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NISM Series I (Currency Derivatives) study materials
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NISM Series I (Currency Derivatives) practice questions

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Question 1Currency Derivatives

On the NISM currency derivatives framework, which underlying is traded when a client takes a position in the USD/INR futures contract on an Indian exchange?

  1. The dollar-rupee exchange rate, quoted as rupees per US dollar Correct answer.
  2. The price of one US Treasury bond
  3. The rupee-dollar interest rate differential only
  4. The spot price of gold in Mumbai

Explanation

Exchange-traded currency futures in India are cash-settled contracts on the exchange rate of the rupee against a foreign currency, quoted as rupees per unit of the foreign currency. USD/INR futures therefore track the dollar-rupee rate, not interest differentials, bonds or gold.

Question 2Currency Derivatives

A corporate treasurer wants to lock in the rate today for buying USD 1,000,000 in three months from a bank. Which instrument achieves this without any exchange margin?

  1. A currency futures contract bought on the exchange
  2. An over-the-counter forward contract with the bank Correct answer.
  3. A spot purchase of USD executed today
  4. A call option on USD purchased on the exchange

Explanation

An OTC forward is a bilateral contract with the bank that fixes the exchange rate for a future date and carries counterparty exposure to the bank rather than exchange margin. Exchange-traded futures and options involve clearing-house margin, and a spot purchase settles now rather than in three months.

Question 3Currency Derivatives

In Indian currency futures, what does the daily mark-to-market process require of a position holder?

  1. Daily cash settlement of the profit or loss on the position Correct answer.
  2. Settlement of only the brokerage commission each day
  3. Delivery of the underlying foreign currency at maturity
  4. Payment of the full notional value of the contract on trade date

Explanation

Currency futures are marked to market daily: gains are credited and losses debited from the margin account based on the day's settlement price. The full notional is never paid, and the contracts are cash-settled rather than delivered.

Question 4Currency Derivatives

A trader buys one USD/INR futures contract at 83.00 and the settlement price that day is 83.25. With a contract size of USD 1,000, what is the mark-to-market credit for the day, ignoring costs?

  1. INR 1,000
  2. INR 2,500
  3. INR 25
  4. INR 250 Correct answer.

Explanation

The gain is the price change multiplied by the contract size: (83.25 - 83.00) x 1,000 = INR 250. A long position profits when the rupee depreciates, i.e. when the quoted rupee-per-dollar rate rises.

Question 5Currency Derivatives

Which participant category is permitted to take positions in exchange-traded currency derivatives beyond the normal retail limit by registering as a client with a higher limit?

  1. Only foreign institutional investors
  2. Any individual retail investor automatically
  3. Exporters and importers classified as clients with a higher position limit Correct answer.
  4. Only banks acting as market makers

Explanation

The regulatory framework allows specified client categories, including exporters and importers with genuine exposure, to hold positions above the normal retail limit subject to documentation. Retail investors face a standard limit, and banks operate under separate market-maker limits.

Question 6Currency Derivatives

An Indian exporter expects to receive USD 500,000 in two months and fears rupee appreciation. Which exchange-traded position hedges this exposure?

  1. Buy a USD/INR put option
  2. Sell USD/INR futures Correct answer.
  3. Buy USD/INR futures
  4. Sell a USD/INR call option

Explanation

The exporter will convert dollars into rupees later, so it loses if the rupee strengthens (the rupee-per-dollar rate falls). Selling USD/INR futures gains when the rate falls, offsetting the loss on the receivable. Buying futures or a put would benefit from the opposite move.

Question 7Currency Derivatives

What is the standard quotation convention for the USD/INR exchange rate in the Indian market?

  1. US cents per one rupee
  2. US dollars per one rupee
  3. Rupees per 100 US dollars
  4. Rupees per one US dollar Correct answer.

Explanation

The USD/INR rate is quoted as the number of Indian rupees required to buy one US dollar, for example 83.00. A rise in this number means the rupee has depreciated against the dollar.

