Free CISI IAD Derivatives mock exam
Sit the whole Derivatives paper: 80 questions running from underlying assets and exchange traded futures to clearing, settlement and hedging strategies, under a two-hour clock. Free, no sign-up, with a weighted score and an explanation for every answer.
Looking for the Level 3 Capital Markets Derivatives mock?What is on the CISI IAD Derivatives mock exam?
One full Investment Advice Diploma Derivatives practice paper: 80 questions in 120 minutes, weighted across the ten syllabus elements exactly as the real paper is. Score 56 out of 80 to meet the 70% practice threshold, then review every answer one at a time.
- Questions
- 80 original practice questions
- Time
- 120 minutes
- Practice threshold
- 70%, which is 56 of 80
- Access
- Free, with no account or card
How the paper is weighted
Derivatives is a technical unit of the CISI Level 4 Investment Advice Diploma, and it is not the Level 3 Capital Markets Programme paper of the same name. Ten elements share 80 questions, and three of them take 42 of those questions between them.
| Element | Questions |
|---|---|
| 1. Introduction to Derivatives | 4 |
| 2. Underlying Assets | 10 |
| 3. Exchange Traded Futures and Options | 14 |
| 4. OTC Derivatives | 14 |
| 5. Clearing | 7 |
| 6. Delivery and Settlement | 5 |
| 7. Portfolio Research and Construction | 5 |
| 8. Trading, Hedging and Investment Strategies | 14 |
| 9. Investment Selection and Administration | 4 |
| 10. Regulatory Requirements | 3 |
| Total | 80 |
Exchange Traded Futures and Options, OTC Derivatives, and Trading, Hedging and Investment Strategies are 14 marks each, 42 of the 80 together. Underlying Assets is 10, Clearing is seven, Delivery and Settlement and Portfolio Research and Construction are five apiece, Introduction to Derivatives and Investment Selection and Administration are four each, and Regulatory Requirements is three.
For the cleanest rehearsal, set aside the full 120 minutes, avoid notes and answer every question. There is no negative marking on the real paper, so a guess is always better than a blank. The mock hides feedback until submission and warns you before handing in a paper with blanks.
Full practice paper
80 questions. 120 minutes. No sign-up.
Sit the paper in one go if you can. Answers and explanations stay hidden until you submit, so the score is a more useful rehearsal than an instant-feedback quiz.
The timer starts when you press the button. Reloading or leaving the page ends this sitting.
Sample IAD Derivatives questions, with answers
8 questions at the standard of the paper above, weighted towards the elements that carry the most marks. Pick an answer to see whether you were right and why. None of these appear in the timed mock, so working through them first costs you nothing when you sit it.
In which capacity is a bank acting when it quotes a two-way price in spot sterling to a client who then deals on that quote?
Not quite. The answer is C.
A participant that quotes both a bid and an offer and stands ready to deal on them is a market-maker, or price-maker, and its profit comes from making the spread. The client dealing on that quote is the price-taker, because it pays the spread away. A broker of either sort is a different role again, since a broker arranges business between other parties for a commission or on an anonymous basis and puts no bid and offer of its own at risk. The same bank becomes a price-taker moments later if it rings other banks for a quote in order to lay off the position it has just taken on.
Holding cost covers warehousing, interest, taxes, obsolescence and spoilage. For soft and agricultural commodities, which element is the greatest concern?
Not quite. The answer is D.
Holding cost covers warehousing, spoilage, obsolescence, interest and taxes, and spoilage dominates for softs and agriculturals because many of these commodities have a limited product life. Interest is a genuine element of the carry but applies to every commodity alike, so it does not single out this category.
A client instructs a member firm to buy futures on its behalf and the member executes the order as agent. Describe the resulting position.
Not quite. The answer is C.
An agency trade is one the member arranges for a client, and it is booked to a client account with the client answerable to the member for the profits or losses that follow. Dealing on the member's own behalf is a separate capacity, and only then does the member carry the position and its outcome. Agency execution also gives the client a degree of anonymity in the market.
Which of the following does the total return payer under a total return swap on a corporate bond hand over to the other side?
Not quite. The answer is D.
The total return leg passes across everything a holder of the asset would have enjoyed, so coupons and capital appreciation both go to the receiver, while a fall in value is paid back the other way. The floating rate is what the receiver pays in return, and it is not what the total return payer delivers; a fixed fee on the principal is no part of the payer's obligation either.
A clearing member's portfolio is short 120 option contracts, the short option minimum charge for that commodity is $75 per contract, and the scenario-based margin for the portfolio comes to $7,400. How much margin will be assessed?
Not quite. The answer is C.
The short option minimum is 120 multiplied by $75, which is $9,000, and the rule is that the portfolio's margin is the greater of the scenario based figure and that minimum. Since $9,000 exceeds the $7,400 thrown up by the scenarios, the minimum becomes the margin. Adding the two figures to reach $16,400 is the common error, because the short option minimum is a floor rather than an additional charge.
Which of the following describes the mechanism that has set the EDSP for the FTSE 100 futures and options contracts since the November 2004 expiry?
Not quite. The answer is D.
