Question

In the context of index futures traded in India, which statement is most accurate?

Q: Answer-In the context of index futures traded in India, which statement is most accurate?

Index futures in India Nifty 50, Bank Nifty, etc. are cash-settled there is no delivery of underlying securities profitloss is settled in cash at expiry. Their theoretical fair value is calculated using the Cost-of-Carry CoC model Futures Price Spot Price x 1 r - dt, where r is risk-free rate and d is dividend yield. Option A is wrong futures hedge systematic risk but do not eliminate it. Option B is wrong futures and spot prices are strongly linked through arbitrage. Option D is wrong high volatility can push futures to a premium, not just a discount. Option E is wrong SEBI mandates dynamic margin recalculation based on volatility VaR ELM framework.

A Index futures eliminate all systematic risk through daily mark-to-market settlement.

B Index futures prices are independent of spot index movements due to arbitrage restrictions.

C Index futures are cash-settled and their fair value is determined using the cost-of-carry model.

D During high volatility, index futures invariably trade at a discount to the spot index.

E Margin requirements are fixed permanently by the issuing entity and do not change till expiry.

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In the context of index futures traded in India, which statement is most accurate?

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