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Workbook for NISM-Series-IV: Interest Rate Derivatives Certification Examination National Institute of Securities Markets www.nism.ac.in 1 This workbook has been developed to assist candidates in preparing for the National Institute of Securities Markets (NISM) NISM-Series-IV: Interest Rate Derivatives Certification Examination (NISM-Series-IV: IRD Examination). Workbook Version: March 2017 Published by: National Institute of Securities Markets © National Institute of Securities Markets, 2015 NISM Bhavan, Plot No. 82, Sector 17, Vashi Navi Mumbai – 400 703, India All rights reserved. Reproduction of this publication in any form without prior permission of the publishers is strictly prohibited. 2 Foreword NISM is a leading provider of high end professional education, certifications, training and research in financial markets. NISM engages in capacity building among stakeholders in the securities markets through professional education, financial literacy, enhancing governance standards and fostering policy research. NISM works closely with all financial sector regulators in the area of financial education. NISM Certification programs aim to enhance the quality and standards of professionals employed in various segments of the financial services sector. NISM’s School for Certification of Intermediaries (SCI) develops and conducts certification examinations and Continuing Professional Education (CPE) programs that aim to ensure that professionals meet the defined minimum common knowledge benchmark for various critical market functions. NISM certification examinations and educational programs cater to different segments of intermediaries focusing on varied product lines and functional areas. NISM Certifications have established knowledge benchmarks for various market products and functions such as Equities, Mutual Funds, Derivatives, Compliance, Operations, Advisory and Research. NISM certification examinations and training programs provide a structured learning plan and career path to students and job aspirants who wish to make a professional career in the Securities markets. Till May 2016, NISM has certified nearly 5 lakh individuals through its Certification Examinations and CPE Programs. NISM supports candidates by providing lucid and focused workbooks that assist them in understanding the subject and preparing for NISM Examinations. The book covers basics of the interest rate derivatives, trading strategies using interest rate derivatives, clearing, settlement and risk management as well as the regulatory environment in which the interest rate derivatives markets operate in India. It will be immensely useful to all those who want to have a better understanding of various derivatives products available in Indian interest rate derivatives markets. Sandip Ghose Director 3 Disclaimer The contents of this publication do not necessarily constitute or imply its endorsement, recommendation, or favouring by the National Institute of Securities Markets (NISM) or the Securities and Exchange Board of India (SEBI). This publication is meant for general reading and educational purpose only. It is not meant to serve as guide for investment. The views and opinions and statements of authors or publishers expressed herein do not constitute a personal recommendation or suggestion for any specific need of an Individual. It shall not be used for advertising or product endorsement purposes. The statements/explanations/concepts are of general nature and may not have taken into account the particular objective/ move/ aim/ need/ circumstances of individual user/ reader/ organization/ institute. Thus NISM and SEBI do not assume any responsibility for any wrong move or action taken based on the information available in this publication. Therefore before acting on or following the steps suggested on any theme o