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100+ Free NISM Series IV (Interest Rate Derivatives) Practice Questions

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Key Facts: NISM Series IV (Interest Rate Derivatives) Exam

100 questions

NISM Series IV (IRD) has 100 one-mark multiple-choice questions totalling 100 marks

NISM - IRD assessment structure

2 hours

Candidates must complete the NISM Series IV exam in 120 minutes

NISM - IRD assessment structure

60% pass

The passing score for NISM Series IV is 60 out of 100 marks

NISM - IRD FAQ

25% negative marking

Each wrong answer deducts 25% of the marks assigned to the question (0.25 marks)

NISM - IRD assessment structure

Rs. 1,500

The NISM Series IV examination fee is Rupees one thousand five hundred (plus GST)

NISM - IRD FAQ

3 years

The NISM IRD certificate is valid for 3 years from the date of the exam

NISM - IRD certification page

8 units

The IRD syllabus is divided into eight weighted units

NISM - IRD curriculum

100

Free original practice questions here

OpenExamPrep

NISM-Series-IV (IRD) is a SEBI-mandated certification from the National Institute of Securities Markets for persons associated with trading or clearing interest rate derivatives. The exam has 100 one-mark multiple-choice questions to be completed in 2 hours, with a 60% passing score and negative marking of 25% of the marks per wrong answer. The fee is Rs. 1,500 and the certificate is valid for 3 years. The 2022 NISM syllabus weights Exchange Traded Interest Rate Futures (20%), Exchange Traded Interest Rate Options (15%), Strategies (15%), with the remaining 50% split across fixed income markets, derivatives, trading mechanism, clearing, regulatory, accounting/taxation, and codes of conduct. This 100-question practice bank covers the complete curriculum with detailed solutions.

Sample NISM Series IV (Interest Rate Derivatives) Practice Questions

Try these sample questions to test your NISM Series IV (Interest Rate Derivatives) exam readiness. Each question includes a detailed explanation. Start the interactive quiz above for the full 100+ question experience with AI tutoring.

