NISM Series I Currency Derivatives

An Indian importer has to pay USD 100,000 to a US supplier. The exchange rate is quoted by a bank in Mumbai as USD/INR = 83.50. Under this direct quotation, which of the following statements is correct?

• AUSD is the quote currency and INR is the base currency
• BINR is the quote currency and USD is the base currency
• CBoth currencies are quote currencies in the Indian market
• DThis represents an indirect quote from the perspective of a Mumbai resident

Which of the following transactions is recorded in the Capital Account of India's Balance of Payments (BOP)?

• AExport of software services to a client in Germany
• BImport of crude oil from Saudi Arabia by an Indian refinery
• CForeign Direct Investment (FDI) by a French car manufacturer in a plant in Tamil Nadu
• DInterest received on foreign government bonds held by the Reserve Bank of India

An Indian textile exporter has an upcoming USD receivable in three months. What is the primary role of this exporter in the currency derivatives market?

• ATo speculate on the appreciation of the Indian Rupee
• BTo hedge against the risk of the US Dollar depreciating
• CTo arbitrage price differences between the spot and futures markets
• DTo act as a market maker providing liquidity to other participants

In the foreign exchange spot market, if a trade is executed on Monday, October 12th, and is settled on Wednesday, October 14th (assuming no holidays), what is the settlement type?

• ACash / Ready settlement
• BTOM (Tomorrow) settlement
• CSpot settlement
• DForward settlement

If inflation in India rises significantly higher than inflation in the United States, how is the exchange rate of USD/INR expected to behave, assuming all other factors remain constant?

• AThe USD/INR rate will decrease, indicating the Indian Rupee has appreciated
• BThe USD/INR rate will increase, indicating the Indian Rupee has depreciated
• CThe exchange rate will remain completely unchanged
• DThe US Dollar will depreciate against all major world currencies

A treasury desk needs to calculate the EUR/INR cross-rate. The current spot quotes are EUR/USD = 1.0920 and USD/INR = 83.50. What is the calculated EUR/INR exchange rate?

• AEUR/INR = 76.4652
• BEUR/INR = 91.1820
• CEUR/INR = 94.6200
• DEUR/INR = 84.5920

Which of the following macroeconomic developments is most likely to lead to an appreciation of the Indian Rupee against the US Dollar?

• AA steep rise in international crude oil prices
• BA widening of India's current account deficit
• CA massive influx of foreign portfolio investment (FPI) capital into Indian equities
• DA downgrade of India's sovereign debt rating by international agencies

If the spot USD/INR rate is 83.00, the annualized domestic interest rate in India is 7.00% p.a., and the annualized foreign interest rate in the US is 5.00% p.a. What is the theoretical 3-month forward exchange rate using simple compounding (using a 360-day year)?

• A81.45
• B83.00
• C83.41
• D84.66

In the context of the currency market, what is the main objective of a speculator?

• ATo eliminate currency exposure in commercial operations
• BTo profit by taking on currency risk based on market forecasts
• CTo earn low-risk profits from simultaneous price mismatches across markets
• DTo regulate foreign exchange reserves and maintain market stability

Which of the following currency pairs is NOT traded as an Exchange-Traded Currency Derivative (ETCD) contract on recognized stock exchanges in India?

• AUSD/INR
• BEUR/INR
• CGBP/INR
• DCHF/INR

How does the Real Effective Exchange Rate (REER) differ from the Nominal Effective Exchange Rate (NEER)?

• AREER is adjusted for inflation differentials, whereas NEER is not
• BNEER is adjusted for inflation differentials, whereas REER is not
• CREER measures only bilateral trade, while NEER measures multilateral trade
• DREER is regulated by the stock exchanges, while NEER is managed by the RBI

A bank quotes the spot rate of USD/INR as 83.4000 - 83.4075. What is the bid-ask spread expressed as a percentage of the ask price?

• A0.0090%
• B0.0750%
• C0.0900%
• D0.0009%

Which of the following is a primary characteristic of a derivative instrument?

