Customization and managing risk exposure
    4. Leveraged hedging



52. Credit Sensitive Notes have coupons that change as per the changes in the credit rating of the issuing company. {Structured Products}
    1. True
    2. False



53. Master Agreement, Schedule and Confirmation together form one agreement. {ISDA}
    1. True
    2. False



54. In case of discrepancy between the Schedule and Confirmation, which document shall prevail? {ISDA}
    1. Schedule
    2. Confirmation



55. Credit Support Annex (CSA) governs the collateral management between the parties. {ISDA}
    1. True
    2. False



56. ISDA Protocols help in avoiding lengthy, costly and time-consuming alterations to the Master Agreement and Schedule. {ISDA}
    1. True
    2. False



57. Which one of the following is NOT a business day convention as per ISDA 2006 definitions. {ISDA}
    1. Following day
    2. Modified following day
    3. Previous day
    4. Next day



58. The 1-month LIBOR rate is 5% and the 2-month LIBOR rate is 7%. You are required to find out the 45-day LIBOR rate. The method that you will use as per ISDA 2006 definitions is: {ISDA}
    1. Polynomial interpolation
    2. Linear interpolation



59. Which of the following statements is TRUE of an OTC deal? {Derivatives}
    1. It is a deal dealt on an exchange
    2. It is a deal between any two parties, not dealt on an exchange
    3. It is a derivatives deal
    4. It is a deal between two banks



60. Which of the following describes a cap? {Derivatives}
    1. An American option
    2. An option to protect against a rise in interest rate
    3. An option to protect against a fall in interest rates
    4. An option on a swap



61. General ledger records are compared with which one of the following when carrying out a nostro reconciliation? {Derivatives}
    1. Clearing house cash accounts
    2. Dealer's operating accounts
    3. External foreign currency accounts
    4. Mark-to-market valuations



62. The default of a counterparty is considered to be a main consituent of which one of the following types of risk? {Derivatives}
    1. Credit risk
    2. Legal risk
    3. Market risk
    4. Processing risk



63. What does the present value of a future cashflow provide? {Derivatives}
    1. The fair price of an asset providing those returns
    2. The rate of discount to be applied
    3. The timing of associated payment flows
    4. The total of all cashflows and interest to that date



64. One of the main reasons supporting further development of electronic processing for OTC deriatives is that it can: {Derivatives}
    1. Allow dealers to take larger positions
    2. Improvie risk management
    3. Reduce the capital required by regulators
    4. Enable ETD contrats to replace OTC exposure



65. Which option style sets the strike price at purchase and can only be exercised on expiry date? {Derivatives}
    1. American options
    2. Asian options
    3. Bermudan options
    4. European options



66. What type of swap is designed to increase the notional principal? {Derivatives}
    1. Accreting swap
    2. Amortising swap
    3. Rollercoaster swap
    4. Sawtooth swap



67. The risk that the value of an asset may move adversely due to changes in interest rate is best described as: {Derivatives}
    1. Operational risk
    2. Market risk
    3. Systemic risk
    4. Credit risk



68. What is the EU/Bank of International Settlements (BIS) current (as of the year 2018) capital adequacy ratio? {Derivatives}
    1. 5%
    2. 8%
    3. 10%
    4. 12%



69. Under a single currency interest rate swap, the principal: {Derivatives}
    1. is exchanged at the beginning
    2. is exchanged during the term
    3. is exchanged at the end of the term
    4. is not exchanged



70. A US dollar-based company needs to buy euros in three months' time but wishes to protect against the possibility of the euro strengthening meanwhile. The appropriate hedge would be: {Derivatives}
    1. Long EUR call against USD
    2. Long EUR put against USD
    3. Short EUR call against USD
    4. Short EUR put against USD



71. Which one of the following is used to measure how much an option's value varies with changes in the time to maturity? {Derivatives}
    1. Delta
    2. Gamma
    3. Rho
    4. Theta



72. Which one of the following types of swap is commonly used in arbitrage strategies? {Derivatives}
    1. Accreting swap
    2. Overnight index swap
    3. Rollercoaster swap
    4. Swaption



73. The seller of a straddle assumes? {Derivatives}
    1. Limited risk and benefits if volatility is low
    2. Unlimited risk and benefits if volatility is low
    3. Unlimited risk and benefits if volatility is high
    4. Limited risk and benefits if volatility is high



74. Which one of the following problems are Master Agreements aimed at addressing? {Derivatives}
    1. Changing technological systems
    2. Counterparty risk
    3. Market volatility
    4. Operational administration



75. Which of the following describes the selling of an option on an asset that an investor has taken a short position in? {Derivatives}
    1. A covered call
    2. A put collar
    3. A covered put
    4. A synthetic put



