Currency derivatives

Summer Internship Project(In Religare Securities Limited)

A REPORT ON

“Fundamentals of Derivatives with special reference to

Currency Derivatives”

Submitted to,Dr. V.J. Byra Reddy

Asst. Dean,IBA, Bangalore.

Submitted by,Yogesh Moule(FPB1113/072)

INDUS BUSINESS ACADEMY(BATCH 2011-13)

Fundamentals of Derivatives with special reference to Currency Derivatives.

DECLARATION

I hereby declare that I had a wonderful experience in doing this project titled

“Fundamentals of Derivatives with special reference to Currency Derivatives” at

“Religare Securities Ltd., Nasik” submitted in partial fulfillment of the

requirements for the prestigious degree of PGDM.

I hereby declare that the project done by me is true to my knowledge. The project

duration was of four months (10/05/2012 to 10/09/2012).The information

collected by me is authentic and is done through data analysis and interpretation.

The content of this report is based on information collected from different

sources and research reports.

I further declare that this project report has not been submitted to any other

university or institute for the award of any degree or diploma.

Date: 30/09/2012 Yogesh MoulePlace: Bangalore Indus Business Academy

INDUS BUSINESS ACADEMY FPB1113/072 Page 1


CERTIFICATE BY MENTOR

This is to certify that the Dissertation titled “Fundamentals of Derivatives

with special reference to Currency Derivatives” by Yogesh Moule bearing

the Reg. No. FPB1113/072 has been prepared under my guidance and

supervision. This work has been satisfactory and is recommended for

consideration towards partial fulfillment for the PGDM program of the Indus

Business Academy, Bangalore. This has not been submitted earlier to any other

University or Institution for the award of any degree/ diploma/ certificate.

Date: 30/09/2012 Dr. V.J. Byra Reddy

Place: Bangalore (Signature by Mentor)



CERTIFICATE BY DIRECTOR

This is to certify that the Dissertation titled “Fundamentals of

Derivatives with special reference to Currency Derivatives” by Yogesh

Moule bearing the Reg. No. FPB1113/072 has been prepared under the

guidance of Prof. Byra Reddy. This work has been satisfactory and is

recommended for consideration towards partial fulfillment for the

PGDM program of the Indus Business Academy, Bangalore. This has

not been submitted earlier to any other University or Institution for the

award of any degree/ diploma/ certificate.

Date: 30/09/2012 Dr. Subhash Sharma

Place: Bangalore (Signature of Director)



ACKNOWLEDGEMENT

I take this opportunity to express my heartfelt gratitude to all the

people who have extended their assistance and provided me the information during

the tenure of the project. I am greatly indebted to them for their guidance and

support throughout the project and for sparing their valuable time with me.

I earnestly express to Mr. Vinay Pandey & Mr. Kiran Ahiray for

giving me this opportunity to work with Religare Securities Ltd. and also very

much thankful to the staff of the office for their invaluable guidance, keen interest,

cooperation, inspiration and of course moral support throughout my internship

tenure .

This report could not have been completed without the guidance

Mr. Manish Jain, CEO, INDUS BUSINESS ACADEMY, Dean Dr. Subhash

Sharma and the entire faculty at IBA. Special thanks to my project guide Dr. V.J.

Byra Reddy (Asst. Dean, Academics) for his expert guidance and support

throughout this project.

Yogesh Moule

(FPB1113/072)

Table of ContentsINDUS BUSINESS ACADEMY FPB1113/072 Page 5


1. EXECUTIVE SUMMARY.....................................................................................................7

2. OBJECTIVES AND SCOPE.......................................................................................................9

Objectives of the study:...............................................................................................................9

Scope of the study........................................................................................................................9

3. COMPANY PROFILE..............................................................................................................10

Vision:........................................................................................................................................11

Leadership Team - Board of Directors......................................................................................12

RELIGARE PRODUCT OFFERINGS.....................................................................................13

4. RESEARCH METHODOLOGY..............................................................................................14

Type of the study.......................................................................................................................14

Primary data...............................................................................................................................14

Secondary Data:.........................................................................................................................14

5. INTRODUCTION TO DERIVATIVES...............................................................................15

Three types of investors trade in derivatives markets...............................................................21

Types of Derivatives:.................................................................................................................23

6. CURRENCY DERIVATIVES..............................................................................................36

Factors Affecting Exchange Rates:...........................................................................................38

Currency Futures.......................................................................................................................42

NSE's Currency Derivatives Segment:......................................................................................47

Base Currency/ Terms Currency:..............................................................................................50

7. FINDINGS, SUGGESTIONS & CONCLUSION................................................................55

8. BIBLIOGRAPHY..................................................................................................................64



1. EXECUTIVE SUMMARY

A derivative is a collective name used for a broad class of financial instruments that

derive their value from other financial instruments (known as the underlying), events or

conditions. The Derivatives Market is meant as the market where exchange of derivatives takes

place. Derivatives are one type of securities whose price is derived from the underlying assets.

The value of these derivatives is determined by the fluctuations in the underlying assets. These

underlying assets are most commonly stocks, bonds, currencies, interest rates, commodities and

market indices.

Derivatives allow financial institutions and other participants to identify, isolate and

manage separately the market risks in financial instruments and commodities for the purpose of

hedging, speculating, arbitraging price differences and adjusting portfolio risks. Derivatives offer

the possibility of large rewards; many individuals have a strong desire to invest in derivatives.

