Interest Rate Derivatives: A Beginner's Module (Foundation) Practice Exam

Interest Rate Derivatives: A Beginner's Module (Foundation) Practice Exam

Managing interest rate risk is growing in significance, extending beyond the financial sector to include household sectors. Interest rate derivative products serve as the main tools for mitigating such risks. Interest Rate Derivatives: A Beginner's Module seeks to enhance comprehension of money market principles and provide insights into the motivations behind and mechanics of trading interest rate derivatives. This module aims to achieve two main objectives: understanding the concept of the money market and comprehending interest rate derivatives as instruments for risk management.

Who should take the exam?

The will benefit:

• Students
• Teachers
• Employees of Banks, Insurance Companies"
• Primary Dealers
• Employees of Brokers/Sub-Brokers
• Anybody having interest in the Indian money market

Exam Details

• Exam Name: Interest Rate Derivatives: A Beginner's Module
• Exam Languages: English
• Exam Questions: 60 Questions
• Time: 120 minutes
• Passing Score: 50%

Course Outline 

The Exam covers the given topics  - 

Topic 1: Understand Interest Rates and Time Value Of Money

• Introduction; Factors affecting the level of interest rate; Impact and classification of interest rate and Present value, Future value and Discount factor.

Topic 2: Learn about Money and Fixed Income Markets

•  Money markets and fixed income markets.

Topic 3: Government Bonds

• Introduction to and Characteristics of Bonds; Concept of yield; Relationship between bond price and interest rate; Repo and cost of funding and other bond terminology.

Topic 4: Understand Interest Rate Derivatives

• OTC Derivatives; Exchange traded contracts and key terminology of futures market.

Topic 5: Interest Rate Futures (IRF) in India

• Interest rate futures; Rationale; Contract specifications; Settlement and Risk Management.

Topic 6:  An Explanation of Key Concepts in IRF

• Why a notional bond is being used as underlying; Conversion factor; Invoice price; Cheapest to deliver bond; Bond basis.

Topic 7:  Applications and Trading of Interest Rate Futures

• Participants in the IRF market; hedging applications of interest rate derivatives; Speculation and Arbitrage strategy.