76. To buy a straddle is to: {Derivatives}
    1. Buy a call and sell a put at different strike prices
    2. Buy a call and sell a put at the same strike price
    3. Sell a call and buy a put at the same strike price
    4. Buy a call and buy a put at the same strike price



77. What would be the offer rate for a FRA quote of 5.63% / 5.68%? {Derivatives}
    1. 5.63%
    2. 5.645%
    3. 5.655%
    4. 5.68%



78. Which of the following is the primary purpose of hedging? {Derivatives}
    1. Dealing in two related markets to lock in a profit
    2. Selling goods for commercial reasons
    3. Protecting an existing position against price changes
    4. Establishing a new position



79. The settlement amount in a FRA is transferred from buyer to seller: {Derivatives}
    1. Always if LIBOR is higher than the FRA rate
    2. Always if LIBOR is lower than the FRA rate
    3. Depending on the length of the FRA period
    4. Depending on the amount of the FRA



80. Which of these statements best describes why the name Big Bang was given to the 2009 ISDA Protocol of the same name? {Derivatives}
    1. Because it was caused by the collapse of Lehman Brothers
    2. Because the majority of players in the market were affected
    3. Because it introduced contracts and convention changes simultaneously
    4. Because it would affect all future CDS contracts written in the market



81. A cash payment out should be shows as: {Derivatives}
    1. A credit on our general ledger and a credit on the nostro statement
    2. A debit on our general ledger and a debit on the nostro statement
    3. A debit on our general ledger and a credit on the nostro statement
    4. A credit on our general ledger and a debit on the nostro statement



82. What is the amount of interest accrued at 6% on a principal of £10 million from 14 July to 12 January, on a 30/360 basis? {Derivatives}
    1. £ 296,666.67
    2. £ 299,178.08
    3. £ 300,000.00
    4. £ 303,333.33



83. The current price for an asset is 1.7750. At which of the following strikes would a call option be out-of-the-money? {Derivatives}
    1. 1.7800
    2. 1.7750
    3. 1.7745
    4. 1.7600



84. Where two payment streams are exchanged over an agreed period, relating to the same notional principal amount, but calculated using a different type of interest rate, what is this normally known as? {Derivatives}
    1. An FRA
    2. An option
    3. An IRS
    4. A swaption



85. What does the term "hardwiring" mean with respect to CDS contracts? {Derivatives}
    1. It refers to ICE Clear which is the principal CCP for CDS contracts by which all participants agree to abide by ICE's rules.
    2. It describes the incorporation of standard auction settlement terms into benchmark CDS market documentation
    3. It is a reference to a range of fixed choices which counterparties can use in the event of any credit event
    4. It illustrates that there are several specific possible outcomes which can be agreed between the parties with respect to a defined credit event.



86. Deferred shares normally differ from conventional ordinary shares in which key area? {Financial Markets, Securities Operations}
    1. Voting rights
    2. Dividend payments
    3. Tax treatment
    4. Shareholder perks



87. What would an American Depository Receipt (ADR) holder except to receive when the issuing company makes a right issue? {Financial Markets, Securities Operations}
    1. Shares in the underlying assets
    2. New shares in ADR form
    3. Proceeds of the sale of the rights
    4. Revaluation of the ADR



88. An investor buys 100 call warrants for a premium of £ 0.40 each and a strike price of £ 1.00. What will the share price have to reach for the investor to make a profit of £ 50?{Financial Markets, Securities Operations}
    1. £ 51.00
    2. £ 1.90
    3. £ 1.40
    4. £ 0.90



89. A buyer was due to pay £ 650,000 for shares on 1st July. Due to a computer processing error his payment arrived four days late. The seller incurred a 6% overdraft and discovered this on 28th July. The seller submitted a claim for interest on 2nd August. Under ISITC guideliness, what is the likely amount of settlement of the sterling interest claim? {Financial Markets, Securities Operations}
    1. Nil
    2. £ 254.82
    3. £ 427.40
    4. £ 433.33



90. What is short selling? {Financial Markets, Securities Operations}
    1. A transaction where a broker delivers insufficient securities to settle a trade
    2. A situation where an investor delivers sufficient cash to settle a trade
    3. A strategy employed by an investor in anticipation that the market price might fall
    4. A term that describes all trading in corvered warrants



91. Which one of the following activities is NOT regarded as a custody service? {Financial Markets, Securities Operations}
    1. Tax reclamation
    2. Dividend collection reporting
    3. Safekeeping services
    4. Funds transference on trade settlement



92. Which of the following best describes the role of an agency trader? {Financial Markets, Securities Operations}
    1. The lead client when creating an initial public offering of shares
    2. The supervisor of a group of junior traders
    3. Buys and sells shares on behalf of a client
    4. Buys and sells shares on behalf of his firm



93. A foreign exchange rate between currencies which is determined via the two currencies' respective dollar exchange rates, is known as a: {Financial Markets, Securities Operations}
    1. Bridge rate
    2. Cross rate
    3. Hedge rate
    4. Split rate