Derivatives like forwards, futures, options, swaps etc. are extensively used in many developed

and developing countries of the world. Financial markets are, by nature, extremely volatile and

hence the risk factor is an important concern for financial agents. To reduce this risk, the concept

of derivatives comes into the picture.

There are mainly three categories of traders in the Derivative market, those are Hedgers

who uses futures or options market to reduce or eliminate the risk associated with price of an

asset. Speculators use futures and options contracts to get extra leverage in betting on future

movements in the price of an asset. They can increase both the potential gains and potential

losses by usage of derivatives in a speculative venture. Arbitrageurs are in business to take

advantage of a discrepancy between prices in two different markets.

The main objectives of the study are: To study the fundamental terms used in derivatives

market, to know in detail about what is currency derivatives, to know the price fluctuations

happening in currency derivatives market.

The main findings of the study are: most of investors go through broker’s suggestion

because they don’t have much knowledge and also they don’t know how to trade in derivatives,



about 44% of the investors are professional who knows the derivative market very well. And

second highest majority lies in employees, though there is huge scope from government for

derivatives still people hesitate to invest in derivatives, they even don’t know about many

strategies that they can apply to minimize their risk. Currency derivatives are getting popular

now-a-days due to their attractive return on investments.

The main conclusion of the study are: the challenges of building awareness and educating

the people about derivatives, active marketing of the product have all required significant efforts in

paving the way for a vibrant derivatives market. The market has made enormous progress in terms

of technology, transparency and the trading activity.



2. OBJECTIVES AND SCOPE

Objectives of the study:

To study the concept of derivatives and the purpose for which financial

institutions adopt derivatives.

To understand the potentiality of the derivatives as an investment avenues.

To study the growth of Currency derivatives in Indian Capital Market.

To study the performance of Currency derivative as compared to NSE’s

NIFTY.

Scope of the study :

From its inception, trading in Currency derivative has started gaining interest

among the investors. It is been seen as an investment & risk reducing tool by

individual investors as well as corporate or institutional investors.

As its only been 4 years from when the trading in Currency derivative has

started, there is a huge scope in this type of Derivative segment.



3. COMPANY PROFILE

Religare is a financial services company in India, offering a wide range of financial products

and services targeted at retail investors, high net worth individuals and corporate and

institutional clients. Religare is promoted by the promoters of Ranbaxy Laboratories Limited.

Religare operate from six regional offices and 25 sub-regional offices and have a presence in

330 cities and towns controlling 979 locations which are managed either directly by Religare or

by our Business Associates all over India, the company has a representative office in London.

While the majority of Religare offices provide the full complement of its services yet it has

dedicated offices for investment banking, institutional brokerage, portfolio management

services and priority client services.

Religare Enterprises Limited is the holding company & its principal subsidiaries include:

Religare Securities Limited (“RSL”)

Religare Finvest Limited (“RFL”)

Religare Commodities Limited (“RCL”)

Religare Insurance Broking Limited (“RIBL”)



Vision :

"To be the leading emerging markets financial services group driven by

innovation, delivering superior value for all stakeholders globally"

With the worldwide economic rebalancing, emerging markets are increasingly becoming the

drivers of the global economy, offering more opportunities and calling for more capital. Religare

is positioned right in the center of this emerging paradigm. We are focused on tapping these

opportunities and growing along with our key stakeholders.

This vision animates Three Pillar Strategy that seeks to maximize value from our vast presence

in India and to build a financial services franchise that connects the most promising emerging

markets globally.

Religare’s Three Pillar Strategy:

An Integrated Indian Financial Services Platform that leverages the robust Indian

growth story, providing solid breadth and depth to the financial services sector, resulting

in rapid growth of profit pools.

An Emerging Markets Capital Markets Platform that intermediates the flow of capital

into and out of emerging markets based on its global reach and an on-the-ground

understanding of how emerging markets function.

A Global Asset Management Platform that brings together niche asset managers with

proven track record and capabilities in the alternatives space.



Leadership Team - Board of Directors

Mr. Sunil GodhwaniChairman & Managing DirectorReligare Enterprises Limited.

Mr. Sunil Godhwani, Chairman and Managing Director, Religare Enterprises Limited (REL), is

the driving force behind the group and its vision. Sunil brings to the table strong leadership

skills, vigor and a passion for excellence. He believes in nurturing a culture that is

entrepreneurial, result oriented, customer focused and based on teamwork. He has given strategic

direction to Religare’s growth since his joining in 2001 and has been a key force in giving birth

to Religare’s current shape and form globally.

Mr. Shachindra Nath Group Chief Executive OfficerReligare Enterprises Limited

Mr. Anil SaxenaDirector & Group CFO

Mr. Ravi MehrotraDirector

Mr. Harpal SinghNon-Executive Director

Mr. Stuart D PearceDirector



RELIGARE PRODUCT OFFERINGS

Religare has divided its product and service offering under three broad client interface

categories:

“Retail Spectrum”, “Wealth Spectrum” and “Institutional Spectrum” as per following details :-

Retail Spectrum Wealth Spectrum Institutional SpectrumCaters to a large number of retail clients by offering all products under one roof through our branch networkand online mode To provide customizedwealth advisory services to high net worth individuals

Equity and Commodity Trading

Personal Financial Services

o Distribution ofmutual funds

o Distribution ofinsurance

o Distribution ofsavings productsPersonal Credit

o Personal loan services

o Loans against shares

Online Investment

To provide customized wealth advisory services to high net worth individuals

Wealth Advisory ServicesPortfolio Management ServicesInternational EquityPriority Client Equity ServicesArts Initiative

To forge and build strong relationships with corporate and institutional clients

Institutional Equity BrokingInvestment BankingMerchant Banking

o Transaction Advisoryo Services



4. RESEARCH METHODOLOGY

Type of the study:

This is a descriptive study; analysis is made on the basis of primary data

and secondary data.

