Currency Derivatives Free Demo Test 8

Explanation:

Tick Size: It is the minimum move allowed in the price quotations. Exchanges decide the tick sizes on traded contracts as part of contract specification. For eg. -Tick size for Nifty futures is 5 paisa.

Explanation:

As per the rules of SEBI and Stock Exchanges,the notional value of gross open positions at any point in time in the case of all Futures and Options shall not exceed a particular percentage of the liquid networth of a member.

So a member (Mr Ram) who keeps higher liquid assets as security and margin with the stock exchanges will get higher exposure limits.

Explanation:

Payment of Initial Margin by a broker cannot be netted against two or more clients. So he will have to pay the margin for the open position of each of his clients.

So margin payable for Mr. Raj is : 10 x 5200 x 50 at 10% = Rs 2,60,000

Margin payable for Mr. Rahul is : 5 x 5250 x 50 at 10% = Rs 1,31,250

Total = Rs 3,91,250.

Explanation:

To do a long straddle strategy one has to buy a call and a put option of the same strike price and expiry. Together, they produce a position which will lead to profits if the market / stock is very volatile and it makes a big move – either up or down.

For eg- A person buys a Rs 200 call at Rs 30 and a Rs 200 put at Rs 20 of a stock. If the stock rises significantly the call will rise greatly but his put will fall by maximum Rs 20. So he makes a good profit. If the stock falls significantly, he loses his call money buy gains greatly in the put option as it rises.

Thus the Long Straddle is used when a trader expects a big move in the stock – in any direction is ok.

Explanation:

There are always 3 contracts running. So for eg. we will have Jan-Feb-Mar contracts trading in January.

When January contracts expire on last Thursday of January, on Friday the April contracts will be introduced and so we will have Feb-Mar-April contracts.

Explanation:

A long position in any option can be closed by selling that option and not in any other way.

So a long position in a PUT option can be closed by selling that PUT option.

Explanation:

A long position in any option can be closed by selling that option and not in any other way.

So a long position in a CALL option can be closed by selling that CALL option.

Explanation:

Protective Put is a a risk-management strategy that investors can use to guard against the loss of unrealized gains.

The put option acts like an insurance policy – it costs money, which reduces the investor’s potential gains from owning the security, but it also reduces his risk of losing money if the security declines in value.

Explanation:

For an option, intrinsic value refers to the amount by which option is in the money i.e. the amount an option buyer will realize, before adjusting for premium paid, if he exercises the option instantly.

For call option which is in-the-money, intrinsic value is the excess of market price over the exercise price. For put option which is in-the-money, intrinsic value is the excess of exercise price over the market price.

Explanation:

All modern stock exchanges have highly developed online surveillance systems to monitor the volumes / position and prices of all listed products and also check any unusual activity etc. in them.

Explanation:

The formula for Interest Rate Parity is :

Future Rate = Spot Rate X (1 + Interest Rate of Quoted Currency) /

( 1 + Interest Rate of Base Currency)

= 1.74 X ( 1 + 0.01 ) / ( 1 + 0.04 )

= 1.74 X ( 1.01 / 1.04)

= 1.74 x 0.9711

= 1.689

Thus the future rate will be at a discount as Quoted Currency interest rates are less than base currency interest rates.

Explanation:

For currency futures contract in India, the tick size is 0.25 paise or 0.0025 Rupee

For eg – If USDINR is 56.7500, then a upward movement of one tick will result in a price of 56.7525.

Explanation:

When a person enters a limit SELL order, his order cannot get executed below the limit price. However if the price rises while entering the order, he can sell it at a higher price.

So in the above case, he can sell GBPINR at the limit price of 70.60 or higher if the price rises while entering the order.

Explanation:

Use of a vehicle currency ( like USD ) greatly reduces the number of exchange rates that must be dealt with in a multilateral system.

In a system of 10 currencies, if one currency is selected as the vehicle currency and used for all transactions, there would be a total of nine currency pairs to be dealt with (i.e. one exchange rate for the vehicle currency against each of the others),

If no vehicle currency were used, there would be 45 exchange rates to be dealt with as per below calculations :

The formula is : n ( n – 1) / 2

= 10 ( 10 -1 ) / 2

= 10 ( 9 ) / 2

= 10 x 4.5

= 45

Explanation:

Arbitrageurs make profits by simultaneously entering opposite side transactions in two or more markets ie. buy in one market at a lower price and sell in another at a higher price.

Here, in the OTC Market the Bid Ask price is 47.75 / 48.00. So an arbitrageur will buy at 48.00.

In Futures Market the Bid Ask price is 48.50 / 48.70. So the arbitrageur will sell at 48.50.

Thus he will make an arbitrage profit of Rs 0.50 ( 48.50 – 48.00 )

Explanation:

54.20 and 54.30 are the BID and ASK price. This means there are buyers at 54.20 and sellers at 54.30.

So if the exporter wants to sell, he has to sell them to the buyer at 54.20

Explanation:

Positions during the day are monitored based on the total open interest at the end of the previous day’s trade.

Explanation:

Buying USDINR – USD strengthening against INR

Selling JPYINR – JPY weakening against INR

Conclusion from above two statements – USD strengthening against JPY or JPY weakening against USD.

Explanation:

The mark-to-market gains and losses are settled in cash before the start of trading on T+1 day.

Explanation:

Volatility measures the magnitude of the change of prices (up or down) of the underlying asset. Higher the volatility, higher is the option premium and vice versa.