94. What role does the CMU play regarding Hong Kong securities? {Financial Markets, Securities Operations}
    1. It acts as a clearing house
    2. It acts as a depository for corporate and government bonds
    3. It acts as CSD for equities and corporate bonds
    4. It acts as registrar for equities and warrants



95. One of the generally recognised advantages of rolling settlement, compared to fixed date settlement, is: {Financial Markets, Securities Operations}
    1. A reduction in settlement costs
    2. A smoothing of settlement activities
    3. An increase in regulatory protection
    4. An improvement in the tax treatment



96. A eurobond is: {Financial Markets, Securities Operations}
    1. A floating-rate note denominated in euros
    2. A government bond issued by the European Central Bank
    3. A corporate bond that trades only on NYSE Euronext
    4. An international bond issued in markets outside the issuer's domestic market



97. What is the main purpose of a "Request for Proposal" in the context of an institutional investor's custodianship needs? {Financial Markets, Securities Operations}
    1. It serves as a draft agreement between the custodian and the institution
    2. It provides a initial indication of a potential custodian's capabilities
    3. It enables a consortium of custodians to be established
    4. It operates as a back-up should the chosen custodian default



98. Which of the following pairs correctly matches a country and its central securities depository for equities? {Financial Markets, Securities Operations}
    1. UK and SETS
    2. France and LCH.Clearnet
    3. Germany and Euroclear
    4. Japan and JASDEC



99. Typically an ICSD is established for what purpose? {Financial Markets, Securities Operations}
    1. As a recognised clearing house for CCP-related activity
    2. To provide settlement and custody facilities over a range of security types and currencies
    3. As a clearing agent for the derivatives markets
    4. As an inter-dealer agent for the securities financing industry



100. Which one of the following is the best description of the Electronic Transfer of Title (ETT) facility offered by the CREST system? {Financial Markets, Securities Operations}
     1. The facility whereby all CREST eligible securities trades are instantly registered at the point of settlement following the acknowledgement of an auctioned RUR.
     2. The function of the positioning of securities post-matching but pre-settlement
     3. the instant legal registration of UK securities upon settlement
     4. The system that ensures full intra-bank cash settlement happens at the point of trade settlement



101. What is the settlement period for UK Gilts? {Financial Markets, Securities Operations}
     1. T + 0
     2. T + 1
     3. T + 3
     4. T + 5



102. TARGET2 is a payment system for which currency? {Financial Markets, Securities Operations}
     1. GBP
     2. USD
     3. CHF
     4. EUR



103. What is the claims threshold under ISITC guidelines? {Financial Markets, Securities Operations}
     1. US$ 100
     2. US$ 300
     3. US$ 500
     4. US$ 1,000



104. The primary difference between bilateral netting and multilateral netting relates to: {Financial Markets, Securities Operations}
     1. Whether fixed date settlement or rolling settlement is used
     2. Whether the trades are on-exchange or off-exchange
     3. The number of counterparties involved
     4. The number of trades involved



105. A firm has chosen a new custodian to hold its safe custody investments. To comply with the regulations, how often must it carry out a risk assessment on this custodian? {Financial Markets, Securities Operations}
     1. A minimum of once every six months
     2. A minimum of once every year
     3. A minimum of once every two years
     4. No prescribed minimum, it depends on circumstances



106. Under the Substantial Shareholder Reporting rules, a company is empowered to: {Financial Markets, Securities Operations}
     1. List its shares on a recognised exchange
     2. Initiate an investigation into ownership of its shares
     3. List its shares on exchanges outside of the UK
     4. Enter into a merger with another UK-registered company



107. If a broking firm is managing a private investor's portfolio and registers the client's shares into a nominee company name, the beneficial owner and the legal owner of the shares will be: {Financial Markets, Securities Operations}
     1. The nominee company in both cases
     2. The client in both cases
     3. The nominee company and the client respectively
     4. The client and the nominee company respectively



108. An investment manager has a portfolio of invested assets with a market value of US$50 million. If the custodian charges an annual custody fee at 20 basis points, the annual charge will be: {Financial Markets, Securities Operations}
     1. US$ 10,000
     2. US$ 20,000
     3. US$ 100,000
     4. US$ 1,000,000



109. A sweep account allows investors to: {Financial Markets, Securities Operations}
     1. Transfer uninvested funds into overnight investments
     2. Secure special protection against money laundering
     3. Meet compliance requirements under Sarbanes-Oxley legislation
     4. Minimise foreign exchange transaction costs on cross-border investments



110. What is the electronic method by which Euroclear Bank communicates with Clearstream Banking? {Financial Markets, Securities Operations}
     1. Bridge settlement
     2. ESES
     3. CreationOnline
     4. Link Up Markets