Primary data:

Data is collected by interviews and direct discussions with clients,

employees and staff in the office.

Secondary Data:1. NCFM modules

2. Journals and Books

3. Websites of Religare Securities Ltd., NSE, BSE, MCX, NCDEX, etc.

Data collected form NSE, BSE and other stock exchanges through Internet along

with the previous reports and journals and NCFM course modules.

In this project I have used Secondary data most of which was obtained from

internal records of the Company. Usage of Secondary data enjoys some advantages

but it suffers some limitations too.



5. INTRODUCTION TO DERIVATIVES

Derivatives are financial instruments whose price is determined by some underlying

variables. Derivatives can be traded directly between the two parties as well as through

exchanges. There are different types of derivatives based on the type of assets that it deals in

such as commodity, equity, bond, interest rate, index and so on. Mainly there are four types of

derivatives that are traded – Future, Forward, Options and Swaps. In case of stock market

derivative trading essentially means trading in future contracts and options. In derivative trading,

stocks are bought in the form of contracts and in a lot.

Due to their great flexibility, derivatives are used by many different types of investors. A

good toolbox of derivatives allows the modern investor the full range of investment strategy:

speculation, hedging, arbitrage and all combinations thereof. When one reads about derivatives

offering the sophisticated management of risk - this is not just marketing hype. They truly do

offer the fund management, the insurance and pension industries additional ways to achieve their

investment targets.

The biggest advantage of derivative trading is that one can buy huge amount of stock by

paying only a part of the total value of the stock. As in derivative trading one have to buy the

stocks in a lot the price of the lot is relatively lower than the total amount stock one get. So, this

means there is a chance of making profit even by investing a comparatively less money.

Derivative trading also lets short sell the stocks. That means one can sell the stocks even

before one actually own them. This is beneficial when one has an idea that the price of a

particular stock is going to reduce. In derivative trading one can first sell the stock at a higher

price and then buy the equal number of stocks when the price has gone down. In that way one

can make profit in derivative trading even if the price is going down.

Derivatives are used for risk management, investing, and speculative purposes. Important

institutional users are: banks, brokers, dealers, B/Ds, mutual funds, investment companies,

insurers, producers, and other organizations which have financial interests and exposures.

Derivatives allow financial institutions and other participants to identify, isolate and manage



separately the market risks in financial instruments and commodities for the purpose of hedging,

speculating, arbitraging price differences and adjusting portfolio risks.

Evolution of derivatives in Indian capital markets

The precursor to exchange based derivatives in India was a kind of “forward trading” in

securities in the form to call options (teji), put options (mandi) and straddles (fatak) etc. The

Securities Contracts Regulation Act, 1956 (SCRA) was enacted, inter-alia, to prevent undesirable

speculation in securities.

The contracts for “clearing” commonly known as “forward trading” were banned by the

Central Government through a notification issued on 27 th, June1969 in exercise of the powers

conferred under Section 16 of the SCRA. As the prohibition of forward trading in securities led

to a decline of traded volumes on stock markets, the Stock Exchange, Mumbai (BSE), evolved in

1972 an informal system of “forward trading”, which allowed carry forward between two

settlement periods, which resulted in substantial increase in the turnover of the exchange.

However, this also created several problems and there were payment crises from time to time and

frequent closure of the market. Later SCRA amended the bye-laws of stock exchanges to

facilitate performance of contracts in “specified securities”. In pursuance of this policy the stock

exchanges at Bombay, Calcutta and Ahmadabad introduced a system of trading in “specified

shares” with carry forward facility after amending their bye-laws and regulations.



Types of Derivatives Products which are legally permitted To Be Traded In

Indian Markets.

Equity Derivatives (Index/stock future/options)- Legally permitted to be traded

Through stock exchanges approved by SEBI.

Commodity Trading – Commodity futures are permitted. Commodity futures are

Permitted only for trading in commodities approved by the Government in

Commodity Exchanges, which are recognized by Forward Markets Commission. Option

Contracts in commodities trading are not permitted.

Foreign Exchange Derivatives- Forward Contracts as approved by RBI permitted to be

transacted by Banks and other approved foreign-exchange dealers.

OTC rupee derivatives in the form of Forward Rate Agreements (FRAs/Interest

Rate Swaps (IRS) – These were introduced by RBI in India in July 1999 in terms powers

vested with it Foreign Exchange Management Act, 2000. These derivatives enable banks,

primary dealers (PDs) and all- India financial institutions (FIs) to hedge interest rate risk

for their own balance sheet management and for market making purposes. Banks

/PDs/FIs can undertake different types of plain vanilla FRAs/IRS. Swaps having

explicit/implicit option features such as caps/floors/collars are not permitted now.

