FTKMC Model Test Results

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Test Result
The Correct Answers are marked in Green Colour and the attempted questions with wrong answer are marked in Red Colour. 1. The reason for futures contracts to be more preferred as compared to forward contracts is due to __________. a) b) c) d) low counterparty default risk and greater liquidity in futures contracts less transparency of futures contract high counter party default risk in futures contracts higher credit risk in futures contracts

2. _____________ is one of the oldest commodity exchanges in the world established in the year 1848? a) b) c) d) New York Board of Trade Chicago Mercantile Exchange New York Metal Exchange Chicago Board of Trade

3. Which is the Act in the Indian Constitution under which trading in futures contracts of various commodities on Indian commodity exchanges are governed and regulated? a) b) c) d) Forward Contracts(Regulation) Act, 1954 Forward Contracts(Regulation) Act, 1952 Forward Contracts(Regulation) Act, 1950 Forward Contracts(Regulation) Act, 2003

4. Trading cum Clearing Member (TCM) can clear trades done by ____________. a) b) c) d) ITCM PCM Both ITCM and PCM None of the above

5. In commodity markets, basis is usually positive when __________. a) b) c) d) the ask price is more than the bid price the futures price is more than the cash price of underlying asset the futures price is less than the cash price of underlying asset the cash price increases faster than its futures price

6. Weakening of basis happens______. a) b) c) d) when the supply of the commodity is equal to the demand when the futures price of the commodity increases more than the cash price when the cash price of the commodity increases more than the futures price when the demand of the commodity is more than its supply

7. A spread is _____________. a) b) c) d) difference between prices of two futures contracts difference between cash price and futures price of an asset difference between opening price and closing price of the future contract difference between highest and lowest price of the futures contract

8. Hedging enables ______________. a) b) c) d) taking advantage of price movement in the commodity prices in near future with a view to earn speculative profit reducing the risk associated with volatility of commodity prices earning riskless profit by identifying price discrepancy between two markets None of the above

9. A narrowing of basis in backwardation market results in__________. a) b) benefit to the long hedger benefit to the short hedger

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c) d)

loss to the long hedger and short hedger loss to long hedger

10. The payoff for a person involved in short hedge when the cash and futures prices rise is______________ . a) b) c) d) profit in both cash and futures markets loss in cash markets and profit in futures profit in cash markets and loss in futures loss in both cash and futures markets

11. Short hedge is also referred to as _____________ . a) b) c) d) selling a futures contract to hedge long physical position buying a futures contract to hedge short physical position selling a futures contract for speculation selling a physical asset in cash market only

12. Which of the following statements is false? a) b) c) d) Buying hedge strategy is used to protect against increase in the cost of raw material. Buying hedge strategy is used to protect decrease in the cost of the raw material. Buying hedge strategy is used to replace inventory at a lower prevailing cost. Buying hedge strategy is used to protect uncovered forward sale of finished products.

13. Rolling over of existing long futures position means ___________. a) closing out long open position of futures contract and at the same time taking a new long position in subsequent month`s futures contract(with later expiry date) b) closing out long position of the futures contract during the delivery period

c) closing out long open position of futures contract and at the same time taking a new short position in subsequent month`s futures contract(with later expiry date) d) closing out short open position of futures contract and at the same time taking a new long position in other futures contract with later expiry date 14. Buying a spread strategy in a normal (contango) market refers to _______________contract & ___________ contract. a) b) c) d) buying spot; selling futures selling the near-month futures; buying the far-month futures buying the near-month futures; selling the far-month futures selling spot; buying futures

15. Reverse cash and carry arbitrage between cash market and futures market implies _____ commodity and simultaneously ____ contract and subsequently, closing the _____ contract by _____ of the physical commodity upon futures expiry. a) b) c) d) buying physical; selling futures; futures; giving delivery selling physical; selling futures; futures; giving delivery buying physical; buying futures; futures; taking delivery selling physical; buying futures; futures; taking delivery

16. In ______________ the buyer of the option can choose to exercise his option at any given period of time between the purchase date and the expiry date of the underlying futures contract. a) b) c) d) an American option an Australian option an Indian option a European option

17. Which of the following is true in the case of the buyer of options? a) Options involve only one time up-front cash outflow for option buyers prior to the expiration date of contracts in the form of option premium. b) c) d) Options involve cash outflow in the form of premium only at the end of the contract period. Options do not involve cash outflow for the buyer at all. None of the above.