Question 8Currency Derivatives

Which body acts as the central counterparty and guarantees settlement of trades executed on Indian currency derivatives exchanges?

  1. The clearing corporation of the exchange Correct answer.
  2. The participating trading member
  3. The Securities and Exchange Board of India
  4. The Reserve Bank of India directly

Explanation

The exchange's clearing corporation becomes the central counterparty through novation, guaranteeing settlement and managing default risk through margins and a settlement guarantee fund. The regulator supervises but does not settle trades, and the trading member is not the guarantor.

Question 9Currency Derivatives

The spot USD/INR is 83.00 and the 3-month forward is 83.60. What does this quotation indicate?

  1. The forward market is in backwardation for the dollar
  2. The rupee is expected to appreciate over three months
  3. The dollar is at a forward premium to the rupee Correct answer.
  4. The dollar is at a forward discount to the rupee

Explanation

When the forward rate exceeds the spot rate, the foreign currency (dollar) is at a forward premium and the rupee is at a forward discount. This usually reflects the interest rate differential between the two currencies.

Question 10Currency Derivatives

A trader expects the rupee to appreciate against the dollar over the next month. Which futures action expresses this view?

  1. Buy a forward to purchase dollars
  2. Buy USD/INR futures
  3. Sell USD/INR futures Correct answer.
  4. Buy a USD/INR call option

Explanation

Rupee appreciation means the rupee-per-dollar rate falls. Selling USD/INR futures profits when that rate falls, so it expresses the view that the rupee will strengthen. Buying futures or a call profits from rupee depreciation.

Question 11Currency Derivatives

An arbitrageur observes the spot USD/INR at 83.00 and the one-month futures at 83.80, while the fair forward based on interest rates is 83.20. Which trade captures the mispricing?

  1. Sell futures and sell spot dollars
  2. Sell futures and buy spot dollars Correct answer.
  3. Buy futures and buy spot dollars
  4. Buy futures and sell spot dollars

Explanation

The futures price is above its fair value, so the arbitrageur sells the overpriced futures and buys the spot dollar to hedge the position. Convergence of the futures to fair value at expiry produces the profit.

Question 12Currency Derivatives

A call option on USD/INR gives the buyer the right to do what?

  1. Sell dollars at the strike rate on or before expiry
  2. Buy dollars only at the prevailing spot rate
  3. Buy dollars at the strike rate on or before expiry Correct answer.
  4. Receive a fixed interest payment on dollars

Explanation

A call on USD/INR confers the right, not the obligation, to buy the underlying dollars at the strike rate. The buyer exercises when the market rate exceeds the strike, and the maximum loss is the premium paid.

Question 13Currency Derivatives

An importer pays a premium of INR 0.25 per dollar for a USD/INR call at a strike of 83.00 on USD 100,000. If the spot at expiry is 83.50, what is the net profit on the option?

  1. INR 50,000
  2. INR 75,000
  3. INR 25,000 Correct answer.
  4. INR 0

Explanation

The intrinsic value at expiry is (83.50 - 83.00) = 0.50 per dollar, or INR 50,000 on 100,000 dollars. Subtracting the premium of 0.25 per dollar (INR 25,000) leaves a net profit of INR 25,000.

Question 14Currency Derivatives

Which factor primarily explains why the USD/INR forward rate exceeds the spot rate in a normal market?

  1. Higher Indian interest rates relative to US rates Correct answer.
  2. Expectations of rupee appreciation
  3. A shortage of dollars in the spot market
  4. Higher US interest rates relative to Indian rates

Explanation

Covered interest parity implies the forward premium on the dollar roughly equals the Indian-US interest rate differential. When Indian rates exceed US rates, the dollar trades at a forward premium, i.e. the forward rate exceeds the spot rate.

Question 15Currency Derivatives

What does the initial margin requirement on a currency futures position represent?