Exchange Traded Interest Rate Derivatives – were introduced by RBI/SEBI during

June, 2003. These can be traded through stock exchanges by primary dealers subject to

conditions stipulated by RBI/ OTC Rupee derivatives are presently not permitted.



Derivatives products traded in the Indian markets are as under ;

Commodities Futures for Coffee, Oil Seeds, Oil (Castor, Palmolein), Pepper, Cotton, Jute

and Jute Goods are traded in the Commodities Futures. Forward Markets Commission

regulates the trading of commodities futures.

Index futures based on Sensex and Nifty Index are also traded under the supervision of

SEBI.

RBI has permitted Banks, FIs and PDs to enter into forward rate agreement(FRAs)/

interest rate swaps in order to facilitate hedging of interest rate risks and ensuring orderly

development of the derivatives market; NSE become the first exchange to launch trading

in options on individual securities. Trading in options on individual securities

commenced from July 2, 2001. Options contracts are American style and cash settled and

are available on 41 securities stipulated by the Securities & Exchange Board of India

(SEBI).

NSE commenced trading in futures on individual securities on November9, 2001. The

futures contracts are available on 41 securities stipulated by the Securities &Exchange

Board of India (SEBI).BSE also has started trading in individual stock options & futures

(both index & Stocks) around the same time as NSE.



Calendar of Introduction of Derivatives Products in Indian Financial Market:

OTC Exchange Traded

1980s - Currency Forwards

1997s - Long term FC –

Rupee swaps

July 1999 - Interest rate

swaps and FRAs

July 2003 - FC – Rupee

options

June 2000 – Equity Index futures

June 2001 – Equity Index Options

July 2001 - Stock Options

June 2000 - Interest Rate Futures

Nov 2002- RBI Working Group on Rupee

Derivatives

March 2003- RBI Working group on

credit derivatives

Product Specifications BSE-30 Sensex Futures

Contract Size – Rs. 50 times the Index

Tick Size – 0.1 points or Rs. 5

Expiry day – last Thursday of the month

Settlement basis – cash settled

Contract cycle – 3 months

Active contracts – 3 nearest months

Product Specification S&P CNX Nifty Futures

Contract Size – Rs. 200 times the Index

Tick Size – 0.05 points or Rs. 10

Expiry day – last Thursday of the month

Settlement basis – cash settled

Contract cycle- 3 months

Active contracts – nearest months



The following factors have been driving the growth of financial derivatives:

Over the last 3 decades, Derivatives market has seen a phenomenal growth. Large

varieties of Derivative contracts have been launched at exchanges across the world. Some of the

factors driving the growth of financial Derivatives are:

Increased volatility in asset prices in financial market

Increased integration of national financial market with the international market

Market improvement in communication facilities and sharp decline in their costs

Development of more sophisticated risk management tools, providing economic

agents a wider choice of risk management strategies, and

Innovations in the derivatives markets, which optimally combine the risks and returns

over a large number of financial assets, leading to higher returns, reduced risk as well

as trans-actions costs as compared to individual financial assets.

ECONOMIC FUNCTION OF DERIVATIVE MARKET

In spite of the fear and criticism with which the derivative markets are commonly looked

at, these markets perform a number of economic functions

Prices in an organized Derivatives market reflect the perception of market

participants about the future and lead the prices of underlying to the perceived to the

perceived future level. The prices of Derivatives coverage with the prices of the

underlying at the expiration of the derivative contract. The derivatives help in

discovery of future as well as current prices.

The derivatives market helps to transfer risks from those who have them but may not

like them to those who have an appetite for them.

Derivatives, due to their inherent nature, are linked to the underlying cash markets.

With the introduction of derivatives, the underlying market witness higher trading

volumes because of participation by more players who would not otherwise

participate for lack of an arrangement to transfer risk.



Speculative traders shift to a more controlled environment of derivatives market. In

the absence of an organized derivatives market, speculators trade in the underlying

cash markets. Margining, monitoring and surveillance of the activities of various

participants become extremely difficult in these kinds of mixed markets.

An important incidental benefit that flows from derivatives trading is that it acts as a

catalyst for new entrepreneurial activity. The derivatives have a history of attracting

many bright, creative well-educated people with an entrepreneurial attitude. They

often energize others to create new business, new products and new employment

opportunities, the benefit of which is immense.

Derivatives markets help increase savings and investment in the long run. Transfer of

risk enables market participants to expand their volume of activity. Derivatives thus

promote economic development to the extent the later depends on the rate of savings

and investment.

Three types of investors trade in derivatives markets:

Hedgers:

Hedgers are those who protect themselves from the risk associated with the price of an

asset by using derivatives. In Hedging, financial derivatives act as a financial instrument to

transfer risk. A person keeps a close watch upon the prices discovered in trading and when the

comfortable price is reflected according to his wants, he sells futures contracts. Since one can

take either a long position or a short position in the futures contract, there are two basic hedge

positions.

For example, from another perspective, the farmer and the miller both reduce a risk and

acquire a risk when they sign the futures contract: The farmer reduces the risk that the price of

wheat will fall below the price specified in the contract and acquires the risk that the price of

wheat will rise above the price specified in the contract (thereby losing additional income that he

could have earned). The miller, on the other hand, acquires the risk that the price of wheat will

fall below the price specified in the contract (thereby paying more in the future than he otherwise

would) and reduces the risk that the price of wheat will rise above the price specified in the



contract. In this sense, one party is the insurer (risk taker) for one type of risk, and the

counterparty is the insurer (risk taker) for another type of risk.

