Skip to content

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

Which of the following best describes the 'underlying' of a derivative contract?

The underlying is the asset, index or rate from which a derivative contract derives its value. Examples include a share, the Nifty index or an interest rate. Margins, exchanges and premiums are contract or trading features and do not determine the derivative's value source.

  1. AThe asset or index from which the derivative derives its valueCorrect
  2. BThe margin deposited with the clearing corporation
  3. CThe exchange on which the contract is traded
  4. DThe premium paid by the option buyer

Explanation

A derivative is a contract whose value depends on another asset, rate or index, called the underlying. Margin, exchange and premium are features of trading or contract mechanics, not the source of value.

Did you get it right without looking?

One question tells you little. A timed set on Basics of Derivatives shows your real accuracy, how long you take and where you lose marks.

Practise Basics of DerivativesFree diagnostic mock

More Basics of Derivatives questions