  1. The premium paid to acquire the contract
  2. The brokerage charged at the time of trade
  3. A performance deposit held to cover potential adverse price moves Correct answer.
  4. The maximum loss the position can incur

Explanation

Initial margin is a performance deposit collected by the clearing corporation to secure the position against adverse price movements. It is not a cap on losses, a fee, or a premium, and it is adjusted daily through mark-to-market.

Question 16Currency Derivatives

A trader holds a short USD/INR futures position of USD 2,000,000 against a position limit of USD 6,000,000. A further short sale of USD 5,000,000 is proposed. What is the position-limit consequence?

  1. The trade is permitted if executed on a different exchange
  2. The trade breaches the limit because total open position would reach USD 7,000,000 Correct answer.
  3. The trade is permitted because short positions are exempt from limits
  4. The trade is permitted because the limit applies to each trade separately

Explanation

Position limits apply to the aggregate open position held by a client across contracts, not to individual trades. Adding USD 5,000,000 to an existing USD 2,000,000 short gives USD 7,000,000, exceeding the USD 6,000,000 limit.

Question 17Currency Derivatives

A speculator believes volatility in USD/INR will rise sharply but has no directional view. Which strategy matches this outlook?

  1. Sell a USD/INR strangle
  2. Buy a single USD/INR call option
  3. Buy USD/INR futures outright
  4. Buy a USD/INR straddle Correct answer.

Explanation

A long straddle buys both a call and a put at the same strike, profiting from large moves in either direction. It is a pure volatility strategy, whereas a single option or futures position carries directional exposure.

Question 18Currency Derivatives

Which risk does an Indian company face when it has entered an OTC forward with a bank rather than an exchange-traded future?

  1. Counterparty credit risk on the bank Correct answer.
  2. Daily mark-to-market margin calls
  3. Exchange clearing-house default
  4. Price discovery through the exchange screen

Explanation

An OTC forward is a bilateral contract, so the company is exposed to the possibility that the bank defaults on its obligation. Exchange-traded futures replace that with clearing-house guarantee and daily margin discipline.

Question 19Currency Derivatives

The USD/INR futures contract on Indian exchanges is cash-settled against which reference rate?

  1. The previous day's closing futures price
  2. The London fix for the dollar
  3. The RBI reference rate on the final settlement day Correct answer.
  4. The average of the last five trading days

Explanation

The final settlement price of exchange-traded USD/INR futures is based on the RBI reference rate on the last trading day of the contract. The contract is then cash-settled in rupees, with no delivery of dollars.

Question 20Currency Derivatives

A trader sells a USD/INR call at a strike of 83.00 and receives a premium of INR 0.20 per dollar on USD 100,000. What is the maximum profit and the loss profile?

  1. Maximum profit INR 20,000; loss limited to INR 80,000
  2. Maximum profit INR 20,000; loss potentially unlimited as the rupee weakens Correct answer.
  3. Maximum profit unlimited; loss limited to INR 20,000
  4. Maximum profit INR 20,000; loss limited to the premium

Explanation

The call seller keeps the premium as maximum profit but faces potentially unlimited loss because the rupee-per-dollar rate can rise without a ceiling. The buyer, by contrast, has loss limited to the premium.

Question 21Currency Derivatives

In the currency derivatives segment, what is the role of the trading member's risk management system when a client's margin falls short?

  1. It automatically converts the position into a spot trade
  2. It converts the futures position into an option
  3. It issues a margin call and may square off the position if funds are not met Correct answer.
  4. It transfers the shortfall to the clearing corporation without client action

Explanation

When mark-to-market losses erode margin below the required level, the member raises a margin call and, if the client fails to pay, may close out the position. The clearing corporation ultimately collects from the member, not directly from the client.

Question 22Currency Derivatives

An Indian IT exporter has a USD 1,000,000 receivable in 90 days and simultaneously buys a USD/INR put option at a strike of 83.00 for a premium of INR 0.30. What is the effective floor rate on the receivable?