The benefits of hedging are:

1. It is uncomplicated to handle.

2. The risk is minimized for both parties.

3. The trades can take the risk, without actually buying the future stock.

Speculators:

Speculators wish to bet on future movements in the price of an asset. Derivatives can be

used to acquire risk, rather than to insure or hedge against risk. Thus, some individuals and

institutions will enter into a derivative contract to speculate on the value of the underlying asset,

betting that the party seeking insurance will be wrong about the future value of the underlying

asset. Speculators will want to be able to buy an asset in the future at a low price according to a

derivative contract when the future market price is high, or to sell an asset in the future at a high

price according to a derivative contract when the future market price is low.

They are the second major group of futures players. These participants include

Independent floor traders and investors. They handle trades for their personal clients or

brokerage firms. Buying a futures contract in anticipation of price increases is known as .going

long. Selling a futures contract in anticipation of a price decrease is known as .going short.

While profits could be extremely high, potential for losses are also large.

Arbitrageurs:

Arbitrageurs are in business to take advantage of a discrepancy between prices in two

different markets. Arbitrage is a risk-less profit realized by simultaneous trading in two or more

markets.



In commodity market Arbitrators are the person who takes the advantage of a

Discrepancy between prices in two different markets. If he finds future prices of Commodity

edging out with the cash price, he will take offsetting positions in both the markets to lock in a

profit. Moreover the commodity futures investor is not charged interest on the difference

between margin and the full contract value

Types of Derivatives:

FORWARD:

A forward contract or simply a forward is a non-standardized contract between two

parties to buy or sell an asset at a specified future time at a price agreed today. This is in contrast

to a spot contract, which is an agreement to buy or sell an asset today. It costs nothing to enter a

forward contract. The party agreeing to buy the underlying asset in the future assumes a long

position, and the party agreeing to sell the asset in the future assumes a short position. The price

agreed upon is called the delivery price, which is equal to the forward price at the time the

contract is entered into.

The forward price of such a contract is commonly contrasted with the spot price, which is

the price at which the asset changes hands on the spot date. The difference between the spot and

the forward price is the forward premium or forward discount, generally considered in the form

of a profit, or loss, by the purchasing party.

Forwards, like other derivative securities, can be used to hedge risk (typically currency or

exchange rate risk), as a means of speculation, or to allow a party to take advantage of a quality

of the underlying instrument which is time-sensitive. The promised asset may be currency,

commodity, instrument etc. It is the oldest type of all the derivatives. A forward contract is

traded in an OTC market. The contract price of a forward contract is not transparent, as it is not

publicly disclosed. A forward contract is less liquid and counterparty risk is high due to its

customized nature.



FUTURES:

A futures contract is a standardized contract between two parties to buy or sell a

specified asset of standardized quantity and quality at a specified future date at a price agreed

today (the futures price). The contracts are traded on a futures exchange. Futures contracts are

not "direct" securities like stocks, bonds, rights or warrants. They are still securities, however,

though they are a type of derivative contract. The party agreeing to buy the underlying asset in

the future assumes a long position, and the party agreeing to sell the asset in the future assumes a

short position.

The price is determined by the instantaneous equilibrium between the forces of supply

and demand among competing buy and sell orders on the exchange at the time of the purchase or

sale of the contract. In many cases, the underlying asset to a futures contract may not be

traditional "commodities" at all – that is, for financial futures, the underlying asset or item can be

currencies, securities or financial instruments and intangible assets or referenced items such as

stock indexes and interest rates. The future date is called the delivery date or final settlement

date. The official price of the futures contract at the end of a day's trading session on the

exchange is called the settlement price for that day of business on the exchange.

Futures traders are traditionally placed in one of two groups: hedgers, who have an

interest in the underlying asset (which could include an intangible such as an index or interest

rate) and are seeking to hedge out the risk of price changes; and speculators, who seek to make a

profit by predicting market moves and opening a derivative contract related to the asset "on

paper", while they have no practical use for or intent to actually take or make delivery of the

underlying asset. In other words, the investor is seeking exposure to the asset in a long futures or

the opposite effect via a short futures contract.

Future contract get expires at every last Thursday of every month.

If you buy October month expiry future contract then you have to sell it within last Thursday of

October month.


http://en.wikipedia.org/wiki/Derivative_(finance)

http://en.wikipedia.org/wiki/Hedge_(finance)

http://en.wikipedia.org/wiki/Futures_exchange

http://en.wikipedia.org/wiki/Contract


Major Advantages of Futures Trading over Stock Trading:

Margin is available:

In future trading you get margin to buy (but can hold only up to maximum of 3 months),

while in stock trading you must have that much of amount in your account to buy.

Possible to do short selling:

You can short sell futures- You can sell futures without buying them which is called short

selling and later buy within your expiry period, to cover up your positions.

This is not possible in stocks. You can’t sell stocks before buying them in delivery (you can

do in intraday). You can short sell futures and can cover off within your expiry period.

Brokerages are low:

Brokerages offered for future trading are less as compared to stock delivery trading.

Futures contracts, or simply futures, (but not future or future contracts) are exchange

traded derivatives. The exchange's clearing house acts as counterparty on all contracts, sets

margin requirements, and crucially also provides a mechanism for settlement.

