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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Basics of Derivatives

Which of the following best describes a 'derivative' in the context of the Securities Contracts (Regulation) Act, 1956?

A derivative is a contract whose value is derived from an underlying asset such as a security, index or commodity. It is not a capital-raising instrument, a depository receipt or a secured loan; its price moves with the underlying asset.

  1. AA contract whose value is derived from an underlying asset such as a security, index or commodityCorrect
  2. BA security issued by a company to raise long-term equity capital
  3. CA deposit receipt issued by a bank against foreign shares
  4. DA loan agreement secured by listed shares

Explanation

A derivative is a contract whose value depends on, or is derived from, an underlying such as a security, index, or other asset. The other options describe equity shares, depository receipts and secured loans, which are not derivative contracts.

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