Currency Derivatives Free Demo Test 9

Explanation:

Under the FIFO method, the contract price of the contract that is squared off is determined based on the price of the first contract purchased in the series. This means that the oldest contract in terms of acquisition is considered first when calculating the profit or loss on squaring-up. This method is widely used in financial markets to ensure a consistent and fair approach to determining gains or losses on trades.

Explanation:

An option is said to be at the money if spot price is equal to the strike price.

Explanation:

The exports are higher than monthly loan payments. So only the amount over and above the loan payment is subject to currency risks and should be hedged.

Explanation:

European options can be exercised by the buyer of the option only on the expiration date.

In India, all the currency options in OTC and Exchange traded are of European type.

Explanation:

Calendar Spread (also known as intra-currency pair spread) consists of one long futures and one short futures contract. Both have the same underlying but different maturities.

Explanation:

In a Call Option, the Premium increases with increase in Spot price.

In a Put option, the Premium decreases with an increase in the Spot price.

Explanation:

OTC trades are between two or more parties and the risks are borne by them. There is no centralised risk management authority like the clearing corporation in the futures exchange.

Explanation:

A long currency option position at one maturity and a short option position at a different maturity in the same series, both having the same strike price would be treated as a calendar spread.

Explanation:

FIFO means First In First Out – which means the price of the contracts bought first will be considered first in case of square up.

Mr. Rohan has squared off only 10 contracts. So we should consider the buying price of the first 10 contracts and ignore rest of the data.

First 10 contracts were bought at 80.00 and these were sold on day 3 at 79.90

So 80 – 79.90 = .10 Loss x 10 lots x 1000 (lot size) = Rs 1000 Loss

Explanation:

Banks were allowed to run option book subject to their meeting certain parameters with respect to net worth, profitability, capital adequacy and NPA%.

Explanation:

Aditya has received Rs 10,00,000

Divide this by 50 (USDINR Rate) we get 20,000 USD

The lot size of USDINR contract is 1000

So 20000 / 1000 = 20 Lots

Explanation:

In this question, we are required to calculate the MTM for day 2. So we ignore the buying and selling of day 1.

(Mark to Market margins for brought forward positions: The previous day’s settlement price Less the current day’s settlement price x No. of contracts)

He has bought forward 40 contracts (100 – 60 )
The Settlement price of day 1 was 66.30 and of day 2 was 66.80
We have to consider these two prices to calculate the MTM
66.80 – 66.30 = 0.50 x 40 contracts x 1000 (lot size)
= 20000 positive as there is a notional profit

Explanation:

The trader has bought a PUT and Sold a CALL – In both the cases he has assumed that the USDINR will fall to make a profit.

Trade 1 – Buys a Put option at 0.38. So he has to pay a premium of Rs. 0.38. The RBI reference rate is 66. So there is no Profit or loss due to this as its the same as strike price. However he has lost the premium paid of Rs 0.38 x 1000 (lot size) = Rs 380

Trade 2 – Sell a Call option at Rs. 0.45. So he receives this premium of Rs.0.45. The RBI reference rate is 66 and the strike price is 65.50. So here is makes a loss of Rs. 0.50 (65.50 – 66) due to adverse price movement. The net loss is 0.45 (premium received) – 0.50 = 0.05 x 1000 (lot size) = Rs. 50

Total Loss from Trade 1 ( 380 ) and trade 2 ( 50 ) = Rs 430.

Explanation:

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

Explanation:

INR has appreciated against USD, which means USD has depreciated. So the USDINR rate will fall.

The trader has sold USDINR, so he will profit from the fall.

Tick Size is Rs .0025

100 Ticks X .0025 = 0.25

0.25 X 10 lots X 1000 ( Lot size of USDINR)

= Rs 2500 Profit

Explanation:

RBI-SEBI Standing Technical Committee on Exchange Traded Currency recommends product design, risk management and membership norms for currency futures etc.

Explanation:

A call option would be Out of the Money if the underlying price is lower than the strike price.

The underlying price (current price) ie. 62 is lower than the strike price ie. 63. ( Loss situation)

A put option would be out of the money if the underlying price is higher than the strike price.

A call option would be in the money if the underlying price is higher than the strike price.

A put option would be in the money if the underlying price is lower than the strike price.

Explanation:

When a Trading Member requires the facility of using ‘Pro-account’ through trading terminals from more than one location, such Trading Member shall request the Exchange stating the reason for using the ‘Pro-account’ at multiple locations.

The Exchange may, on a case to case basis after due diligence, consider extending the facility of allowing use of ‘Pro-account’ from more than one location.

Explanation:

Bought 13 lots and sold 6 lots, so net position is of 7 lots X 1000 (lot size) = 7000

Explanation:

In managed float, countries have controls on flow of capital and central bank intervention is a common tool to contain sharp volatility and direction of currency movement.