OPTIONS:

An option is a contract between a buyer and a seller that gives the buyer of the option

the right, but not the obligation, to buy or to sell a specified asset (underlying) on or before the

option's expiration time, at an agreed price, the strike price.

In return for granting the option, the seller collects a payment (the premium) from the

buyer. Granting the option is also referred to as "selling" or "writing" the option. The buyer will

exercise his right only if it is favorable to him. If it is not, he will not exercise his right because

he has no obligation. Thus, the underlying asset moves from to another only when the option is

exercised. When it moves from one counterpart to another, its price (in cash) must move in the


http://en.wikipedia.org/wiki/Strike_price

http://en.wikipedia.org/wiki/Expiration_(options)

http://en.wikipedia.org/wiki/Underlying

http://en.wikipedia.org/wiki/Margin_(finance)

http://en.wikipedia.org/wiki/Counterparty

http://en.wikipedia.org/wiki/Clearing_(finance)

http://en.wikipedia.org/wiki/Derivative_(finance)#OTC_and_exchange-traded

http://en.wikipedia.org/wiki/Derivative_(finance)#OTC_and_exchange-traded


opposite direction. The amount of price in cash is fixed at the time of contract and is called the

strike price or exercise price.

A call option gives the buyer of the option the right but not the obligation to buy the

underlying at the strike price.

A put option gives the buyer of the option the right but not the obligation to sell the

underlying at the strike price.

If the buyer chooses to exercise this right, the seller is obliged to sell or buy the asset at

the agreed price. The buyer may choose not to exercise the right and let it expire. The underlying

asset can be a piece of property, a security (stock or bond), or a derivative instrument, such as a

futures contract.

The theoretical value of an option is evaluated according to several models. These

models, which are developed by quantitative analysts, attempt to predict how the value of an

option changes in response to changing conditions. Hence, the risks associated with granting,

owning, or trading options may be quantified and managed with a greater degree of precision,

perhaps, than with some other investments. Exchange-traded options form an important class of

options which have standardized contract features and trade on public exchanges, facilitating

trading among independent parties. Over-the-counter options are traded between private parties,

often well-capitalized institutions that have negotiated separate trading and clearing

arrangements with each other.

Option styles:

Naming conventions are used to help identify properties common to many different types

of options. Mainly include:

European option - an option that may only be exercised on expiration.

American option - an option that may be exercised on any trading day on or before

expiration.


http://en.wikipedia.org/wiki/Expiration_(options)

http://en.wikipedia.org/wiki/Exercise_(options)

http://en.wikipedia.org/wiki/Over-the-counter_(finance)

http://en.wikipedia.org/wiki/Trader_(finance)

http://en.wikipedia.org/wiki/Risk

http://en.wikipedia.org/wiki/Quantitative_analyst


The basic trades of traded stock options:

These trades are described from the point of view of a speculator. If they are combined

with other positions, they can also be used in hedging. An option contract in US markets usually

represents 100 shares of the underlying security.

Long call:

A trader who believes that a stock's price will increase might buy the right to purchase

the stock rather than just buy the stock. He would have no obligation to buy the stock, only the

right to do so until the expiration date. If the stock price at expiration is above the exercise price

by more than the premium paid, he will profit. If the stock price at expiration is lower than the

exercise price, he will let the call contract expire worthless, and only lose the amount of the

premium.

Long put:

A trader who believes that a stock's price will decrease can buy the right to sell the stock

at a fixed price. He will be under no obligation to sell the stock, but has the right to do so until

the expiration date. If the stock price at expiration is below the exercise price by more than the

premium paid, he will profit. If the stock price at expiration is above the exercise price, he will

let the put contract expire worthless and only lose the premium paid.

Short call:

A trader, who believes that a stock price will decrease, can sell the stock short or instead

sell, or "write," a call. The trader selling a call has an obligation to sell the stock to the call buyer

at the buyer's option. If the stock price decreases, the short call position will make a profit in the

amount of the premium. If the stock price increases over the exercise price by more than the

amount of the premium, the short will lose money, with the potential loss unlimited.

Short put :

A trader who believes that a stock price will increase can buy the stock or instead sell a

put. The trader selling a put has an obligation to buy the stock from the put buyer at the put

buyer's option. If the stock price at expiration is above the exercise price, the short put position



will make a profit in the amount of the premium. If the stock price at expiration is below the

exercise price by more than the amount of the premium, the trader will lose money, with the

potential loss being up to the full value of the stock.

SWAPS:

A swap is a derivative in which two counterparties exchanges certain benefits of one

party's financial instrument for those of the other party's financial instrument. The benefits in

question depend on the type of financial instruments involved. Specifically, the two

counterparties agree to exchange one stream of cash flows against another stream. These streams

are called the legs of the swap. The swap agreement defines the dates when the cash flows are to

be paid and the way they are calculated. Usually at the time when the contract is initiated at least

one of these series of cash flows is determined by a random or uncertain variable such as an

interest rate, foreign exchange rate, equity price or commodity price.

The cash flows are calculated over a notional principal amount, which is usually not

exchanged between counterparties. Consequently, swaps can be used to create unfunded

exposures to an underlying asset, since counterparties can earn the profit or loss from movements

in price without having to post the notional amount in cash or collateral.

Swaps can be used to hedge certain risks such as interest rate risk, or to speculate on

changes in the expected direction of underlying prices.