• AIt represents direct ownership of a physical asset like gold or real estate
• BIts value is derived entirely from the value of an underlying asset, index, or reference…
• CIt requires a high initial investment equal to the full nominal value of the contract
• DIt guarantees a risk-free return to the investor

How do Exchange-Traded Derivatives (ETDs) differ from Over-The-Counter (OTC) derivatives?

• AETDs are customized contracts, while OTC derivatives are standard contracts
• BETDs are subject to counterparty default risk, while OTC derivatives have zero default ri…
• CETDs are traded on public exchanges with clearing corporations acting as central counterp…
• DETDs are less liquid and have less price transparency than OTC derivatives

Which of the following statements is true regarding a standard forward contract on foreign exchange?

• AIt is traded on a regulated exchange via computerized matching
• BIt is a customizable contract traded in the over-the-counter (OTC) market
• CIt is marked to market daily, with margins settled in cash
• DIt can be traded or sold freely to other market participants at any time

In a currency swap, what exchanges typically occur between the two counterparties?

• AOnly the final principal amounts are exchanged, with no interest payments
• BOnly interest payments in different currencies are exchanged, with no exchange of princip…
• CBoth principal and interest payments in different currencies are exchanged over the life…
• DA premium is paid upfront by one party, and no other payments are made unless default occ…

Which of the following is a distinguishing feature of a Non-Deliverable Forward (NDF) contract?

• AIt requires the physical delivery of both currency principal amounts at maturity
• BIt is settled in cash in a convertible currency (usually USD) based on the difference bet…
• CIt is only traded on domestic exchanges in the home currency's country
• DIt is restricted exclusively to retail investors

What is the standard contract size (lot size) for a USD/INR currency futures contract on Indian stock exchanges?

• AUSD 100
• BUSD 1,000
• CUSD 10,000
• DUSD 100,000

What is the minimum price movement (tick size) for a USD/INR currency futures contract traded on Indian stock exchanges?

• ARs. 0.0100
• BRs. 0.0050
• CRs. 0.0025
• DRs. 0.0001

The spot rate of USD/INR is 83.20. The domestic risk-free rate is 7.00% p.a., and the foreign risk-free rate is 4.50% p.a. What is the theoretical futures price for a 6-month contract under the cost of carry model using simple compounding (using a 360-day year)?

• A83.20
• B84.24
• C83.62
• D82.16

Which of the following best describes the payoff profile of a trader who holds a short currency futures position?

• AUnlimited profit if the exchange rate rises, and limited loss if the exchange rate falls
• BUnlimited profit if the exchange rate falls, and unlimited loss if the exchange rate rises
• CLimited profit if the exchange rate falls, and limited loss if the exchange rate rises
• DUnlimited profit if the exchange rate rises, and unlimited loss if the exchange rate falls

Calculate the theoretical price of a 90-day USD/INR futures contract if the spot rate is 83.50. The annualized domestic interest rate is 6.50% p.a. and the foreign interest rate is 4.50% p.a. Use a 365-day year and exact compounding formula.

• A83.50
• B83.91
• C85.12
• D82.68

What happens to the price difference between a currency futures contract and the underlying spot rate as the contract approaches its expiration date?

• AThe difference widens significantly due to increasing volatility
• BThe difference converges to zero, so the futures price equals the spot price at expiry
• CThe difference remains constant throughout the life of the contract
• DThe futures price always settles at exactly 10% above the spot price

An Indian software company expects to receive USD 500,000 from a client in New York in two months. To protect itself from currency fluctuations, what strategy should the company adopt in the USD/INR futures market?

• AGo long (buy) USD/INR futures contracts
• BGo short (sell) USD/INR futures contracts
• CBuy call options and sell put options simultaneously
• DNo action is needed as the export receipts are risk-free

An Indian fertilizer company must pay USD 1,000,000 to an international supplier in three months. To hedge this liability, what transaction should the company enter into today?

