NISM Certifications · NISM-Series-VIII: Equity Derivatives · Understanding Index
Which statement about the impact cost of an index such as the Nifty 50 is correct?
Impact cost is the percentage mark-up from the ideal price, the mid of best bid and ask, incurred when buying or selling a stated order size. It measures liquidity of a stock and is used to judge eligibility for inclusion in an index.
- AIt is the cost of a transaction in the index expressed as the percentage mark-up from the ideal price when buying or selling a given order sizeCorrect
- BIt is the brokerage charged on index futures trades
- CIt is the tax levied on index derivative transactions
- DIt is the fall in index value on a corporate action
Explanation
Impact cost measures liquidity: the percentage deviation of the actual execution price from the ideal price (average of best bid and ask) for a specified order size. The other options describe unrelated charges or events.
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