18. The pay-offs in option contracts are ____________ in nature. a) b) c) d) Cubic spline Non-linear Linear None of the above

19. A straddle usually involves buying a call option and a put option of a commodity at the ___________ strike price and having same expiration dates.

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a) b) c) d)

same different may be same or may be different None of the above

20. Base price of an existing commodity futures contract that is available for trading on the futures exchange is equal to the ___________. a) b) c) d) notional cash price plus notional cost of carry official closing price of the previous trading session opening price of the current session notional cash price

21. Good till Cancel (GTC) order is valid for execution till ____________. a) b) c) d) cancelled maturity of the contract either until cancellation of order or maturity date of futures contract, whichever is earlier either until cancellation of order or maturity date of futures contract, whichever is later

22. Which of the following statements is not true? The settlement account of the member can be used to __________. a) b) c) d) transfer money to the client account issue cheques to outsiders for business expenses settle dues with the exchange transfer funds to the exchange for MTM pay in and margin settlement

23. The exchange calculates daily price range for each futures contract based on ____________. a) b) c) d) closing price of the commodity futures contract on the previous day opening price of the commodity futures contract on the previous day average closing price of the commodity futures contract on previous 5 days opening price the commodity futures contract on that day

24. The delivery is considered as fully complete when __________. a) b) c) d) surveyor certifies the quality& quantity of the commodity delivered seller delivers the commodity at the designated delivery center buyer lifts delivery of the commodity buyer makes the full payment for the delivery

25. Which of the following statements is true? a) The seller of commodity need not have a sales tax registration at all.

b) In case the seller of a commodity does not have a sales tax registration number, then he can appoint an agent or nominee who has the required sales tax registration and deliver the commodity through him. c) d) Seller of commodity can never deliver through a third party. None of the above statements are true.

26. On 1 April, Gold June futures contract is trading at Rs. 12,815 per 10 gm. In the cash market, Gold is trading at Rs. 12,664 per 10 gm. A trader, expecting gold price to increase, buys 10 Gold June futures contracts (lot size is 1 Kg). On 1 May, if Gold June futures contract trades at Rs. 12,910 per 10 gm, then profit earned or loss incurred after closing out of futures contracts would be _______ . a) b) c) d) Profit of Rs. 95 Loss of Rs. 95,000 Loss of Rs. 950 Profit of Rs. 95,000

27. Mr. Arun buys two futures contracts of Gold (1 Kg per futures contract) at the price of Rs. 12,000 per 10 gm. If after one month the futures price is at Rs. 11,800 per 10 gm, what is the profit / loss made by Mr. Arun if he squares off his position? a) b) c) d) Loss of 40,000 Profit of 40,000 Profit of 20,000 Loss of 20,000

28. A trader sold 10 lots of January Ref. Soy oil futures contract (trading unit of 10MT) for Rs. 608 per 10 kg. in November 2007. After 15 days he closed out the position at 605.60 per 10 kg. How much profit/loss he made in the above transaction? a) b) c) Loss of Rs. 24,000 Profit of Rs.2,400 Profit of Rs.24,000

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d)

Loss of Rs. 2,400

29. In March 2008, an arbitrager in the commodity market notices riskless profit in Gold June 2008 futures contract. He borrows Rs. 12,80,000 @ 12% p.a. for two months and with this loan amount buys 1 kg of Gold in the cash market at a price of Rs. 12,800 per 10 gm and simultaneously shorts 1 contract (1 kg each) of Gold June futures at the price of Rs. 13,100 per 10 gm. On expiry of Gold June futures, he delivers 1 kg of Gold against outstanding short position and earns a profit of __________ after paying financing cost for two months. (Ignore all other miscellaneous costs on margins, tax, etc. and assume simple interest on loan amount) a) b) c) d) Rs. 8,800 Rs. 30,000 Rs. 25,600 Rs. 4,400

30. On 1st April 2008, Mr. Amitabh sells 1 kg of Gold in the cash market at a price of Rs. 12,800 per 10 gm. From the proceeds of the cash sale, Mr. Amitabh lends Rs. 12,50,000 @ 12% p.a. for two months. On 1st April 2008, Mr. Amitabh also buys 1 contract (1 kg each) of Gold June futures at the price of Rs. 12,850 per 10 gm. The initial margin Mr. Amitabh has paid for buying the futures contract is Rs. 30,000. On expiry of Gold June futures, Mr. Amitabh makes a profit / loss of __________________. (Ignore all other miscellaneous costs, tax and interest on initial margin on the futures contract and assume simple interest on loan amount) a) b) c) d) Loss of Rs 25,000 Profit of Rs 25,000 Profit of Rs 20,000 Loss of Rs 20,000