• AShort (sell) USD/INR futures contracts
• BLong (buy) USD/INR futures contracts
• CSell USD spot and invest in Indian government bonds
• DWrite USD/INR call options to collect premium

The spot rate of USD/INR is 83.10. The annualized net borrowing cost (interest rate differential) is 2.00% p.a. A 3-month USD/INR futures contract is trading at 83.70. How can an arbitrageur exploit this pricing mismatch, and what is the gross profit per contract (1,000 USD)?

• ABuy spot, sell futures; profit of Rs. 185 per contract
• BSell spot, buy futures; profit of Rs. 185 per contract
• CBuy spot, sell futures; profit of Rs. 600 per contract
• DSell spot, buy futures; profit of Rs. 600 per contract

A trader sets up a calendar spread in USD/INR futures: Short June USD/INR contract at 83.50 and Long July USD/INR contract at 83.70. At the end of the month, June contract prices rise to 83.65 and July prices rise to 83.95. What is the net profit or loss on this calendar spread position for 10 contracts (1 contract = 1,000 USD)?

• ANet loss of Rs. 500
• BNet profit of Rs. 1,000
• CNet profit of Rs. 2,000
• DNet loss of Rs. 1,500

An exporter enters a short hedge when the spot USD/INR rate is 83.20 and the futures rate is 83.45. At the time of liquidating the hedge, the spot rate has moved to 83.60 and the futures rate has moved to 83.75. What is the net exchange rate realized by the exporter after accounting for the futures hedge?

• A83.60
• B83.45
• C83.30
• D83.75

An Indian corporate borrower has taken a 1-year foreign currency loan of USD 5,000,000 at a variable rate of SOFR + 1.50%. The borrower wants to hedge the currency risk of the principal repayment due in 12 months. Which of the following is the most appropriate strategy?

• ASell USD/INR futures contracts in monthly intervals
• BBuy USD/INR futures contracts with a maturity matching the repayment date
• CInvest in local government bonds with a maturity of 1 year
• DEnter into a calendar spread by buying near-month futures and selling far-month futures

An Indian firm has trade receivables in Swiss Francs (CHF). Since exchange-traded CHF/INR contracts are not available in India, the firm hedges using the highly correlated EUR/INR futures contract. What type of hedging strategy is this?

• APerfect hedging
• BCross-hedging
• CArbitrage-hedging
• DReverse-hedging

A speculator buys 50 contracts of USD/INR futures at a rate of 83.40. Later in the week, the USD/INR futures contract rises to 83.65 and the speculator closes the position. What is the speculator's total profit (1 contract = 1,000 USD)?

• ARs. 2,500 profit
• BRs. 12,500 profit
• CRs. 12,500 loss
• DRs. 5,000 profit

A speculator sells 20 contracts of USD/INR futures at 83.80 based on a bearish forecast. The price subsequently drops to 83.55 and the speculator buys back the contracts. What is the total profit on this trade (1 contract = 1,000 USD)?

• ARs. 5,000 loss
• BRs. 5,000 profit
• CRs. 2,500 profit
• DRs. 10,000 profit

In a currency futures calendar spread, under what market conditions does a spread buyer (who buys the far-month and sells the near-month) make a profit?

• AWhen the spread (Far Month Price - Near Month Price) widens
• BWhen the spread (Far Month Price - Near Month Price) narrows
• CWhen both futures prices fall to exactly zero
• DWhen the spot exchange rate becomes completely stable

Which of the following definitions best describes 'covered interest arbitrage'?

• ASpeculating on currency movements without using forward or futures coverage
• BExploiting interest rate differentials between countries while covering foreign exchange…
• CBorrowing in a low-interest currency and investing in a high-interest currency without an…
• DManipulating interest rates through central bank currency interventions

The spot rate of USD/INR is 83.00. The domestic risk-free rate in India is 6.00% p.a. and the foreign risk-free rate in the US is 4.00% p.a. A 1-year USD/INR futures contract is trading at 85.50. What is the net riskless arbitrage profit per contract (1,000 USD) at the end of 1 year?

