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NISM Series-I: Currency Derivatives Practice Exam

NISM Series-I: Currency Derivatives Certification Examination

About NISM Series-I: Currency Derivatives Certification Examination

The examination seeks to create a common minimum knowledge benchmark for persons working in the Currency Derivatives market segment, in order to enable a better understanding of currency markets and exchange traded currency future products, better quality investor service, operational process efficiency and risk controls. 

Examination Objectives

On successful completion of the examination the candidate should - 

  • Know the basics of currency markets and specifically Exchange Traded Currency Derivatives markets. This is the addtion.
  • Understand the trading, clearing and settlement mechanisms related to Currency Derivatives markets and basic investment strategies that use currency futures and options products.
  • Know the regulatory environment in which the Currency Derivatives markets operate in India.

Exam Structure

The NISM-Series-I: CD Examination will be a 100 marks examination to be completed in 2 hours. It will have 100 questions of 1 mark each. There will be negative marking of 25% of the marks assigned to a question. The passing score for the examination is 60%. 

Note - This examination is also available in Hindi and Gujarati languages.

Course Outline

The NISM Series-I: Currency Derivatives exam covers the following topic - 

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 (such as base currency, quotation currency, two way quotes, currency appreciation/depreciation, price benchmarks, RBI reference rate, value date, OTC forward market, etc) and peculiarities in India

1.4 Calculate cross rates (compute 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 (such as GDP, retail sales, industrial production, consumer price index, nonfarm payrolls, etc.)

Unit 2: Foreign Exchange Derivatives

2.1 Define the term Derivatives s per the SC(R)A

2.2 Recognize various derivative products such as forwards, futures, options, swaps 

2.3 Know the factors driving the growth of financial derivatives

2.4 List various market players in the Foreign Exchange market

2.5 Understand the key economic functions of derivatives

2.6 Compare exchange-traded and over-the-counter Derivatives and recognize the features of OTC derivatives that may give rise to instability in the financial system

Unit 3: Exchange Traded Currency Futures

3.1 Define currency futures and understand the futures terminology including spot price, futures price, contract cycle, tick size, value date, expiry date, contract size, marking to market, etc.

3.2 Know the rationale for introducing currency futures in India

3.3 State the advantages and limitations of futures contracts in comparison to forwards

3.4 Understand the concept of interest rate parity and its role in pricing of currency futures

Unit 4: Strategies Using Currency Futures

4.1 Understand the role of hedgers, speculators and arbitrageurs in currency futures markets

4.2 Explain how currency futures can be used for hedging various kinds of FX exposures

4.3 Discuss how currency futures can be used for speculative transactions

4.3 Describe some of the trades that arbitrageurs execute using currency futures contracts

4.4 Understand the concept of spread and spread trading using currency futures

Unit 5: Trading in Currency Futures

5.1 Know the contract specifications for currency futures contracts

 5.2 List the entities in the trading system and their roles

5.3 Understand various types of orders that can be entered in the trading system and the conditions that can be attached to orders

5.4 Understand applicability of price limit circuit filters

Unit 6: Clearing, Settlement and Risk Management in Currency Futures

6.1 Distinguish between clearing and settlement mechanisms

6.2 Know various entities involved in clearing process and their roles

6.2 Clearing Mechanism

6.3 Understand the clearing mechanism and calculate open positions and obligations of clearing members under various situations

6.4 Understand settlement Mechanism and MTM settlement

6.5 Calculate MTM settlement and final settlement of currency futures under various situations

6.6 Know the salient features of the exchange risk management measures

6.7 Know different margin requirements for currency derivatives contracts

Unit 7: Exchange Traded Currency Options

7.1 Define options and basic terms used in options contracts

7.2 Differentiate between futures and options contracts in terms of rights and obligations of buyers and sellers

7.3 Distinguish between European and American options and their significant differences

7.4 Understand the concept of Moneyness of an option and define ITM, ATM and OTM options

7.5 List the determinants of option price and the impact of these factors on the value of calls and puts

7.6 Familiarize with option greeks

7.7 List common methodologies for options pricing

7.8 Draw the payoff diagrams of futures, put options and call options

7.9 Practice various option trading strategies and draw their payoff diagrams

7.10 Discuss some practical applications of currency options in real life business needs

7.11 Know the contract specifications for currency options contracts

Unit 8: Accounting And Taxation

8.1 Understand accounting treatment for derivative contracts at inception of contract, daily Settlement, final Settlement and in case of Default

8.2 Know the taxation of currency derivatives contracts

Unit 9: Regulatory Framework for Currency Derivatives

9.1 Know Securities Contracts (Regulation) Act, 1956 [SC(R)A] and the definition of securities and derivatives under this act

9.2 Know the role of RBI-SEBI standing technical committee on exchange traded currency and interest rate derivatives

9.3 Know the salient features of Foreign Exchange Management Act

9.4 Know the salient features of SEBI regulations for currency derivatives exchanges and clearing corporations

9.5 Know Requirement for separate Governing councils for Currency Derivatives exchanges/segments

Unit 10: Codes of Conduct and Investor Protection Measures

10.1 Understand the basic features of SEBI code of conduct for brokers and sub-brokers

10.2 Know the investor grievance redressal mechanism and the arbitration Mechanism at exchange

Exam Details

Name of Examination: NISM-Series-I: Currency Derivatives Certification Examination

  • Negative marking – 25% of the marks assigned to the question.
  • Payment gateway extra charges will be apply .
  • Passing Certificate will be issued only to those candidates who have furnished/updated their Income Tax Permanent Account Number (PAN) in their registration details.

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