1Which of the following entities is the largest issuer of debt securities in the Indian fixed income market?
A.Private corporate entities
B.Central and State Governments
C.Public Sector Undertakings (PSUs)
D.Municipal Corporations
Explanation: In the Indian debt market, the Central and State Governments are the largest issuers of debt securities, primarily in the form of Government Securities (G-Secs) and State Development Loans (SDLs) to fund fiscal deficits. These securities carry practically zero default risk and form the benchmark yield curve for the rest of the economy.
2What is the primary difference between Indian Treasury Bills (T-Bills) and Dated Government Securities?
A.T-Bills are issued by corporate firms whereas Dated G-Secs are issued by the RBI.
B.T-Bills have a maturity of more than one year, while Dated G-Secs have a maturity of less than one year.
C.T-Bills are zero-coupon debt instruments issued at a discount, while Dated G-Secs pay semi-annual coupons.
D.T-Bills carry higher default risk compared to Dated sovereign bonds.
Explanation: Treasury Bills (T-Bills) are short-term money market instruments issued at a discount to face value and redeemed at par, paying no explicit coupon. Dated Government Securities are long-term instruments with tenors extending up to 40 years, paying coupon interest semi-annually.
3According to the Expectations Hypothesis of the yield curve, an upward-sloping yield curve indicates that market participants expect future short-term interest rates to:
A.Remain unchanged indefinitely
B.Rise in the future
C.Decrease gradually
D.Become highly volatile
Explanation: The Expectations Hypothesis states that long-term interest rates are a function of current and expected future short-term rates. Under this theory, an upward-sloping yield curve implies that market participants expect future short-term rates to increase over time.
4A government bond with a face value of Rs. 100 pays a semi-annual coupon of 7.50% per annum. If the bond is currently trading at a clean price of Rs. 102.50, the current yield of the bond is closest to:
A.7.50%
B.7.32%
C.3.66%
D.7.69%
Explanation: Current yield is calculated as the annual coupon payment divided by the current market price of the bond. Here, Annual Coupon = 7.50% of Rs. 100 = Rs. 7.50. Current Yield = Rs. 7.50 / Rs. 102.50 = 7.317% or approximately 7.32%.
5Which of the following actions by the Reserve Bank of India (RBI) is most likely to cause bond yields in India to fall?
A.Conducting open market sales of government securities
B.Conducting open market purchases of government securities
C.Increasing the Repo rate under the Liquidity Adjustment Facility (LAF)
D.Increasing the Cash Reserve Ratio (CRR) requirements for commercial banks
Explanation: When the RBI conducts open market purchases of government securities, it injects liquidity into the banking system and increases the demand for bonds. This buying pressure drives bond prices up, which causes bond yields to fall (since bond prices and yields are inversely related).
6Which of the following is a primary economic benefit of interest rate derivatives?
A.They eliminate all forms of risk in the financial system entirely.
B.They allow entities to unbundle, transfer, and manage interest rate risk.
C.They guarantee that borrowers will always pay the lowest historical interest rate.
D.They replace the need for physical underlying bond markets.
Explanation: Interest rate derivatives allow market participants (corporates, banks, institutions) to unbundle risk, shifting interest rate exposure from those who want to avoid it (hedgers) to those who are willing to accept it (speculators/arbitrageurs). They do not eliminate risk but redistribute it.
7Which of the following correctly describes a feature of Exchange-Traded Interest Rate Derivatives compared to Over-the-Counter (OTC) derivatives?
A.Exchange-traded contracts are highly customized to the needs of individual counterparties.
B.Exchange-traded contracts carry significant bilateral counterparty default risk.
C.Exchange-traded contracts are standardized and trade on regulated exchanges with clearing corporation guarantees.
D.Exchange-traded contracts are completely unregulated and opaque.
Explanation: Exchange-traded derivatives are standardized contracts that trade on organized exchanges and are cleared through a central clearing corporation, which acts as the counterparty to every trade, eliminating bilateral default risk. OTC derivatives are negotiated bilaterally and can be customized.
8An investor who expects interest rates to rise in the near future would most likely take which of the following positions in the Interest Rate Futures (IRF) market?
A.Go long (Buy) Interest Rate Futures
B.Go short (Sell) Interest Rate Futures
C.Sell interest rate call options
D.Do nothing as futures cannot hedge rate rises
Explanation: Bond prices and yields are inversely related. If interest rates rise, bond prices fall, which causes the price of Interest Rate Futures (which are based on underlying bonds) to fall. Therefore, an investor expecting rates to rise should short (sell) futures to profit from the price decline.
9What is a Forward Rate Agreement (FRA)?
A.An exchange-traded option contract to buy government debt at a future date.
B.An OTC contract where the counterparties agree to exchange interest rate cash flows based on a principal amount at a future date.
C.A bilateral contract that locks in an interest rate to be paid or received on a future borrowing or lending starting at a specified future date.
D.An agreement to physically deliver a basket of corporate bonds in exchange for cash.
Explanation: A Forward Rate Agreement (FRA) is an over-the-counter (OTC) contract between two parties that determines the interest rate to be paid or received on an obligation starting at a future date. It is settled in cash based on the difference between the contracted rate and a market reference rate.
10A corporate client enters into a '3x9' Forward Rate Agreement (FRA). This terminology indicates that:
A.The agreement lasts for 3 months, starting 9 months from today.
B.The agreement lasts for 9 months, starting 3 months from today.
C.The agreement lasts for 6 months, starting 3 months from today.
D.The agreement lasts for 9 months, starting 12 months from today.
Explanation: In FRA terminology, '3x9' means the forward rate contract starts in 3 months (first number) and ends in 9 months (second number) from the trade date. The underlying period of borrowing/lending is the difference: 9 - 3 = 6 months.

About the NISM Series IV (Interest Rate Derivatives) Exam

NISM-Series-IV: Interest Rate Derivatives Certification Examination is a SEBI-mandated certification administered by the National Institute of Securities Markets. It is designed to ensure a basic minimum knowledge benchmark for all associated persons of registered trading members and clearing members of recognized stock exchanges who deal in interest rate derivatives, or who handle operations, clearing, settlement, and risk management of these contracts. The syllabus covers the basics of fixed-income markets, interest rate derivative structures (swaps, FRAs, options), bond pricing and duration/convexity analytics, specifications of G-Sec interest rate futures in India, delivery mechanisms (Cheapest-to-Deliver bond, conversion factors, invoice pricing), risk management systems (SPAN margining, settlement default waterfall), and the regulatory guidelines issued by RBI and SEBI.

Assessment

100 multiple-choice questions of 1 mark each, totalling 100 marks, drawn from ten units per the 2022 NISM syllabus: fixed income markets, interest rate derivatives, exchange-traded IR futures and options, hedging/speculation strategies, trading mechanism, clearing/settlement/risk management, regulatory framework, accounting/taxation, and codes of conduct.

Time Limit

2 hours (120 minutes).

Passing Score

60% (60 out of 100 marks). Negative marking of 25% of the marks assigned to a question applies for each wrong answer (0.25 marks per wrong answer).

Exam Fee

Rs. 1,500 (plus payment gateway charges and applicable GST). (National Institute of Securities Markets (NISM), established by SEBI.)

NISM Series IV (Interest Rate Derivatives) Exam Content Outline

10%

Introduction to Interest Rate, Interest Rate Instruments and Fixed Income Market

Basics of debt securities, bond features, sovereign yield curves, expectations hypothesis, and Indian debt market operations.