31. In April 2008, a food processing firm estimates that it will require 25 MT of Jeera in May 2008. Trading unit of May Jeera futures contract at MCX is 2 MT. If MCX May Jeera futures contract is trading at Rs. 7,100 per 100 kg and hedge ratio works out to be 1.20, then the firm should__________ for optimum hedge. a) b) c) d) buy 30 lots of May Jeera futures buy 10 lots of May Jeera futures sell 15 lots of May Jeera futures buy 15 lots of May Jeera futures

32. In March 2008, a Mumbai-based Gold jeweller buys 10 kg Gold in the cash market at a price of Rs. 12,900 per 10 gm as a raw material to make jewellery from it. He wants to protect himself from adverse price movements in Gold till the jewellery he plans to make is ready for sale in June 2008. How can he hedge his position (assume hedge ratio to be 1) ? a) b) c) d) (Long) Buys 10 June gold futures contract of 1 kg each. (Short) Sells 10 June gold futures contract of 1 kg each. (Long) Buys 10 October gold futures contract of 10 kg each. (Short) Sells 10 October gold futures contract of 10 kg each.

33. Trading unit and base value unit of Chana futures contract are 10 MT and 100 kg respectively. On 21st January 2008, a trader buys 17 contracts of February Chana futures contract at Rs. 2,700 per 100 kg and wants to limit his loss to Rs. 34,000. What should be the stop loss order price? a) b) c) d) Rs. 2710 per 100 kg Rs. 2690 per 100 kg Rs. 2680 per 100 kg Rs. 2720 per 100 kg

34. A trading member has three clients A, B & C. Clients A, B & C have purchased 20, 40 and 50 futures contracts of December Gold respectively and sold 50, 40 and 20 futures contracts of December Gold respectively. What is the open position of the member for margin requirement? (Assuming zero open position of the member at the beginning and he does not take proprietary futures contracts positions) a) b) c) d) 60 contracts Zero contracts 30 contracts 220 contracts

35. A hedger wants to have an open long position for 5000 MT of Aluminium. If the trading unit for one contract of Aluminium is 2 MT and the Maximum order size is 150 MT. How many minimum orders does he need to place? a) b) c) d) 30 36 32 34

36. The trading unit in one Nickel contract is 250 kg while the delivery unit is 3 MT. During the delivery period of the contract, a seller has an open position of 68 MT. If he wants to give delivery then how much of his open position would be deliverable and how much would be cash settled? a) b) 68 MT, 0 MT 0 MT, 68 MT

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c) d)

66 MT, 2 MT 2 MT, 66 MT

37. An individual member of MCX has given admission fee and initial deposit of Rs. 10 lakhs each and also given additional deposit of Rs. 10 lakhs for trading in futures. If MCX December Gold futures contract is trading at Rs. 13,200 per 10 gm. (Trading unit of 1 Kg),how many Gold futures contracts he/she can buy with the use of 85% of the available limit? (Margin requirement of Gold futures contracts is 4%) a) b) c) d) 31 32 33 34

38. If the price quotation factor (base unit) of Kapas futures contract is 20 Kg and the market lot size (trading unit) of Kapas futures contract is 4,000 Kg. then what is the value of one contract of December Kapas futures contract which is currently trading at Rs. 550 per 20 Kg? a) b) c) d) Rs. 1,100 Rs. 11,000 Rs. 1,10,000 Rs. 550

39. If the tick size of Guarseed futures contract is 50 paise then which of the following order cannot be accepted by the Traders Workstation? a) b) c) d) Rs. 3,499 Rs. 3,502 Rs. 3,501 Rs. 3,500.25

40. On 1 Dec 2007, Mr. Raja buys 30 Kg of February Silver futures contract for Rs. 23,000 per Kg. On 8 Dec 2007, he sells 30 Kg of February Silver futures contract at Rs. 25,000 per Kg. What is the total profit made / loss incurred by Mr. Raja ? a) b) c) d) loss of Rs. 600 profit of Rs. 6,000 profit of Rs. 60,000 loss of Rs. 6,00,000