  1. 83.60
  2. 83.30
  3. 83.00
  4. 82.70 Correct answer.

Explanation

The put guarantees sale of dollars at 83.00, and the premium of 0.30 per dollar reduces the net proceeds, giving an effective floor of 82.70. The exporter retains upside if the rupee weakens beyond the strike.

Question 23Currency Derivatives

The spot USD/INR is 83.00, the 3-month forward is 83.45, and Indian 3-month rates exceed US rates by roughly 2 percent annualised. Which statement best interprets the forward quotation?

  1. The forward premium is broadly consistent with the interest rate differential Correct answer.
  2. The rupee is expected to depreciate by 2 percent in total over three months
  3. The forward is mispriced because it exceeds the spot rate
  4. The forward market is in backwardation

Explanation

A forward premium of about 0.45 on 83.00 is roughly 0.54 percent over three months, or about 2.2 percent annualised. That closely matches the 2 percent interest differential, so covered interest parity broadly holds.

Question 24Currency Derivatives

A trader holds a long USD/INR futures position of USD 1,000,000 at 83.00. The exchange raises the initial margin requirement intraday. What is the most likely immediate consequence for the trader?

  1. The mark-to-market settlement is suspended
  2. The position is automatically liquidated at the original price
  3. The contract size is reduced proportionally
  4. The trader must fund the additional margin or risk a margin call and square-off Correct answer.

Explanation

A higher margin requirement increases the funds the member must collect from the client. If the client cannot fund the shortfall, the member may square off the position, so the trader must arrange additional margin.

Question 25Currency Derivatives

An arbitrageur notes that the one-month USD/INR futures trades at 83.50 while the fair forward based on the interest differential is 83.30. Which combination captures the mispricing with minimal directional risk?

  1. Buy futures and sell spot dollars
  2. Buy futures and buy spot dollars
  3. Sell futures and buy spot dollars Correct answer.
  4. Sell futures and sell spot dollars

Explanation

The futures is rich relative to fair value, so the arbitrageur sells the futures and buys the spot dollar to hedge the short. As the futures converges to fair value at expiry, the spread is captured with little directional exposure.

Question 26Currency Derivatives

Under the exchange-traded currency derivatives framework in India, what does the term 'contract size' of the USD/INR futures contract refer to?

  1. The notional value of one contract, fixed at USD 1,000 Correct answer.
  2. The number of contracts a client may hold at any time
  3. The tick size by which the quoted price may move
  4. The margin amount blocked by the exchange per contract

Explanation

Contract size means the notional principal that one futures contract represents, and on Indian exchanges the USD/INR futures contract is standardised at USD 1,000 per contract. Position limits, margins and tick size are separate contract specifications and are not what contract size denotes.

Question 27Currency Derivatives

A client wishes to trade USD/INR futures on a recognised Indian exchange. Which statement correctly describes how such a trade is executed and cleared?

  1. The order is matched on the exchange's anonymous order book and cleared through the clearing corporation Correct answer.
  2. The trade is executed only through the RBI's trading window
  3. The client must physically deliver dollars to the exchange on the due date
  4. The client negotiates a bilateral price with a bank and the bank clears it

Explanation

Exchange-traded currency futures are matched on the exchange's electronic order book, and the clearing corporation becomes the central counterparty to every trade. There is no bilateral negotiation with a bank in the exchange segment, and settlement is cash rather than physical delivery.

Question 28Currency Derivatives

An Indian exporter will receive USD 200,000 in three months and wants a guaranteed minimum rupee value while retaining upside if the rupee weakens. Which instrument achieves this objective?

  1. A sold USD/INR call option
  2. A long USD/INR futures position
  3. A purchased USD/INR put option Correct answer.
  4. A forward sale of dollars at the three-month forward rate

Explanation

A put option on USD/INR gives the exporter the right to sell dollars at the strike, setting a floor on the rupee proceeds while leaving the exporter free to benefit from a better spot rate. A forward or futures locks in a single rate and removes the upside, while selling a call does not protect the receivable.

