NISM Series I: Currency Derivatives Mock Test

Syllabus Outline for Currency Derivatives

Unit 1: Introduction to Currency Markets

• 1.1 Know the brief history of foreign exchange markets
• 1.2 List major currency pairs
• 1.3 Understand the basics of currency markets and peculiarities in India
• 1.4 Calculate cross rates (exchange rate arithmetic)
• 1.5 Discuss the impact of economic factors on currency prices
• 1.6 Describe key economic indicators and their impact on currency market

Unit 2: Foreign Exchange Derivatives

• 2.1 Define the term Derivatives as per the SC(R)A
• 2.2 Understand the key economic functions of derivatives
• 2.3 Recognize various derivative products: forwards, futures, options, swaps
• 2.4 Know the factors driving the growth of financial derivatives
• 2.5 List various market players in the Currency Derivatives market
• 2.6 Compare exchange-traded and over-the-counter derivatives
• 2.7 Know the rationale for introducing exchange-traded currency derivatives in India

Unit 3: Exchange Traded Currency Futures

• 3.1 Define currency futures and understand related terms
• 3.2 Draw pay-off diagram of futures
• 3.3 Know the contract specification for Exchange Traded Currency Futures
• 3.4 Understand tick size and contract value changes
• 3.5 Compare futures and forwards
• 3.6 Understand interest rate parity and pricing of currency futures

Unit 4: Exchange Traded Currency Options

• 4.1 Define options and related terms
• 4.2 Compare futures and options: rights & obligations
• 4.3 Differentiate European and American options
• 4.4 Understand option moneyness: ITM, ATM, OTM
• 4.5 List determinants of option price and understand Greeks
• 4.6 Outline common models for option pricing
• 4.7 Understand implied volatility
• 4.8 Draw payoff diagrams of puts and calls
• 4.9 Know contract specs for currency options
• 4.10 Exchange traded vs OTC options: advantages and limitations

Unit 5: Strategies Using Exchange Traded Currency Derivatives

• 5.1 Understand roles of hedgers, speculators, and arbitrageurs
• 5.2 Learn option trading strategies and payoffs
• 5.3 Use currency derivatives to hedge FX exposures
• 5.4 Use derivatives for speculative purposes
• 5.5 Explore arbitrage opportunities
• 5.6 Understand spreads and spread trading
• 5.7 Know limitations for hedgers using derivatives

Unit 6: Trading Mechanism

• 6.1 List entities in the trading system and their roles
• 6.2 Understand Exchange segment, system, order process
• 6.3 Learn types of orders and their conditions
• 6.4 Know risk management and order routing
• 6.5 Understand price limit circuit filters
• 6.6 Trading costs: brokerage, exchange fees, SEBI fees, GST

Unit 7: Clearing, Settlement & Risk Management

• 7.1 Overview of clearing and settlement
• 7.2 Know entities involved and their roles
• 7.3 Understand interoperability among clearing corps
• 7.4 Learn the clearing mechanism
• 7.5 Determine settlement obligation
• 7.6 Know open position limit guidelines
• 7.7 Understand daily and final settlement pricing
• 7.8 Understand fund settlement
• 7.9 Learn about exchange risk management
• 7.10 Know margin collection procedures
• 7.11 Understand Core Settlement Guarantee Fund

Unit 8: Regulatory Framework

• 8.1 Understand SC(R)A and its definitions
• 8.2 Know RBI-SEBI committee role
• 8.3 Learn about FEMA provisions
• 8.4 Understand SEBI regulations for currency exchanges
• 8.5 Know RBI participation guidelines
• 8.6 Participation rules for different entities
• 8.7 Membership eligibility criteria

Unit 9: Accounting and Taxation

• 9.1 Accounting and disclosure for currency derivatives
• 9.2 Taxation of currency derivatives contracts

Unit 10: Codes of Conduct and Investor Protection

• 10.1 SEBI code of conduct for brokers
• 10.2 Investor grievance redressal
• 10.3 Importance of Investor Protection Fund
• 10.4 Arbitration mechanism
• 10.5 Risk disclosure and KYC importance