Swap market

Most swaps are traded over-the-counter (OTC), "tailor-made" for the counterparties.

Some types of swaps are also exchanged on futures markets such as the Chicago Mercantile

Exchange Holdings Inc., the largest U.S. futures market, the Chicago Board Options Exchange,

Intercontinental Exchange and Frankfurt-based Eurex AG.


http://en.wikipedia.org/wiki/Speculation

http://en.wikipedia.org/wiki/Interest_rate_risk

http://en.wikipedia.org/wiki/Collateral_(finance)


Types of swaps:

The five generic types of swaps, in order of their quantitative importance, are: interest

rate swaps, currency swaps, credit swaps, commodity swaps and equity swaps. There are also

many other types.

a. Interest rate swaps:

A is currently paying floating, but wants to pay fixed. B is currently paying fixed but

wants to pay floating. By entering into an interest rate swap, the net result is that each party can

'swap' their existing obligation for their desired obligation. Normally the parties do not swap

payments directly, but rather, each sets up a separate swap with a financial intermediary such as

a bank. In return for matching the two parties together, the bank takes a spread from the swap

payments.

The most common type of swap is a “plain Vanilla” interest rate swap. It is the exchange

of a fixed rate loan to a floating rate loan. The life of the swap can range from 2 years to over 15

years. The reason for this exchange is to take benefit from comparative advantage some

companies may have comparative advantage in fixed rate markets while other companies have a

comparative advantage in floating rate markets. When companies want to borrow they look for

cheap borrowing i.e. from the market where they have comparative advantage. However this

may lead to a company borrowing fixed when it wants floating or borrowing floating when it

wants fixed. This is where a swap comes in. A swap has the effect of transforming a fixed rate

loan into a floating rate loan or vice versa.

b. Currency swaps

A currency swap involves exchanging principal and fixed rate interest payments on a

loan in one currency for principal and fixed rate interest payments on an equal loan in another

currency. Just like interest rate swaps, the currency swaps also are motivated by comparative

advantage.


http://en.wikipedia.org/wiki/Equity_swap

http://en.wikipedia.org/wiki/Commodity_swap

http://en.wikipedia.org/wiki/Interest_rate_swap

http://en.wikipedia.org/wiki/Interest_rate_swap


c. Commodity swaps

A commodity swap is an agreement whereby a floating (or market or spot) price is

exchanged for a fixed price over a specified period. The vast majority of commodity swaps

involve crude oil.

d. Equity Swap

An equity swap is a special type of total return swap, where the underlying asset is a

stock, a basket of stocks, or a stock index. Compared to actually owning the stock, in this case

you do not have to pay anything up front, but you do not have any voting or other rights that

stock holders do have.

e. Credit default swaps

A credit default swap (CDS) is a swap contract in which the buyer of the CDS makes a

series of payments to the seller and, in exchange, receives a payoff if a credit instrument -

typically a bond or loan - goes into default (fails to pay). Less commonly, the credit event that

triggers the payoff can be a company undergoing restructuring, bankruptcy or even just having

its credit rating downgraded. A CDS contract has been compared with insurance, because the

buyer pays a premium and, in return, receives a sum of money if one of the events specified in

the contract occur. Unlike an actual insurance contract the buyer is allowed to profit from the

contract and may also cover an asset to which the buyer has no direct exposure.



WARRANT:

In finance, a warrant is a security that entitles the holder to buy stock of the issuing

company at a specified price, which can be higher or lower than the stock price at time of issue.

Warrants and Options are similar in that the two contractual financial instruments allow

the holder special rights to buy securities. Both are discretionary and have expiration dates. The

word Warrant simply means to "endow with the right", which is only slightly different to the

meaning of an Option.

Structure and features

Warrants have similar characteristics to that of other equity derivatives, such as options,

for instance:

Exercising: A warrant is exercised when the holder informs the issuer their intention to

purchase the shares underlying the warrant. The warrant parameters, such as exercise

price, are fixed shortly after the issue of the bond. With warrants, it is important to

consider the following main characteristics:

Premium: A warrant's "premium" represents how much extra you have to pay for your

shares when buying them through the warrant as compared to buying them in the regular

way.

Gearing (leverage): A warrant's "gearing" is the way to ascertain how much more

exposure you have to the underlying shares using the warrant as compared to the

exposure you would have if you buy shares through the market.

Expiration Date: This is the date the warrant expires. If you plan on exercising the

warrant you must do so before the expiration date. The more time remaining until expiry,

the more time for the underlying security to appreciate, which, in turn, will increase the

price of the warrant (unless it depreciates). Therefore, the expiry date is the date on which

the right to exercise no longer exists.



Restrictions on exercise: Like options, there are different exercise types associated with

warrants such as American style (holder can exercise any time before expiration) or

European style (holder can only exercise on expiration date).

Warrants are longer-dated options and are generally traded over-the-counter.

Types of warrants

A wide range of warrants and warrant types are available. The reasons you might invest in one

type of warrant may be different from the reasons you might invest in another type of warrant.

Equity warrants: Equity warrants can be call and put warrants.

o Callable warrants: give you the right to buy the underlying securities

o Put able warrants: give you the right to sell the underlying securities

Covered warrants: A covered warrants is a warrant that has some underlying backing,

for example the issuer will purchase the stock before hand or will use other instruments

to cover the option.