111. What is marking to market? {Financial Markets, Securities Operations}
     1. Prioritising a block of trades for immediate execution by a broker
     2. Processing individual trades for prompt settlement
     3. Fixing the price of a security at a pre-agreed level
     4. Revaluing a securities position to its current market price



112. If a net dividend of 10p per share is paid by a UK company, what would be the value of the dividend after all tax liabilities for a UK basic rate taxpayer? {Financial Markets, Securities Operations}
     1. 7.5p
     2. 7.8p
     3. 9p
     4. 10p



113. Withholding tax is tax deducted: {Financial Markets, Securities Operations}
     1. Against revenues from safekeeping activities conducted by custodians on behalf of foreign investor clients
     2. In respect of capital gains generated by investors on their investment activity.
     3. As a deposit by a jurisdiction's tax authorities against potential non-payment of tax by a foreign investor.
     4. In the issuer's country of residence on income paid by issuers to investors



114. Operational risk is best defined as the risk: {Financial Markets, Securities Operations}
     1. That an issuer may default on its obligation to meet interest payments and to redeem principal on redemption date.
     2. Of loss resulting from inadequate or failed internal processes, people and systems, or from external events
     3. Of loss of earnings or capital arising from changes in the value of financial instruments
     4. That an institution defaults on obligations outstanding to a trade counterparty prior to trade settlement.



115. An investor buys a gilt for £ 8,200 and sells it for £ 9,600. If this investor is a higher rate taxpayer who has exhausted his annual capital gains tax allowance, how much capital gains tax (if any) will be charged on this gain? {Financial Markets, Securities Operations}
     1. Nothing
     2. £ 140
     3. £ 280
     4. £ 560



116. If the holder of a convertible preference share takes up the conversion option, what type of share will be become? {Financial Markets, Securities Operations}
     1. Deferred share
     2. 'A' share
     3. 'B' share
     4. Ordinary share



117. Which of the following correctly describes a benefit extended by the process of listing securities? {Financial Markets, Securities Operations}
     1. The issuing house will specify a minimum price for the share offer and invite offers from investors at prices of their own choosing.
     2. Companies will be subject to detailed scrutiny designed to ensure that investors are buying securities in a bonafide company
     3. Unsold stock will be retained by the Debt Management Office and may be offered for sale at a later date.
     4. The issuing company will sell shares directly to an investment bank or another sponsor, which will then sell shares to its preferred clients.



118. The first two characters in an ISIN represent: {Financial Markets, Securities Operations}
     1. Year of issuance
     2. Check code: confirming validity
     3. Country code
     4. Securities type: whether an equity, bond, mutual fund, ETF.



119. A covered warrant is issued: {Financial Markets, Securities Operations}
     1. By a company over its own underlying shares
     2. By a third party over a single asset or a range of possible underlying assets
     3. At a specified minimum price and investors are invited to submit offers at prices of their own choosing.
     4. By government to applicants whose competitive bids are at or above a specified minimum price.



120. A multilateral trading facility is: {Financial Markets, Securities Operations}
     1. A regulated stock exchange that supports trading from broker members from multiple jurisdictions.
     2. A registered non-exchange trading venue that brings together buying and sellers of securities
     3. A share trading facility for the sole purpose of supporting trading of small cap equities
     4. An order-driven market where investors can route orders to the platform electronically or via a floor broker.



121. Which of the following statements is true regarding the execution of programme trades? {Financial Markets, Securities Operations}
     1. It may be difficult to obtain all the required shares on the same day
     2. The operational risk and credit risk on programme trades will typically be lower than for single-security transactions.
     3. Time from trade execution to trade confirmation will typically be shorter than for trades executed individually.
     4. The trades must be settled at an ICSD.



122. In their capacity as fiduciaries, pension fund trustees are required to: {Financial Markets, Securities Operations}
     1. Manage sub-custodian selection for pension fund assets held in overseas markets
     2. Ensure that withholding tax agreements are in place with tax authorities in markets in which the pension fund invests.
     3. Ensure that pension fund assets are at all times sufficient to cover scheme liabilities
     4. Monitor and review the tasks that they delegate to custodians to ensure that these are discharged effectively



123. Which one of the following systems operates on a multilateral netting basis for the transfer of US dollar payments? {Financial Markets, Securities Operations}
     1. CHAPS
     2. CHIPS
     3. Fedwire
     4. TARGET



124. Contractual settlement date accounting works to the advantage of the seller because: {Financial Markets, Securities Operations}
     1. The seller will receive funds on the original settlement date, even if settlement is delayed
     2. The seller will receive due funds three days after the proposed settlement date
     3. Delivery of requisite securities on settlement date is guaranteed
     4. Settlement will take place free of payment



