NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Risk Management
A broker's client buys 1,000 shares at Rs 200 in the cash segment under a margin trading facility. The broker funds 50% of the value and the client brings the rest. If the stock falls by 20% and the broker wants to know the loss relative to the client's own contribution, what is the percentage loss on the client's own money?
The client's loss is 40% of own money. The position is worth Rs 2,00,000 with Rs 1,00,000 contributed by the client; a 20% price fall costs Rs 40,000, which is 40% of the client's Rs 1,00,000 because leverage doubles the percentage loss.
- A20%
- B30%
- C40%Correct
- D50%
Explanation
Position value = Rs 2,00,000; client's money = Rs 1,00,000. A 20% fall is a Rs 40,000 loss. Rs 40,000 / Rs 1,00,000 = 40%. The 20% option ignores leverage of 2x.
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