41. On 1 Dec 2007, Mr. Manish sells 30 kg Silver futures contract for Rs. 22,000 per 1 kg. On 8 Dec 2007, he buys 30 kg Silver futures contract at Rs. 23,000 per 1 kg. What is the total profit made / loss incurred by Mr. Manish? a) b) c) d) loss of Rs. 3,000 profit of Rs. 30,000 profit of Rs. 3,000 loss of Rs. 30,000

42. On 1st Oct 2007, Mr. Mehta buys one contract of December Sponge Iron futures at Rs. 20,000 per MT. On 28th Oct 2007, Mr. Mehta sells one contract of December Sponge Iron futures at Rs. 19,500 per MT to square off his open position. The contract size of Sponge Iron futures contract is 15 MT. What is the total profit or loss of Mr. Mehta? a) b) c) d) loss of Rs. 75,000 profit of Rs. 750 loss of Rs. 7,500 profit of Rs. 7,500

43. On 21st April 2007, Mr. Shyam sells one contract of June Brent crude oil futures at Rs. 3,500 per barrel. On 25th April 2007, Mr. Shyam buys one contract of June Brent crude oil futures at Rs. 3,300 per barrel to square off his position. (Each contract size is of 100 Barrels) What is the total profit or loss of Mr. Shyam in this deal? a) b) c) d) profit of Rs. 20,000 loss of Rs. 20,000 loss of Rs. 50,000 loss of Rs. 1,00,000

44. On 1 Dec 2007, Mr. Amar buys 3 lots of Aluminum futures contracts (trading unit is 2 MT) for Rs 110 per kg. What is the initial margin payable, if 5% is the initial margin? a) b) c) d) Rs. 3,300 Rs. 33,000 Rs. 330 Rs. 33

45. Mr. Verma buys a 3-month European Put option on an underlying asset at strike price of Rs. 100 for a premium of Rs. 20. Upon expiration after 3 months, the closing price of the underlying asset is Rs. 70. What is the net pay off from the Put option for Mr. Verma?

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a) b) c) d)

Profit of Rs. 10 Profit of Rs. 20 Profit of Rs. 5 Profit of Rs. 15

46. On 1st May 2007, Mr. Paras buys 3-month put option contract on June Gold Futures at strike price of Rs. 12,000 per 10 gm for which he pays option premium of Rs. 150 per 10 gm. If at expiry / maturity of option contract, the June Gold futures price is Rs. 11,500 per 10 gm., then what is the net pay-off for Mr. Paras? (The standard contract size of Gold futures is 1 Kg and each option contract is on 1 futures contract) a) b) c) d) loss of Rs. 40,000 profit of Rs. 40,000 profit of Rs. 35,000 loss of Rs. 35,000

47. What is the value of one tick, if the tick size of MCX Cardamom futures contract is 10 paise and trading unit and base unit is 100 Kg and 1 Kg respectively? a) b) c) d) Rs.100 Rs.10 Rs. 1000 Re. 1

48. On 15th January 2008, a trader takes long position in 5 lots of MCX February Gold futures (lot size is 1 Kg) contract at Rs. 12,500 per 10 gm and shorts 2 lots of MCX April Gold futures contract at Rs. 12,650 per 10 gm. What is the applicable spread benefit on the margin? (Note: Total margin required is 4%; Spread benefit is 75%). a) b) c) d) Rs. 50,300 Rs. 1,50,900 Rs. 2,50,600 Rs. 2,00,300

49. On 15th January 2008, a trader takes long position in 5 lots of MCX February Gold futures (lot size is 1 Kg) contract at Rs. 12,500 per 10 gm and shorts 2 lots of MCX April Gold futures contract at Rs. 12,650 per 10 gm. What is margin blocked on the positions? (Note: Total margin required is 4%; Spread benefit is 75%) a) b) c) d) Rs. 3,51,200 Rs. 50,300 Rs. 2,50,600 Rs. 2,00,300

50. On November 30, 2007, a trader buys one lot of MCX Silver futures contract that is expiring on December 5, 2007 at Rs. 22,500 per Kg. The initial margin payable is 5% while the tender period margin is 25%. The tender period of the contract is starting from December 1. If the contract is not squared off and left open on December 1 and the contract is trading at Rs. 22,800 per Kg, what would be the margin on December 1, over and above the initial margin paid at the time of buying the contract on November 30? (Note: Delivery period margin is inclusive of initial margin) a) b) c) d) Rs. 1,35,000 Rs. 1,71,000 Rs. 1,37,250 Rs. 1,68,750 Back Close Window

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