125. Due to internal problems, a firm is unable to carry out its periodic reconciliation of sale custody investments held with a nominee company within the required period. What action therefore must it urgently take? {Financial Markets, Securities Operations}
     1. Obtain a written mandate from all the affected clients
     2. Obtain a written mandate from the nominee company
     3. Notify HMRC
     4. Notify the financial regulator



126. When securities are placed on loan, legal title to the securities lies with: {Financial Markets, Securities Operations}
     1. The lender
     2. The borrower
     3. The securities lending agent
     4. The local central securities depository



127. Why might a cash lender enter into a repo agreement, rather than lending on an unsecured basis? {Financial Markets, Securities Operations}
     1. It will typically earn a higher premium through repo agreement than through unsecured lending
     2. Unsecured lending is illegal in many European jurisdictions
     3. There is no possibility that the cash borrower may default on its obligation when a repo agreement is in place.
     4. Repo agreements afford security by ensuring that the lender will inherit collateral if the borrowing counterparty defaults on its obligations



128. An investor buys 2,500 shares in a company at £ 9.00 per share. She sells the same number of shares later in the tax year for £ 10.25 per share. She incurs brokerage costs of £ 20.00 on buying the shares, and a further £ 20.00 on their sale. The amount potentially subject to capital gains tax will therefore be: {Financial Markets, Securities Operations}
     1. £ 3,085
     2. £ 3,105
     3. £ 3,125
     4. £ 25,625



129. Which one of the following is considered to be a prime benefit of using a multi-currency cash account? {Financial Markets, Securities Operations}
     1. Faster dividend processing for multi-jurisdictional portfolios
     2. More advantageous deposit rates
     3. A reduction in the number of FX transactions
     4. A bundled package of multi-currency accounting saves costs



130. A bonus issue is: {Financial Markets, Securities Operations}
     1. A release of new shares to existing shareholders provided free of cost
     2. A cash dividend paid to a company's ordinary shareholders
     3. A cash dividend paid to a company's preference shareholders
     4. A decision to convert a single company share into a larger number of shares



131. An investor holds 5,000 shares in a company priced at £ 8.50 per share. The company subsequently makes a one for five share rights issue at £ 6.50. NIL paid rights on the share issue will therefore be worth: {Financial Markets, Securities Operations}
     1. £ 1.67
     2. £ 2.00
     3. £ 6.50
     4. £ 8.17



132. One of the main reasons why custodians sometimes adopt a "pooling" approach to client account is to: {Financial Markets, Securities Operations}
     1. Reduce taxation liabilities
     2. Offset the credit risk
     3. Benefit from arbitrage opportunities
     4. Obtain more advantageous deposit rates



133. Credit risk is the risk: {Financial Markets, Securities Operations}
     1. Of loss of earnings or capital arising from changes in the value of financial instrument
     2. Of loss resulting from inadequate or failed internal processes, people and systems, or from external events
     3. That a counterparty will fail to meet its obligations in accordance with agreed terms
     4. That an act conducted by a firm or one of its employees damages the reputation of the firm



134. Which one of the following is not a reason for failed settlement? {Financial Markets, Securities Operations}
     1. A counterparty may have gone into liquidation
     2. The purchaser may have insufficient cash
     3. The purchaser may have initiated a buy-in of securities
     4. A corporate action may be in motion



135. Corporate actions typically present a high level of risk to the custodian because: {Financial Markets, Securities Operations}
     1. It is not possible to automate processing of mandatory corporate events
     2. Operational errors in the corporate actions department at the custodian bank tend to rise sharply under conditions of high market volatility
     3. If the custodian fails to inform investors of an upcoming corporate event it may be required to cover any financial loss
     4. Liquidity risk evaluation procedures for corporate events perform poorly in conditions of high market volatility.




Most of the rest of the questions in this section are specific to Indian Derivatives Markets.




136. Futures trading commenced first on _____________. {Derivatives}
     1. Chicago Board of Trade
     2. Chicago Mercantile Exchange
     3. Chicago Board of Options Exchange
     4. London International Financial Futures and Options Exchange (LIFFE)



137. The underlying asset for a derivative contract can be ____________. {Derivatives}
     1. Equity
     2. Commodities
     3. Interest Rate
     4. Any of the above



138. Derivatives first emerged as ____________ products. {Derivatives}
     1. Speculative
     2. Hedging
     3. Volatility
     4. Risky



139. Who are the participants in the derivatives markets? {Derivatives}
     1. Hedgers
     2. Speculators
     3. Arbitrageurs
     4. All of the above



140. The first exchange traded financial derivative in India commenced with the trading of ________________. {Derivatives}
     1. Index futures
     2. Index options
     3. Stock options
     4. Interest rate futures



141. OTC derivatives are considered risky because ______________. {Derivatives}
     1. There is no formal house margining system
     2. They do not follow any formal rules or mechanism
     3. They are not settled on a clearing
     4. All of the above