• ARs. 940
• BRs. 1,500
• CRs. 2,500
• DRs. 0

An Indian corporate has an import payable of GBP 100,000 due in one month. Which of the following derivative actions will hedge their exposure using GBP/INR contracts?

• ASell 10 contracts of GBP/INR futures
• BBuy 10 contracts of GBP/INR futures
• CSell 100 contracts of GBP/INR futures
• DBuy 100 contracts of GBP/INR futures

An Indian firm expects to receive USD 250,000 from exports in 3 months. How many contracts of USD/INR futures must the firm trade to hedge this exposure, and what direction should the trade be?

• AShort 250 contracts
• BLong 250 contracts
• CLong 25 contracts
• DShort 25 contracts

A speculator buys 15 contracts of EUR/INR currency futures at 91.20 and closes the position at 90.80. Given that the contract size of EUR/INR is EUR 1,000, what is the net profit or loss?

• ARs. 6,000 profit
• BRs. 6,000 loss
• CRs. 4,000 loss
• DRs. 8,000 loss

A speculator expects the US Dollar to strengthen significantly against the Indian Rupee over the next two weeks. Which of the following is the most suitable currency futures position to take?

• AShort (sell) USD/INR futures contracts
• BLong (buy) USD/INR futures contracts
• CLong (buy) JPY/INR futures contracts
• DEnter a short calendar spread by selling far-month USD/INR contracts

A trader expects the Reserve Bank of India (RBI) to raise interest rates aggressively, which is expected to strengthen the Indian Rupee. What trade should the speculator execute in the USD/INR futures market?

• ALong (buy) USD/INR futures contracts
• BShort (sell) USD/INR futures contracts
• CBuy call options on USD/INR
• DNo action, since interest rates do not affect currency futures

Under what circumstance does a 'reverse cash-futures arbitrage' opportunity arise in the currency market?

• AWhen the actual futures price is higher than the theoretical futures price
• BWhen the actual futures price is lower than the theoretical futures price
• CWhen the spot price converges exactly with the futures price at maturity
• DWhen interest rates in both countries are equal to zero

An Indian importer must pay USD 5,000,000 in three months. The corporate treasurer decides to hedge 80% of this exposure using USD/INR futures. What is the hedge ratio, and how many contracts should be traded?

• AHedge ratio is 0.80; trade 4,000 long contracts
• BHedge ratio is 0.80; trade 4,000 short contracts
• CHedge ratio is 1.00; trade 5,000 long contracts
• DHedge ratio is 0.20; trade 1,000 long contracts

Which of the following derivatives is best suited for hedging long-term multi-year foreign currency exposures (e.g., 5 to 10 years)?

• AWeekly exchange-traded options
• BMonthly currency futures
• CCurrency swap contracts
• DStandard 1-month forward contracts

A trader holds a long USD/INR futures position in the near-month contract that is about to expire. The trader wants to maintain the long exposure into the next month. What action must the trader take?

• ALet the near-month contract expire and take no other action
• BSell the near-month contract and simultaneously buy the next-month contract
• CBuy the near-month contract and sell the next-month contract
• DRequest the exchange to physically deliver the USD principal

Which of the following is a structural difference that affects the pricing of currency forwards versus currency futures?

• AForwards do not incorporate interest rate differentials in their pricing models
• BFutures are subject to daily mark-to-market and margin calls, creating cash flow timing d…
• CForwards are priced using only spot exchange rates without interest rates
• DFutures prices are set arbitrarily by the stock exchange clearing corporation

A speculator trades a USD/INR futures contract priced at 83.00. The initial margin requirement is 3.00% of the total contract value. What is the approximate leverage ratio available to the trader?

• A10 times
• B33.33 times
• C50 times
• D100 times

In currency futures trading, what does the term 'basis' refer to?

• AThe spot price minus the futures price
• BThe futures price minus the spot price
• CThe bid price minus the ask price
• DThe domestic interest rate minus the foreign interest rate