Question 29Currency Derivatives

What is the minimum price movement, or tick size, quoted for USD/INR futures on Indian exchanges?

  1. INR 0.0025 per dollar Correct answer.
  2. INR 0.0001 per dollar
  3. INR 0.05 per dollar
  4. INR 0.01 per dollar

Explanation

The USD/INR futures contract on Indian exchanges has a tick size of INR 0.0025 per dollar, so quotes move in increments of one-quarter of a paisa. This fine tick allows tight quoting in a market where daily percentage moves are small.

Question 30Currency Derivatives

A trader buys one USD/INR futures contract at 83.0000 and later sells it at 83.2500. Given the standard contract size, what is the profit?

  1. INR 25
  2. INR 250 Correct answer.
  3. INR 1,000
  4. INR 2,500

Explanation

Profit equals the price change multiplied by the contract size. Here the change is INR 0.25 per dollar and the contract size is USD 1,000, giving INR 250 before costs.

Question 31Currency Derivatives

Which statement best describes the role of the clearing corporation in the currency derivatives segment?

  1. It provides loans to clients who incur trading losses
  2. It sets the spot exchange rate for the market each day
  3. It approves each client's hedging strategy before a trade
  4. It interposes itself between buyer and seller and guarantees settlement of obligations Correct answer.

Explanation

By novating trades, the clearing corporation becomes the buyer to every seller and the seller to every buyer, so counterparty default does not affect the original parties. It manages this risk through margins and a settlement guarantee fund.

Question 32Currency Derivatives

In Indian currency options on USD/INR, what does the term 'premium' mean for the buyer?

  1. The amount the buyer pays upfront for the option right Correct answer.
  2. The margin deposited with the exchange
  3. The difference between spot and futures price
  4. The strike price at which the option may be exercised

Explanation

The premium is the price paid by the option buyer to the seller in exchange for the right conveyed by the contract. It is paid upfront and is the maximum the buyer can lose apart from transaction costs.

Question 33Currency Derivatives

Which of the following best describes a 'cash-settled' currency futures contract?

  1. Settlement is postponed until the client chooses a date
  2. Profits and losses are settled in cash based on the final settlement price Correct answer.
  3. The buyer may demand dollars instead of rupees at expiry
  4. The contract is settled by delivering an equivalent amount of gold

Explanation

In cash settlement the parties exchange only the monetary gain or loss computed from the final settlement price, with no transfer of the underlying currency. This avoids the need for physical dollar delivery infrastructure.

Question 34Currency Derivatives

A corporate treasurer wants to hedge a USD 3,000,000 payable due in four months using exchange-traded futures. How many standard contracts are needed?

  1. 3,000 Correct answer.
  2. 3
  3. 300
  4. 30

Explanation

Each contract covers USD 1,000, so dividing the exposure of USD 3,000,000 by 1,000 gives 3,000 contracts. The hedge direction would be a long futures position because the treasurer must eventually buy dollars.

Question 35Currency Derivatives

A trader holds a short USD/INR futures position and the exchange reduces the initial margin requirement. What is the immediate effect on the trader's account?

  1. Excess margin becomes available for withdrawal or new positions Correct answer.
  2. The trader must deposit additional funds to maintain the position
  3. The contract's settlement price is revised downward
  4. The position is automatically squared off by the exchange

Explanation

Initial margin is collateral, so a reduction frees part of the blocked amount and turns it into excess margin that can be withdrawn or used for other trades. The position itself and the settlement price are unaffected by the margin rate.

Question 36Currency Derivatives

The spot USD/INR is 83.00 and the 6-month annualised forward premium is 3 percent. What is the approximate 6-month forward rate?