142. Which of the following is not an example of a derivative on security derivative? {Derivatives}
     1. Index futures
     2. Index options
     3. Stock futures
     4. Interest rate futures



143. Nifty includes the ______________ most liquid stocks that trade on NSE. {Derivatives}
     1. 30
     2. 50
     3. 100
     4. 500



144. The Indian company which provides professional index management services is _______________. {Derivatives}
     1. IISL
     2. NSCCL
     3. S&P
     4. CRISIL



145. Impact cost measures the _____________. {Derivatives}
     1. Volatility of the stock
     2. Liquidity of the stock
     3. Return on a stock
     4. None of the above



146. Assume that the base value of a market capitalisation weighted index was 1,000 and the base market capitalisation was Rs. 35,000 crore. If the current market capitalisation is Rs. 77,000 crore, the index is at _____________. {Derivatives}
     1. 2,200
     2. 2,250
     3. 1,200
     4. 1,350



147. The market impact cost on a trade of Rs. 3 million of the full NIFTY works out to be about 0.5%. This means that if Nifty is at 2,000, a buy order will go through at roughly _______________. {Derivatives}
     1. 2,010
     2. 2,050
     3. 2,500
     4. None of the above



148. Index funds are ______________ managed. {Derivatives}
     1. Actively
     2. Passively
     3. Family
     4. None of the above



149. Which of the folowing cannot be an underlying asset for a financial derivative contract? {Derivatives}
     1. Equity index
     2. Commodities
     3. Interest rate
     4. Foreign exchange



150. Which of the following exchanges was the first to start trading financial futures? {Derivatives}
     1. Chicago Board of Trade
     2. Chicago Mercantile Exchange
     3. Chicago Board of Options Exchange
     4. London International Financial Futures and Options Exchange (LIFFE)



151. In an options contract, the option lies with the ______________. {Derivatives}
     1. Buyer
     2. Seller
     3. Both
     4. Exchange



152. The potential returns on a futures position are: {Derivatives}
     1. Limited
     2. Unlimited
     3. A function of the volatility of the index
     4. None of the above



153. Two persons agree to exchange 100 gms of gold three months later at Rs. 400/gm. This is an example of a _____________. {Derivatives}
     1. Futures contract
     2. Forward contract
     3. Spot contract
     4. None of the above



154. Spot value of Nifty is 2,140. An investor buys a one-month nifty 2,157 call option for a premium of Rs. 7. The option is _________. {Derivatives}
     1. In the money
     2. At the money
     3. Out of the money
     4. None of the above



155. A call option at a strike of Rs. 176 is selling at a premium of Rs. 18. At what price will it break even for the buyer of the option? {Derivatives}
     1. 196
     2. 204
     3. 187
     4. 194



156. On 15th January Mr. XYZ bought a January Nifty January futures contract which cost him Rs. 2,40,000. Each Nifty futures contract is for delivery of 100 Nifties. On 25th January, the index closed at 2,460. How much profit/loss did he make? {Derivatives}
     1. +6,000
     2. -4,500
     3. -3,000
     4. +2,500



157. Mr. X sold a January Nifty futures contract for Rs. 2,40,000 on 15th January. Each Nifty futures contract is for delivery of 100 Nifties. On 25th January, the index closed at 2,450. How much profit/loss did he make? {Derivatives}
     1. -7,000
     2. -5,000
     3. +5,000
     4. +7,000



158. On 15th January Mr. X bought a January Nifty futures contract which cost him Rs. 2,40,000. Each Nifty futures contract is for delivery of 100 Nifties. On 25th January, the index closed at 2,360. How much profit/loss did he make? {Derivatives}
     1. +6,000
     2. -4,000
     3. -3,000
     4. +2,500



159. Mr. X sold a January Nifty futures contract for Rs. 2,40,000 on 15th January. Each Nifty futures contract is for delivery of 100 Nifties. On 25th January, the index closed at 2,350. How much profit/loss did he make? {Derivatives}
     1. -7,000
     2. -5,000
     3. +5,000
     4. +7,000



160. A speculator with a bullish view on a security can ______________. {Derivatives}
     1. buy stock futures
     2. buy index futures
     3. sell stock futures
     4. sell index futures



161. Mr. X owns a thousand shares of Reliance company. Around budget time, he gets uncomfortable with the price movements. Which of the following will give him the hedge he desires? {Derivatives}
     1. Buy 10 Reliance futures contracts
     2. Sell 10 Reliance futures contracts
     3. Buy 5 Reliance futures contracts
     4. Sell 5 Reliance futures contracts



162. Mr. X is bullish about company XYZ and buys ten one-month XYZ futures contracts at Rs. 2,96,000. On the last thursday of the month, XYZ closes at Rs. 271. He makes ____________. {Derivatives}
     1. Profit of 15,000
     2. Profit of Rs. 25,000
     3. Loss of Rs. 15,000
     4. Loss of Rs. 25,000



