NISM Series 1 Mock Test 2025 – Free Practice Questions for Currency Derivatives Exam

The NISM Series 1 (NISM-Series-I: Currency Derivatives) certification is the mandatory qualification for anyone who wants to work as a dealer, broker, or advisor in India's currency derivatives market. Offered on the NSE and BSE currency derivatives segments, this market allows participants to trade currency futures and options on pairs like USD/INR, EUR/INR, GBP/INR, and JPY/INR.

This page gives you free NISM Series 1 mock test practice, a complete syllabus breakdown, key formulas for currency futures pricing and hedging, Indian market examples, and a proven exam preparation strategy. Whether you are new to derivatives or brushing up on regulations, this guide — backed by PassNISM.in's expert question bank — will help you pass on your first attempt.

NISM Series 1 Exam Pattern – Key Details

NISM Series 1 Syllabus – Complete Chapter-Wise Breakdown

1. Introduction to Foreign Exchange Markets — Spot, Forward, Futures, Options — market structure and participants
2. Currency Futures — Contract specifications, pricing, expiry, settlement on NSE and BSE
3. Currency Options — Call and Put options on USD/INR, option premium components, payoff diagrams
4. Interest Rate Parity — Covered Interest Rate Parity (CIRP), Uncovered Interest Rate Parity (UCIRP)
5. Purchasing Power Parity (PPP) — Absolute and Relative PPP, implications for exchange rate movements
6. Hedging with Currency Derivatives — Hedging strategies for Indian importers, exporters, and corporates
7. Speculation and Arbitrage — Speculative strategies using currency futures, covered interest arbitrage
8. RBI and FEMA Framework — RBI's role in currency markets, FEMA regulations governing currency derivatives
9. Exchange-Traded vs. OTC Currency Derivatives — Key differences, advantages of exchange-traded contracts
10. SEBI and Exchange Regulations — NSE/BSE rules for currency derivatives market participants
11. Margin Requirements — Initial Margin, Mark-to-Market (MTM) margin, margin calls
12. Settlement Mechanism — Daily MTM settlement, final settlement on expiry, cash settlement in INR

Step-by-Step Preparation Plan for NISM Series 1

Step 1 – Build Your Foreign Exchange Foundation First

Before studying derivatives, understand how the foreign exchange market works in India. The RBI sets the reference rate for USD/INR daily. Authorised dealer banks facilitate FX transactions. The NSE and BSE currency segments allow standardised futures and options trading. The RBI intervenes to manage excessive volatility in the exchange rate — understand why and how this happens, as it appears in regulatory questions.

Step 2 – Master Currency Futures Pricing

Currency futures pricing is the most numerically intensive part of the NISM Series 1 examination. The Cost of Carry (Interest Rate Parity) model is the primary pricing framework. Practice multiple numerical questions on PassNISM.in's NISM Series 1 mock tests until these calculations become second nature.

Step 3 – Understand Hedging Scenarios for Indian Businesses

The examination includes practical hedging scenario questions. These follow a consistent logic:

• Indian Exporter (e.g., IT company expecting USD receipts) → Fears USD weakening against INR → SHORT USD/INR futures
• Indian Importer (e.g., oil company with USD payables) → Fears USD strengthening against INR → LONG USD/INR futures

These intuitions must be second nature by exam day. PassNISM.in's NISM Currency Derivatives mock tests include multiple scenario-based hedging questions.

Step 4 – Understand MTM Settlement Mechanics

Unlike equity trades, currency futures positions are marked-to-market daily. Daily gains and losses are settled in cash at the end of each trading day. This daily settlement process is tested directly in the NISM Series 1 examination — both conceptually and numerically.

Step 5 – Revise FEMA and SEBI Regulatory Framework

SEBI, RBI (through FEMA), and the exchanges (NSE/BSE) all govern India's currency derivatives market. The regulatory questions in NISM Series I are relatively straightforward marks — revise them in the final 3 days before your exam. Focus on: who can participate in currency derivatives markets, position limits, and reporting requirements under FEMA.

Key Formulas for NISM Series 1 – Currency Derivatives Exam

1. Currency Futures Pricing – Interest Rate Parity (Cost of Carry)

F = S × (1 + r_d × T) ÷ (1 + r_f × T)

Where: F = Futures price (₹/USD), S = Spot price (₹/USD), r_d = Domestic (Indian) risk-free interest rate, r_f = Foreign (e.g., US) risk-free interest rate, T = Time to expiry in years

Example: USD/INR spot = ₹84.00. Indian 3-month rate = 6.5% p.a. US 3-month rate = 5.25% p.a. T = 3/12 = 0.25 years.
F = 84 × (1 + 0.065 × 0.25) ÷ (1 + 0.0525 × 0.25)
F = 84 × 1.01625 ÷ 1.013125 = ₹84.26

2. Payoff on a Long Currency Futures Position

Profit/Loss = (Settlement Price – Entry Price) × Contract Size × Number of Contracts

Example: You buy 10 USD/INR futures contracts at ₹84.00. NSE contract size = USD 1,000. Settlement price = ₹85.00.
Profit = (85 – 84) × 1,000 × 10 = ₹10,000

3. Daily Mark-to-Market (MTM) Settlement

Daily MTM = (Today's Settlement Price – Previous Day's Settlement Price) × Contract Size × Number of Contracts

MTM gains are credited to your trading account; MTM losses are debited — every single day until position closure or expiry.

4. Covered Interest Rate Parity (CIRP)

F ÷ S = (1 + r_d) ÷ (1 + r_f)

CIRP ensures no risk-free arbitrage exists between forward exchange rates and interest rate differentials between two countries. Violations of CIRP create covered interest arbitrage opportunities — a topic tested directly in the NISM Series 1 exam.

5. Net Payoff for an Exporter Hedging with Currency Futures

Effective Realisation = Spot Rate at Time of Receipt + (Futures Entry Price – Futures Exit Price)

Example: Exporter sold USD/INR futures at ₹84.00. Spot at receipt = ₹82.00. Futures closed at ₹82.05.
Effective Rate = 82.00 + (84.00 – 82.05) = ₹82.00 + ₹1.95 = ₹83.95 per USD

Indian Market Example – Hedging with USD/INR Futures

Consider Tata Consultancy Services (TCS), which earns a significant portion of its revenue in USD and GBP. The company's treasury team faces a constant risk: if the USD weakens against INR between the time a contract is signed and when payment is received, TCS receives fewer rupees.

To hedge this risk, TCS's treasury team would:

1. Estimate USD receivables for the next 3 months — say, USD 100 million
2. Sell (go SHORT) USD/INR 3-month futures contracts on NSE
3. Number of contracts = USD 100 million ÷ USD 1,000 per contract = 1,00,000 contracts
4. If USD/INR falls from ₹84 to ₹82 during this period, the futures position generates ₹2 per USD × 1,00,000 × 1,000 = ₹20 crore in futures profit, compensating for the lower spot conversion rate

This type of practical hedging scenario — applied to real Indian companies and real INR exchange rate movements — is exactly the style of question that appears in the NISM Series I examination.

Currency Pairs Available in India's Currency Derivatives Market

USD/INR is the most liquid and most frequently tested currency pair in the NISM Series 1 examination.

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