Equity Derivatives Certification Free Demo Test 5

Explanation:

In the futures and options market, profits and losses (Debits and Credits) are settled on day-to-day basis – called mark-to-market (MTM) settlement.

Explanation:

Tick Size is 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:

Forward Contract – It is a contractual agreement between two parties to buy/sell an underlying asset at a certain future date for a particular price that is pre-decided on the date of contract.

Explanation:

Stocks in the index are chosen based on certain pre-determined qualitative and quantitative parameters, laid down by the Index Construction Managers. Once a stock satisfies the eligibility criterion, it is entitled for inclusion in the index.

Generally, final decision of inclusion or removal of a security from the index is taken by a specialized committee known as Index Committee.

Explanation:

Time value of the option depends upon how much time is remaining for the option to expire. Longer the time to maturity, higher will be the time value.

The effect of time to expiration on both call and put options is similar to that of volatility on option premiums. Generally, longer the maturity of the option greater is the uncertainty and hence the higher premiums. If all other factors affecting an option’s price remain same, the time value portion of an option’s premium will decrease with the passage of time.

Explanation:

In addition to their registration as brokers of existing stock exchanges, Derivative brokers/dealers & clearing members are required to seek registration from SEBI.

Explanation:

A Call option moving more Out of the Money means the price of its underlying has fallen.

Delta for call option buyer is positive. This means that the value of the contract increases as the share price rises and falls as the share price falls.

Explanation:

Counterparty risk is the risk of an economic loss from the failure of counterparty to fulfil its contractual obligation.

This risk is also called default risk or credit risk.

Explanation:

A penalty or suspension of registration of a stock – broker under the SEBI (Stock Broker)
Regulations, 1992 can be ordered if:
– The stock broker violates the provisions of the Act
– The stock broker does not follow the code of conduct
– The stock broker fails to resolve the complaints of the investors
– The stock broker indulges in manipulating, or price rigging or cornering of themarket
– The stock broker’s financial position deteriorates substantially
– The stock broker fails to pay fees
– The stock broker violates the conditions of registration
– The stock broker is suspended by the stock exchange

Explanation:

On exercise of the option, the seller/writer will pay the adverse difference, between the final settlement price as on the exercise/ expiry date and the strike price. Such payment will be recognised as a loss.