NISM Series-I: Currency Derivatives Practice Exam

NISM Series-I: Currency Derivatives Practice Exam

The NISM Series-I: Currency Derivatives examination aims to establish a standardized minimum knowledge level for individuals operating within the Currency Derivatives market segment. This exam aims to enhance comprehension of currency markets and exchange-traded currency futures products, leading to improved investor service quality, operational efficiency in processes, and enhanced risk controls.

Who should take the exam?

The NISM Series-I: Currency Derivatives exam is aimed at a broad audience interested in gaining knowledge about currency derivatives in the Indian market. The suitable audience includes:

• Approved users and sales personnel of trading member
• Interested students and professionals seeking a career in currency derivatives trading or related fields.
• Anyone who wants to improve their understanding of currency markets and exchange-traded currency futures products.

Examination Learning Objectives:

Upon successful completion of the examination, candidates should:

• Have a foundational understanding of currency markets, particularly Exchange Traded Currency Derivatives markets.
  
• Comprehend the trading, clearing, and settlement mechanisms associated with Currency Derivatives markets, along with basic investment strategies employing currency futures and options products.
• Have knowledge of the regulatory framework governing Currency Derivatives markets in India.

Exam Details

• Exam Name: NISM-Series-I: Currency Derivatives
• Exam Languages: English
• Exam Questions: 100 Questions
• Time: 120 minutes
• Passing Score: 60%

Exam Course Outline 

The NISM-Series-I: Currency Derivatives Exam covers the given topics  - 

Topic 1: Overview of Currency Markets

• History of foreign exchange markets
• Major currency pairs
• Overview of international currency markets
• Basics and Peculiarities of currency markets in India
• Settlement or value date
• Over-the-Counter (OTC) forward market
• Exchange rate arithmetic- cross rate
• Impact of market economics on currency prices
• Economic indicators

Topic 2: Learn about Foreign Exchange Derivatives

• Evolution of derivatives
• Derivative products and features
  
• Growth drivers of derivatives
• Market players in the foreign exchange market
• Key economic functions of derivatives
• Exchange-Traded Vs. OTC derivatives

Topic 3: Understand Exchange Traded Currency Futures

• Currency futures
• Spot price
• Futures price
• Contract cycle
• Value date/Final settlement date
• Expiry date
• Contract size
• Initial margin
• Marking-to-market
• Rationale behind currency futures
• Standard items in a futures contract
• Introduction of currency futures in India
• Futures and forward contracts
• Advantages of futures contracts
• Limitations of futures contracts
• Interest rate parity and pricing of currency futures

Topic 4: Learn about Strategies Using Currency Futures

• Role of speculation in futures markets
• Long position in futures
  
• Short position in futures
  
• Hedging using currency futures
  
• Types of hedgers
• Size of the hedging position
• Trading spreads using currency futures
• Concept of arbitrage
• Use of arbitrage in currency futures markets
• Arbitrage opportunities under various conditions

Topic 5: Understand Trading in Currency Futures

• Contract specification for currency futures
• Trading parameters
• Tenors of futures contract
• Expiry date
• Settlement price
• Entities in the trading system
• Types of orders
• Concept of Mark-to-Market (MTM)
• Position limits
• Allowable open position limits for members trading in currency futures
• Monitoring and enforcement of position limits in the currency futures market
• Surveillance systems and procedures of exchanges

Topic 6: Learn about Clearing, Settlement and Risk Management in Currency Futures

• Clearing entities
• Clearing mechanism
• Open positions and obligations of clearing members
• Settlement mechanism
• Risk management measures
• Concept of margin requirements
• Initial margin
• Portfolio based margin
• Calendar spread margin
• Extreme loss margin
• Liquid net worth
• Liquid assets
• Real time computation
• Process of margin collection by Clearing Corporations

Topic 7: Exchange Traded Currency Options

• Options
• Call and put option
• Bought and sold option
• Option premium
• Futures and options
• European vs. American option
• Moneyness of an option
• Option pricing and option Greeks
• Option pricing methodology
• Option pay offs
• Option strategies
• Practical application of currency options
• Clearing, settlement and risk management for currency options

Topic 8: Accounting and Taxation

• Accounting treatment for derivative contracts
• Taxation of derivative transaction in securities
• Tax treatment of profit/loss on derivative transaction in securities

Topic 9: Learn about Regulatory Framework for Currency Derivatives

• Features of Securities Contracts (Regulation) Act, 1956 [SC(R)A]
• Features of Securities and Exchange Board of India Act, 1992
• Recommendations of the RBI-SEBI Standing Technical Committee on Exchange Traded Currency and Interest Rate Derivatives
• Provisions of Foreign Exchange Management Act, 1999
• Salient features of RBI notification ‘Currency Futures (Reserve Bank) Directions, 2008
• Salient features of RBI Circular, ‘Guidelines on trading of Currency Futures in Recognised Stock / New Exchanges’
• Salient features of SEBI Regulations for Currency Derivatives Exchanges
• Regulatory framework for clearing corporations
• Governing Council of the Exchange and Clearing Corporation
• Eligibility criteria for membership of currency derivatives exchanges

Topic 10: Codes of Conduct and Investor Protection Measures

• Features of SEBI Codes of Conduct for brokers
• Features of SEBI Codes of Conduct for sub-Brokers
• Features of Codes of Conduct specific to Exchange Traded Currency Derivatives Segment
• Grievance redressal mechanism for investors
• Nature of complaints considered by exchanges
• Arbitration mechanism at exchanges