163. Mr. X is bearish about company ABC and sells twenty one-month ABC futures contracts at Rs. 3,04,000. On the last Thursday of the month, ABC closes at Rs. 134. He makes a _______________. {Derivatives}
     1. Profit of Rs. 18,000
     2. Profit of Rs. 36,000
     3. Loss of Rs. 18,000
     4. Loss of Rs. 36,000



164. Suppose the company PQR trades at 1,000 in the cash market and two-month PQR futures trade at Rs. 1,030. If the transations costs involved are 0.4%. What is the arbitrage return possible? {Derivatives}
     1. 1.8% per month
     2. 1.3% per month
     3. 2% per month
     4. 1.1% per month



165. Mr. X is bullish about the index. Spot Nifty stands at 2,200. He decides to buy one three-month Nifty call option contract with a strike of 2,260 at a premium of Rs. 15 per call. Three months later, the index closes at 2,295. His payoff on the position is _____________. {Derivatives}
     1. Rs. 4,000
     2. Rs. 9,000
     3. Rs. 2.000
     4. None of the above



166. Mr. X is bullish about the index. Spot Nifty stands at 2,200. He decides to buy one three-month Nifty call option contract with a strike price of Rs. 2260 at Rs. 60 a call. Three months later the index closes at 2,240. His payoff on the position is __________. {Derivatives}
     1. -7,000
     2. -12,000
     3. -4,000
     4. -6,000



167. The best buy order for a given futures contract is the order to buy the index at the ____________. {Derivatives}
     1. highest price
     2. average of the highest and lowest price
     3. lowest price
     4. None of the above



168. The F&O segement of NSE provides trading facilities for the following derivative instruments: {Derivatives}
     1. Index based futures
     2. Index based options
     3. Individual stock options
     4. All of the above



169. At any given time, the F&O segment of NSE provides trading facilities for ___________ Nifty futures contracts. {Derivatives}
     1. Two
     2. Three
     3. Nine
     4. None of the above



170. The maximum brokerage chargeable by a trading member in relation to trades effected in the contracts on the F&O segement of NSE is fixed at _____________ of the contract value, exclusive of statutory levies. {Derivatives}
     1. 1.5%
     2. 1%
     3. 2.0%
     4. 2.5%



171. All futures and options contracts expire on the _____________. {Derivatives}
     1. last Friday of the month
     2. last Thursday of the month
     3. last Tuesday of the month
     4. None of the above



172. The NEAT - F&O trading system supports an _______________. {Derivatives}
     1. order driven market
     2. price driven market
     3. demand driven market
     4. None of the above



173. On the NSE's NEAT - F&O system, matching of trades takes place at the ______________. {Derivatives}
     1. active order price
     2. passive order price
     3. market price
     4. None of the above



174. On 26th January, the Nifty index stands at 2,250. The value of a single index future contract is ____________. {Derivatives}
     1. Rs. 2,25,000
     2. Rs. 2,50,000
     3. Rs. 4,50,000
     4. Rs. 2,00,000



175. All options contracts expire on the _________________. {Derivatives}
     1. last Friday of the month
     2. last Thursday of the month
     3. last Tuesday of the month
     4. None of the above



176. New options contracts are introduced on the ______________. {Derivatives}
     1. first trading day of the month
     2. last Thursday of the month
     3. last Wednesday of the month
     4. next trading day following teh expiry of near month contract.



177. In the case of options, final exercise settlement is _____________. {Derivatives}
     1. Sequential
     2. Random
     3. Automatic
     4. Voluntary



178. Which of the following option contracts are compulsorily settled on exercise date? {Derivatives}
     1. In the money options contracts
     2. At the money options contracts
     3. Out of the money options contracts
     4. Deep out of the money options contracts



179. Assignment margin is charged at ________________. {Derivatives}
     1. Client level
     2. Trading member level
     3. Clearing member level
     4. Institution level



180. A trading member Mr. X took proprietary positions in November expiry contract. He bought 3,000 trading units at 1,210 and sold 2,400 at 1,220. The end-of-day settlement price for November expiry contract is 1,220. If the initial margin per unit for the November contract is Rs. 100 per unit, then the total initial margin payable by Mr. X would be ______________. {Derivatives}
     1. Rs. 60,000
     2. Rs. 30,000
     3. Rs. 3,00,000
     4. Rs. 5,40,000



181. What is the outstanding position on which initial margin will be calculated if Mr. X buys 800 units @ 1060 and sells 400 units @ 1055? {Derivatives}
     1. 1,250 units
     2. 800 units
     3. 450 units
     4. 400 units