  1. 83.25 Correct answer.
  2. 82.51
  3. 85.49
  4. 84.49

Explanation

A 3 percent annual premium over six months is about 1.5 percent, and 1.5 percent of 83.00 is roughly 1.25, giving a forward near 83.25. The calculation applies the premium pro rata for the period of the forward.

Question 37Currency Derivatives

An Indian importer has a USD 500,000 payable in 60 days and fears rupee depreciation. Which exchange-traded action hedges this exposure?

  1. Buy a USD/INR put option
  2. Sell a USD/INR put option
  3. Buy USD/INR futures Correct answer.
  4. Sell USD/INR futures

Explanation

The importer will need dollars, so a rise in USD/INR increases its rupee cost. Buying futures gains when the dollar strengthens, offsetting the higher payable. Selling futures or buying a put would profit from rupee appreciation, which is not the risk being hedged.

Question 38Currency Derivatives

A USD/INR call option with a strike of 83.00 is quoted at a premium of INR 0.40 when the spot is 83.10. What is the option's intrinsic value per dollar?

  1. INR 0.30
  2. INR 0.00
  3. INR 0.10 Correct answer.
  4. INR 0.40

Explanation

Intrinsic value of a call is the excess of spot over strike, here 83.10 minus 83.00, which equals INR 0.10. The remaining INR 0.30 of the premium is time value.

Question 39Currency Derivatives

Which of the following best describes a 'calendar spread' in USD/INR futures?

  1. Buying and selling contracts of the same expiry on two exchanges
  2. Buying one expiry month and selling a different expiry month of the same contract Correct answer.
  3. Holding equal long and short positions in the same contract month
  4. Buying futures and simultaneously buying a put of the same expiry

Explanation

A calendar spread takes offsetting positions in two different expiry months of the same underlying, seeking to profit from changes in the spread between them. It is a relative-value trade rather than a directional one.

Question 40Currency Derivatives

A client's account shows a margin shortfall after a sharp adverse move. Under exchange risk management, what happens if the client does not fund the shortfall within the prescribed time?

  1. The client is automatically granted a fresh position limit
  2. The clearing corporation absorbs the loss permanently
  3. The exchange waives the shortfall until expiry
  4. The member squares off the position and may charge the loss to the client Correct answer.

Explanation

Members are required to collect margins from clients and to square off positions when a shortfall is not cured, with any resulting loss borne by the client. This protects the member and the clearing corporation from accumulating uncovered exposure.

Question 41Currency Derivatives

What is the effect of a 'limit price' instruction when placing a buy order in USD/INR futures?

  1. The order executes only at the limit price or higher
  2. The order executes immediately at the best available price
  3. The order is cancelled if not filled within one minute
  4. The order executes only at the limit price or lower Correct answer.

Explanation

A buy limit order sets a ceiling, so it fills at the stated price or better, meaning lower. It may remain unfilled if the market never trades at or below that level.

Question 42Currency Derivatives

An exporter with a USD 1,000,000 receivable buys a USD/INR put at a strike of 83.00 for a premium of INR 0.50 per dollar. At expiry the spot is 82.00. What is the net rupee outcome from the option per dollar?

  1. 83.50
  2. 82.50 Correct answer.
  3. 82.00
  4. 84.00

Explanation

The put is exercised at 83.00, yielding INR 83.00 per dollar, from which the INR 0.50 premium is deducted to give INR 82.50 net. The premium is the cost of securing the floor.

Question 43Currency Derivatives

Which of the following is a correct statement about the daily mark-to-market process for currency futures?

  1. It resets the contract's strike price
  2. It fixes the final settlement price for the contract
  3. It adjusts the margin balance for the change in settlement price each day Correct answer.
  4. It transfers the underlying dollars between parties

Explanation

Mark-to-market recomputes the value of each open position at the daily settlement price and credits or debits the resulting gain or loss to the margin account. This keeps collateral aligned with the position's current exposure.

