📊 NISM Series XXI-A Chapter 5 of 12 ⚖ 5 of 100 marks weightage

Ch.5: Derivatives

Practice questions for NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors Certification Examination, Chapter 5: Derivatives. This chapter defines derivatives under the SC(R)A and the RBI Act, then explains the four basic products: forwards, futures, options and swaps. It contrasts OTC and exchange-traded markets, sets out the three uses of derivatives (hedging, speculation and arbitrage), introduces commodity and currency derivatives, and covers zero-sum payoffs, settlement and margins. It ends with the rules for how portfolio managers may use derivatives for PMS clients. Carries 5 out of 100 marks. The exam has 100 MCQs, 60% passing score, and −10% negative marking per wrong answer.

What You Will Learn in This Chapter

What a derivative is, what underlyings it can have, and how the SC(R)A and Section 45U(a) of the RBI Act define it.
How forwards, futures, options and swaps work, and why futures were created to fix the liquidity and counterparty problems of forwards.
The difference between OTC and exchange-traded derivatives and which products fall in each group.
How derivatives are used for hedging, speculation and arbitrage, and why arbitrage gaps are limited to transaction costs.
The zero-sum nature of derivatives, cash vs physical settlement, margins, and the conditions under which portfolio managers may use derivatives.

Key Terms:UnderlyingForward contractCounterparty riskFutures contractCall and put optionOption writerInterest rate swapNotional amountArbitrageZero-sum game

Free Sample Question

Q1MCQMediumContract terms in futures

In a futures market, which contract term is NOT fixed by the exchange?

AQuality

BQuantity

✓Price

DExpiry date

💡 The exchange standardises all terms except price, which is discovered through the free interaction of buyers and sellers.

39 more questions in this chapter

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About this content: These practice questions are written by BullWiser from the syllabus of the NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors Certification Examination, using the workbook published by the National Institute of Securities Markets (NISM), Mumbai (September 2025 edition) as the fact source. NISM is a SEBI-established institution. Questions cover Chapter 5: Derivatives with verified answers and explanations. BullWiser is an independent exam preparation platform — not affiliated with NISM, SEBI or APMI. Last updated: September 30, 2026.

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