182. What will be MTM profit/loss of Mr. X if he buys 800 units @ 1040 and sells 600 units @ 1045? The settlement price of the day is 1035. {Derivatives}
     1. -4,000
     2. -6,000
     3. +6,000
     4. +2,000



183. Mr. X buys 600 units @ 1040 and sells 400 units @ 1030. The settlement price is 1030. What is his MTM profit/loss? {Derivatives}
     1. +7,200
     2. +8,000
     3. -6,000
     4. +6,000



184. Mr. X took proprietary long position in March contract. He bought 1600 units @ 1200 and sold 1200 units @ 1220. The end of the day settlement price is 1221. What is the outstanding position on which initial margin will be calculated? {Derivatives}
     1. 2,700 units
     2. 1,200 units
     3. 1,500 units
     4. 400 units



185. What is the outstanding position on which initial margin will be charged if no proprietary trading is done and the details of client trading are: one client buys 800 units @ 1260. The second client buys 1000 units @ 1255 and sells 1200 units @ 1260. {Derivatives}
     1. 900 units
     2. 1000 units
     3. 800 units
     4. 2700 units



186. The May futures contract on XYZ Ltd., closed at Rs. 3,940 yesterday. It closes today at Rs. 3,898.60. The spot price closes at Rs. 3,800. Mr. X has a short position of 3,000 in the May futures contract. He sells 2,000 units of May expiry put options on XYZ with a strike price of Rs. 3,900 for a premium of Rs. 110 per unit. What is his net obligation to/from the clearing corporation today? {Derivatives}
     1. Payin of Rs. 3,44,200
     2. Payout of Rs. 6,40,000
     3. Payout of Rs. 3,44,200
     4. Payout of Rs. 95,800



187. On April 1, Mr. X has sold 400 calls on ABC Ltd., at a strike price of Rs. 200 for a premium of Rs. 20 per call. On the cash market, ABC closes at Rs. 240 on that day. If the call option is assigned to X on that day, what is his net obligation on April 1? {Derivatives}
     1. Payin of Rs. 16,000
     2. Payin of Rs. 8,000
     3. Payout of Rs. 8,000
     4. Payout of Rs. 16,000



188. Margining on the NSE's derivatives market is done using the _____________ margining system. {Derivatives}
     1. TIMS
     2. SPAN
     3. Riskmetrics
     4. PRISM



189. The actual margining and positon monitoring is done on-line, on an intra-day basis using ____________ which is real-time. {Derivatives}
     1. TIMS
     2. SPAN
     3. Riskmetrics
     4. PRISM



190. The SPAN _____________ represents how a specific derivative instrument will gain or lose value, from the current point in time to a specific point in time in the near future, for a specific set of market conditions which may occur over this time duration. {Derivatives}
     1. Standard Deviation
     2. Risk array
     3. Price scan range
     4. Volatility scan range



191. SPAN is a ____________ based margining system. {Derivatives}
     1. Portfolio
     2. Options
     3. Futures
     4. Derivatives



192. The Securities and Exchange Board of India Act, 1992 was an act to provide for the establishment of a Board _________________. {Derivatives}
     1. To protect the interest of investors
     2. To promote teh devepment of securities market
     3. To regulate teh securities market
     4. All of the above



193. The regulatory framework for the derivatives market in India has been developed by the ___________________. {Derivatives}
     1. L.C. Gupta committee
     2. J.R. Varma committee
     3. A.C. Gupta committee
     4. None of the above



194. A member is short 400 March futures contracts and long 200 April futures contracts. A calendar spread in this case will be _____________. {Derivatives}
     1. Long 200 futures contracts
     2. Short 200 futures contracts
     3. Long 400 futures contracts
     4. Short 400 futures contracts



195. As per the requirements of SEBI, a derivatives exchange must have a minimum of _____________ members. {Derivatives}
     1. 100
     2. 50
     3. 75
     4. 25



196. The minimum networth for clearing members of the derivatives clearing corporation/house shall be ____________. {Derivatives}
     1. Rs. 300 Lakhs
     2. Rs. 250 Lakhs
     3. Rs. 500 Lakhs
     4. None of the above



197. Which of the following persons are eligible to become trading members in the F&O segment of NSE? {Derivatives}
     1. Individuals
     2. Registered firms
     3. Companies
     4. Any of the above



198. The dealer/broker and sales persons in the F&O segment shall be required to pass which of the following examinations? {Derivatives}
     1. MBA (Finance)
     2. Chartered Accountancy
     3. Certified Financial Analyst
     4. NCFM



199. Which of the following Acts governs trading of derivatives in India? {Derivatives}
     1. Securities Contracts (Regulation) Act, 1956
     2. SEBI Act, 1992
     3. Capital Issues (Control) Act, 1947
     4. Depositories Act, 1956



200. The open position for the proprietary trades will be on a ______________. {Derivatives}
     1. Net basis
     2. Gross basis