5%

Interest Rate Derivatives

OTC vs exchange-traded derivatives, Swaps, FRAs, Caps, Floors, MIBOR swaps, and directional futures trading.

20%

Exchange Traded Interest Rate Futures

Contract specifications for 10-year G-sec futures, deliverable bond basket, Cheapest-to-Deliver (CTD) bond selection, conversion factors, theoretical futures pricing, and bond mathematics (Macaulay/Modified Duration, Convexity, BPV/PVBP).

15%

Exchange Traded Interest Rate Options

Exchange-traded interest rate options products, payoff structures, option pricing for rate instruments, and basic option strategies on interest rate derivatives.

15%

Strategies using Exchange Traded Interest Rate Futures and Options

Hedging strategies using interest rate futures, portfolio hedging matching BPV, yield curve steepener/flattener spread trades, and cash-and-carry arbitrage.

10%

Trading Mechanism in Exchange Traded Interest Rate Derivatives

Exchange trading hours, trading members, client KYC requirements, order types (limit, market, stop-loss), daily and final settlement prices, and accrued interest.

10%

Clearing, Settlement and Risk Management

Central counterparty clearing, clearing members, settlement schedules (T+1 rolling for MTM), SPAN margining system, Extreme Loss Margin, and default waterfall.

5%

Regulatory Framework for Interest Rate Derivatives

SEBI and RBI guidelines, FEMA regulations for FPIs, trading member compliance (contract notes, KYC recordkeeping), and client position limits.

5%

Accounting and Taxation

Accounting entries for interest rate derivatives transactions, hedge accounting principles, and tax treatment of derivatives income/losses.

5%

Codes of Conduct and Investor Protection Measures

Trading member code of conduct, client money segregation, complaint redressal via SCORES and arbitration, and investor protection fund rules.

How to Pass the NISM Series IV (Interest Rate Derivatives) Exam

What You Need to Know

  • Passing score: 60% (60 out of 100 marks). Negative marking of 25% of the marks assigned to a question applies for each wrong answer (0.25 marks per wrong answer).
  • Assessment: 100 multiple-choice questions of 1 mark each, totalling 100 marks, drawn from ten units per the 2022 NISM syllabus: fixed income markets, interest rate derivatives, exchange-traded IR futures and options, hedging/speculation strategies, trading mechanism, clearing/settlement/risk management, regulatory framework, accounting/taxation, and codes of conduct.
  • Time limit: 2 hours (120 minutes).
  • Exam fee: Rs. 1,500 (plus payment gateway charges and applicable GST).

Keys to Passing

  • Complete 500+ practice questions
  • Score 80%+ consistently before scheduling
  • Focus on highest-weighted sections
  • Use our AI tutor for tough concepts

NISM Series IV (Interest Rate Derivatives) Study Tips from Top Performers

1Prioritise the quantitative chapters: Unit 3 (analytical framework), Unit 4 (bond futures market), and Unit 5 (hedging/speculation) make up 40% of the exam and require solving mathematical problems.
2Practice calculating Macaulay duration, modified duration, BPV (Basis Point Value), and theoretical futures price under the cost-of-carry model.
3Understand the mechanics of physical delivery at expiration, specifically how the Cheapest-to-Deliver (CTD) bond is identified using implied repo rates and how the invoice price is computed using conversion factors.
4Learn the regulatory frameworks of RBI and SEBI, including position limits for interest rate futures, client code modification rules, bank short-selling limits, and FEMA regulations.
5Because of the 25% negative marking, avoid wild guessing; eliminate clearly wrong options first and skip a question only if you have no basis for a choice.
6Attempt timed mock tests so you can comfortably finish 100 questions within the 120-minute limit.

Frequently Asked Questions

How many questions are on the NISM Series IV (IRD) exam and how long is it?

The exam has 100 multiple-choice questions of 1 mark each, totalling 100 marks, and must be completed in 2 hours (120 minutes).

What is the passing score for NISM Series IV?

The passing score is 60%, meaning you must score at least 60 out of 100 marks. There is also negative marking of 25% of the marks assigned to a question (0.25 marks deducted) for each wrong answer.

Does NISM Series IV have negative marking?

Yes. There is negative marking of 25% of the marks assigned to a question, so each wrong answer deducts 0.25 marks. Unanswered questions are not penalised.

What is the fee and certificate validity for NISM Series IV?

The exam fee is Rs. 1,500 plus payment gateway charges and applicable GST. The certificate is valid for 3 years from the date of the examination.

Who is required to pass the NISM Series IV exam?

SEBI mandates it for associated persons of registered trading members and clearing members of recognized stock exchanges who deal in interest rate derivatives, or who handle operations, clearing, settlement, and risk management of these contracts.

Are these official NISM practice questions?

No. These are original OpenExamPrep questions modelled on the NISM-Series-IV (IRD) syllabus. NISM provides its own free workbook and certification materials separately on its website.