Question 44Currency Derivatives

A trader believes the spread between the near-month and far-month USD/INR futures is unusually wide and will narrow. Which position expresses this view?

  1. Sell both months in equal quantity
  2. Buy the near month and sell the far month Correct answer.
  3. Buy both months in equal quantity
  4. Sell the near month and buy the far month

Explanation

If the spread is expected to narrow, the trader should sell the relatively expensive far month and buy the cheaper near month, profiting as the gap closes. Buying both or selling both is a directional position and does not isolate the spread.

Question 45Currency Derivatives

An Indian company has a USD 2,000,000 payable in 90 days. It hedges with a long futures position at 83.00. At expiry the spot is 84.00 and the futures final settlement is 84.00. What is the net effective rupee cost per dollar?

  1. 83.00 Correct answer.
  2. 85.00
  3. 84.00
  4. 82.00

Explanation

The futures gain of INR 1.00 per dollar offsets the higher spot cost of 84.00, leaving a net cost of 83.00 as locked in by the hedge. This illustrates how a futures hedge fixes the effective price.

Question 46Currency Derivatives

Under the RBI's framework for resident entities, which statement about participation in exchange-traded currency derivatives is correct?

  1. Corporates must obtain prior RBI approval for each trade
  2. Only foreign institutional investors may transact
  3. Only banks may transact in the exchange-traded segment
  4. Resident individuals and corporates may transact subject to the prescribed documentation and limits Correct answer.

Explanation

The framework permits resident individuals and corporates to access exchange-traded currency derivatives subject to the specified eligibility, documentation and position limits. Individual trade-by-trade RBI approval is not required.

Question 47Currency Derivatives

A trader observes the spot USD/INR at 83.00, the 3-month future at 83.60, and a fair forward of 83.30 based on the interest differential. Which arbitrage is indicated?

  1. Buy futures and sell spot simultaneously
  2. Buy both spot and futures
  3. Take no position because the future is fairly priced
  4. Buy spot, sell futures, and carry the position to expiry Correct answer.

Explanation

The future trades above its fair value, so selling the rich future and buying the underlying spot locks in the mispricing when the two converge. The carry cost of holding spot is covered by the excess forward premium.

Question 48Currency Derivatives

A trader sells a USD/INR put at a strike of 83.00 and receives a premium of INR 0.60 per dollar. At expiry the spot is 81.50. What is the net profit or loss per dollar?

  1. Profit of INR 0.60
  2. Loss of INR 0.90 Correct answer.
  3. Loss of INR 1.50
  4. Profit of INR 0.90

Explanation

The put is exercised against the seller, who must buy at 83.00 while the market is at 81.50, producing a loss of INR 1.50 that is partly offset by the INR 0.60 premium, leaving a net loss of INR 0.90. The premium is the seller's only compensation for the obligation.

Question 49Currency Derivatives

An exporter hedges a USD 1,000,000 receivable with a short futures position at 83.00. The spot at expiry is 82.00 and the futures final settlement is 82.00. What is the net effective realisation per dollar?

  1. 81.00
  2. 83.00 Correct answer.
  3. 82.00
  4. 84.00

Explanation

The futures gain of INR 1.00 per dollar offsets the lower spot proceeds of 82.00, so the exporter realises the hedged rate of 83.00. The hedge converts an uncertain outcome into the locked-in rate.

Question 50Currency Derivatives

Which combination correctly describes the payoff profile of a long USD/INR straddle at a strike of 83.00 with total premium of INR 0.80?

  1. Profitable for any move away from 83.00 at expiry
  2. Profitable only if the spot moves beyond 83.80 or below 82.20 at expiry Correct answer.
  3. Profitable only if the rupee strengthens beyond 82.20
  4. Profitable only if the spot stays between 82.20 and 83.80

Explanation

A long straddle combines a call and a put at the same strike, so it gains on large moves in either direction but must first recover the premium paid. Breakevens lie at the strike plus and minus the total premium, namely 83.80 and 82.20.