NISM Series IV: Interest Rate Derivatives Exam Preparation

Types of bonds (G-Secs, T-Bills, corporate bonds, debentures), bond features (face value, coupon, maturity), and the Indian fixed income market structure including primary and secondary markets.

The highest-weightage chapter. Covers present value of bond cash flows, dirty vs. clean price, accrued interest calculation, yield-to-maturity (YTM), current yield, and the inverse relationship between bond prices and interest rates. Expect 3-5 direct calculation questions from this chapter alone.

Spot rates, forward rates, bootstrapping the zero-coupon yield curve, yield curve shapes (normal, inverted, flat, humped), and theories explaining yield curve behaviour (pure expectations, liquidity preference, market segmentation).

Introduction to IRDs — forward rate agreements (FRAs), interest rate swaps (IRS), and exchange-traded interest rate futures. Duration, modified duration, and convexity concepts explained; DV01 (dollar value of a basis point) calculations.

Contract specifications for NSE's 91-Day T-Bill and G-Sec futures, the concept of cheapest-to-deliver (CTD) bond, conversion factors, invoice pricing, and theoretical futures pricing.

Portfolio duration management, hedge ratio calculation for bond portfolios, speculation on rate movements, and immunization strategies for liability-driven investors.

Order entry, lot sizes, trading hours, calendar spread mechanics, and how institutional participants use IRF for portfolio rebalancing.

Role of CCIL as clearing corporation, initial margin and variation margin for IRF, daily MTM settlement, final settlement using FBIL's published rates, and risk management circuit breakers.

SEBI and RBI guidelines on interest rate derivatives, position limit norms, accounting treatment under ICAI standards, and tax implications of IRF gains.