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NISM Series V-D · Chapter 21: Exchange Traded Interest Rate Options

एक्सचेंज ट्रेडेड ब्याज दर ऑप्शंस · NISM-Series-V-D: Mutual Fund – Specialized Investment Fund (SIF) Distributors Certification Examination

6% weightage · ~9 questions 150 questions · 180 minutes · 60% to pass · −0.10 per wrong answer 24 practice questions in our bank

What this chapter covers

Options on interest-rate instruments: calls and puts on bond prices or yields, contract design on Indian exchanges, premium behaviour when rates move, and the basic hedging use — buying protection against a rate rise or fall.

ब्याज-दर ऑप्शन: बॉन्ड मूल्य/यील्ड पर कॉल-पुट, कॉन्ट्रैक्ट डिज़ाइन, प्रीमियम व्यवहार और हेजिंग।

What to master before the exam

Exam tip: Six marks and most candidates confuse price-options with yield-options. Write the two mappings on your formula sheet and re-read them before this section.

Sample questions from this chapter

Five of the 24 questions in our free bank. Open the answer to see the explanation — every question in the mock test has one, in English and Hindi.

Question 1
The price the option buyer pays the option seller to acquire the right is the:
अधिकार प्राप्त करने हेतु ऑप्शन खरीदार, ऑप्शन विक्रेता को जो मूल्य देता है, वह है:
  1. Premiumप्रीमियम
  2. Strike priceस्ट्राइक मूल्य
  3. Agreed priceसहमत मूल्य
  4. Sell priceविक्रय मूल्य
Show answer & explanation
Answer: A — Premium
The premium is the price paid by the buyer to the writer to acquire the option right; the writer keeps it in exchange for the obligation.
प्रीमियम वह मूल्य है जो खरीदार, राइटर को ऑप्शन का अधिकार पाने हेतु देता है; राइटर इसे दायित्व के बदले रखता है।
Question 2
An option BUYER faces ____ risk while an option SELLER faces ____ risk.
ऑप्शन खरीदार को ____ जोखिम होता है जबकि ऑप्शन विक्रेता को ____ जोखिम।
  1. limited; unlimitedसीमित; असीमित
  2. unlimited; limitedअसीमित; सीमित
  3. limited; limitedसीमित; सीमित
  4. unlimited; unlimitedअसीमित; असीमित
Show answer & explanation
Answer: A — limited; unlimited
The buyer’s loss is limited to the premium (large/unlimited profit); the writer’s profit is limited to the premium but the loss can be unlimited.
खरीदार की हानि प्रीमियम तक सीमित (बड़ा/असीमित लाभ); राइटर का लाभ प्रीमियम तक सीमित पर हानि असीमित हो सकती है।
Question 3
An option is “out-of-the-money” (OTM) if, on exercising it, the buyer gets:
कोई ऑप्शन "आउट-ऑफ-द-मनी" (OTM) है यदि उसे एक्सरसाइज़ करने पर खरीदार को मिले:
  1. A negative cash flowऋणात्मक नकदी-प्रवाह
  2. A positive cash flowधनात्मक नकदी-प्रवाह
  3. Zero cash flowशून्य नकदी-प्रवाह
  4. The full premium backपूरा प्रीमियम वापस
Show answer & explanation
Answer: A — A negative cash flow
An OTM option would give a negative cash flow if exercised now, so it is not exercised; ATM gives zero and ITM gives a positive cash flow.
OTM ऑप्शन अभी एक्सरसाइज़ करने पर ऋणात्मक नकदी-प्रवाह देगा, इसलिए एक्सरसाइज़ नहीं होता; ATM शून्य और ITM धनात्मक नकदी-प्रवाह देता है।
Question 4
The difference between an option’s premium and its intrinsic value is the:
किसी ऑप्शन के प्रीमियम और उसकी इंट्रिन्सिक वैल्यू का अंतर क्या है?
  1. Time valueटाइम वैल्यू
  2. Strike priceस्ट्राइक मूल्य
  3. Expiry valueएक्सपायरी वैल्यू
  4. Option valueऑप्शन वैल्यू
Show answer & explanation
Answer: A — Time value
Premium = intrinsic value + time value, so time value = premium − intrinsic value. ATM/OTM options are all time value.
प्रीमियम = इंट्रिन्सिक वैल्यू + टाइम वैल्यू, इसलिए टाइम वैल्यू = प्रीमियम − इंट्रिन्सिक वैल्यू। ATM/OTM ऑप्शंस पूरी तरह टाइम वैल्यू होते हैं।
Question 5
A participant buys a put (strike 98.50) at a premium of ₹0.20. On expiry the bond price is ₹98.50. The net payoff is:
एक प्रतिभागी ₹0.20 प्रीमियम पर पुट (स्ट्राइक 98.50) खरीदता है। एक्सपायरी पर बॉन्ड मूल्य ₹98.50 है। शुद्ध पेऑफ क्या है?
  1. A loss of ₹0.20₹0.20 की हानि
  2. A profit of ₹0.20₹0.20 का लाभ
  3. A profit of ₹0.25₹0.25 का लाभ
  4. No profit and no lossन लाभ न हानि
Show answer & explanation
Answer: A — A loss of ₹0.20
At expiry the put is ATM (spot = strike), so intrinsic value is zero and it is not worth exercising; the net result is the loss of the ₹0.20 premium paid.
एक्सपायरी पर पुट ATM है (स्पॉट = स्ट्राइक), इसलिए इंट्रिन्सिक वैल्यू शून्य और एक्सरसाइज़ करने योग्य नहीं; शुद्ध परिणाम दिए गए ₹0.20 प्रीमियम की हानि है।
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All V-D chapters

1. Investment Landscape · 5%2. Concept and Role of a Mutual Fund · 4%3. Legal Structure of Mutual Funds in India · 3%4. Legal and Regulatory Framework · 7%5. Scheme Related Information · 7%6. Fund Distribution and Channel Management · 4%7. NAV, Total Expense Ratio and Pricing of Units · 5%8. Taxation · 3%9. Investor Services · 10%10. Risk, Return and Performance of Funds · 5%11. Mutual Fund Scheme Performance · 5%12. Mutual Fund Scheme Selection · 10%13. Basics of Derivatives · 10%14. Understanding the Index · 5%15. Introduction to Forwards and Futures · 15%16. Introduction to Options · 13%17. Strategies using Equity Futures and Options · 9%18. Interest Rate, Instruments and Fixed Income · 6%19. Interest Rate Derivatives · 2%20. Exchange Traded Interest Rate Futures · 10%21. Exchange Traded Interest Rate Options · 6%22. Strategies using Interest Rate Derivatives · 6%
← Chapter 20: Exchange Traded Interest Rate Futures Chapter 22: Strategies using Interest Rate Derivatives →

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