The settlement price is derived from an intra day auction in which every constituent share is auctioned in parallel, so the index is built from the freshest prices the market can supply. Limiting that auction to a representative sample of shares would defeat the purpose, because the level of the index depends on all of its constituents. Averaging trades over the closing twenty minutes of the morning session was the method this replaced, which is why it reads convincingly, while weighting such an average by volume and striking it on a notice day describes no part of the arrangement for an index contract settled in cash.
A five-year run of annual returns has a mean of 7% and the squared deviations from that mean sum to 64. What is the sample standard deviation?
Not quite. The answer is A.
Measuring a sample requires the sum of the squared deviations to be divided by one fewer than the number of observations, so 64 divided by four gives a variance of 16 and a standard deviation of 4.0%. Dividing by all five observations gives 12.8%, whose square root of 3.6% is the population figure and the most common error here. Leaving the answer at 16.0% stops at the variance without taking the square root.
An asset manager who is already short a stock writes a put over it. Which purpose does the written put serve alongside the enhancement of the return on funds?
Not quite. The answer is B.
A covered short put both improves the return on the funds and partly hedges the short, because the premium received offsets a modest rise in the price of the stock. It offers nothing against a fall, since the writer already gains from one, and it caps rather than extends the profit on the short once the put is exercised. Writing the put also brings on an obligation to buy the stock at the strike, so it does nothing to hold delivery off, and it certainly does not turn a short position into a long one.
Where the marks go on this paper
Three elements decide this paper. Exchange Traded Futures and Options is 14 marks on contract specifications and tick values, initial and variation margin, open interest and volume, closing out a position against holding it to expiry, and the four basic option positions with the payoff attached to each. It is the part of the syllabus that rewards drawing the position out rather than trying to remember it.
OTC Derivatives is another 14, and it is the easier one to under-prepare because none of it trades on a screen the candidate has seen. Forwards against futures, interest rate and currency swaps, forward rate agreements, contracts for difference and spread bets, and the counterparty and collateral questions that follow from a bilateral contract rather than an exchange traded one.
Trading, Hedging and Investment Strategies is the third 14, and it is where the paper stops describing instruments and starts asking what you would do with one. Hedging an existing holding against taking a new view, basis and basis risk, spreads and straddles, and the arithmetic of a hedge ratio. Underlying Assets is 10 more, on the equity, interest rate, currency, credit and commodity markets the contracts are written on.
Clearing is seven marks on the central counterparty, novation and the margin flows that keep it standing. Delivery and Settlement is five on what happens at expiry, physical delivery against cash settlement, and Portfolio Research and Construction is another five. Introduction to Derivatives and Investment Selection and Administration are four each and Regulatory Requirements is three: 11 marks, and all three are short enough to learn properly in an evening.
How to use your result
Treat 70% as a practice threshold, not a readiness promise. A stronger signal is a run of timed scores above the threshold with no element repeatedly falling behind. On an 80-question paper each question is 1.25 percentage points, so no single question matters much and a whole weak element matters a great deal. If Exchange Traded Futures and Options, OTC Derivatives and Trading, Hedging and Investment Strategies are all under 70%, the total cannot recover from it: they are 42 of the 80. No mock score can predict an individual result.
Use the answer review to understand each miss, then revisit the relevant part of the IAD Derivatives exam guide. To drill a single topic rather than sit a whole paper, start with the free IAD Derivatives practice questions.
Looking for official material? IAD Derivatives past papers: what actually exists explains what CISI actually publishes and how to combine it with question practice. For more full papers, see the £59 Pass Package.
Independent practice material: PasskeyPrep is not affiliated with, endorsed by or accredited by the Chartered Institute for Securities & Investment. These questions were written independently against the syllabus. They are not copied from a live CISI exam or official past paper.
Frequently asked questions
Is this IAD Derivatives mock exam really free?
Yes. All 80 questions are free, with no account, email address or card. Submit and you get a weighted score, a ten-element breakdown and an explanation for every answer.
Does this mock match the real Derivatives exam format?
It uses 80 questions, a 120-minute timer, a 70% practice threshold and the element weightings set out for the paper. The questions are original PasskeyPrep practice material, not the CISI examination platform or official exam questions. Passkey is an independent study tool, not affiliated with, endorsed by, or accredited by the Chartered Institute for Securities & Investment.
Which Derivatives paper is this?
The Derivatives unit of the CISI Level 4 Investment Advice Diploma, written against workbook Edition 16 and syllabus version 16. It is not the Derivatives paper of the Level 3 Capital Markets Programme, which is a different level with a different workbook and a different syllabus lineage. The two are confused often enough to be worth checking on your booking before you revise.
How does it fit with the other Investment Advice Diploma units?
Derivatives is the technical unit on futures, options, swaps and the strategies built from them. Passkey also covers Securities, UK Regulation and Professional Integrity, Investment Risk and Taxation, and Financial Planning and Advice, so the whole diploma can be revised in one place.
Turn the element breakdown into a study plan.
Get the full IAD Derivatives question bank of 800 questions, more timed mocks, 51 study-note sections, 432 flashcards and weak-spot tracking as part of the £59 Pass Package.