Basket warrants: As with a regular equity index, warrants can be classified at, for

example, an industry level. Thus, it mirrors the performance of the industry.

Index warrants: Index warrants use an index as the underlying asset. Your risk is

dispersed—using index call and index put warrants—just like with regular equity

indexes. It should be noted that they are priced using index points. That is, you deal with

cash, not directly with shares.

Wedding warrants: are attached to the host debentures and can be exercised only if the

host debentures are surrendered

Detachable warrants: the warrant portion of the security can be detached from the

debenture and traded separately.

Naked warrants: are issued without an accompanying bond, and like traditional

warrants, are traded on the stock exchange.



Other Categorization of Derivatives Products:

We can also categorize derivative products based on the mode or the place of trading.

1. Exchange traded derivatives: Derivatives traded on the regulated exchange are highly

standardized, (example – exchange traded future & options). Options & futures contracts are

standardized. In other words, the parties to the contracts do not decide the terms of

futures/option contract; but they merely accept terms of contracts standardized by the

Exchange. Exchange traded derivatives offer the maximum protection to the investor thanks

to various regulatory measures enforced by SEBI to provide for fairness and transparency in

trading.

2. Over the counter derivatives: Encompass tailored financial derivatives, such as swaps,

swaptions, caps and collars that are traded in the offices of the world’s leading financial

institutions. These are individually agreed between two counter-parties.

Commodities: A Strong Investment Option :

Commodities, a known avenue for investment, had always generated economic interest

especially among investors. In recent years, commodities have emerged as an asset class on their

own, and are currently perceived to be in the Peers of stocks and shares, bonds, other securities

and real estate. On many occasions, commodities have outperformed other asset classes and are

becoming distinctive in the investment basket of tactical investors. They are also part of the asset

diversification strategy of investors.

Indian Commodity market having its roots dating back a century ago got its new global

face with the development of national commodity exchanges and has now become the best place

to park the investment money. With India being a franchiser of global commodity market, there



is renewed interest in derivatives trading. The organized Indian Commodity Market is at its

nascent stage and a large potential to provide enormous opportunities to the investors and other

market participants.

Commodity Derivative Exchanges:

The commodity market is a market, where commodities are bought and sold.

The main function of the commodity exchange is assurance of regular communication

between buyers and sellers, when transactions are carried out with available batches

of goods.

Commodity Markets and Commodity Futures are a mechanism for hedging.

In the commodity futures exchanges the peak value of trading have touched Rs

15,000 crore on some days with the average around of Rs 6,000 crore.

Open interests in certain commodities such as gold, silver, rubber, pepper, Soya are

also substantial.

The modern commodity markets have their roots in the trading of agricultural

products

For centuries, sugar has been a highly valued and widely traded commodity.

The main advantages of a call option are protection against higher prices, limited

liability with no margin deposits, and the potential to benefit from lower cash prices.

The National Commodity Derivatives Exchange (NCDEX) has emerged as the largest

commodity futures exchange.

The Government of India recognized three nation-wide multi commodity exchanges

to promote a healthy, competitive futures market. It was rightly presumed that there is

room for multiple players to grow in size and stature in the huge commodity economy

of India.



Operational Definitions:

Currency: Any form of money issued by a government or central bank and used as legal tender

and a basis for Forex trade.

Currency Pair: The two currencies that make up a foreign exchange rate are known as Currency

Pair. For Example, USDINR

Cash Market: It is the market in the actual financial instrument on which a futures or options

contract is based.

Stock Exchange: An association or a company or any other body corporate that provide the

trading platform for currencies.

Derivative contract: A derivative is a product whose value is derived from the value of one or

more underlying variable or asset in a contractual manner. The underlying asset can be equity,

foreign exchange, commodity or any other asset. The price of derivative is driven by the spot

price.

Long position: A position that appreciates in value if market prices increase. When the base

currency in the pair is bought, the position is said to be long.

Short position: An investment positions that benefit from a decline in market price. When the

base currency in the pair is sold, the position is said to be short.

Lot: A unit to measure the amount of the deal. The value of the deal always corresponds to an

integer number of lots.



6. CURRENCY DERIVATIVES

Foreign exchange rate is the value of a foreign currency relative to domestic currency. The

exchange of currencies is done in the foreign exchange market, which is one of the biggest

financial markets. The participants of the market are banks, corporations, exporters, importers

etc. A foreign exchange contract typically states the currency pair, the amount of the contract,

the agreed rate of exchange etc.

Exchange Rate

A foreign exchange deal is always done in currency pairs, for example, US Dollar - Indian

Rupee contract (USD - INR); British Pound - INR (GBP- INR), Japanese Yen - U.S. Dollar

(JPY USD), U.S. Dollar - Swiss Franc (USD-CHF) etc. Some of the liquid currencies in the

world are USD, JPY, EURO, GBP, and CHF and some of the liquid currency contracts are

on USD-JPY, USD-EURO, EURO-JPY, USD-GBP, and USD-CHF. The prevailing exchange

rates are usually depicted in a currency table like the one given below:

Currency Table:

Date: 28 June 2009 Time: 15:15 hours

USD .JPY EUR IIIIR GBP

USD 1.000 95.318 0.711 48.053 0.606

JPY 0.010 1.000 0.007 0.504 0.006

EUR 1.406 134.033 1.000 67.719 0.852

INR 0.021 1.984 0.015 1.000 0.013

GBP 1.651 157.43 1.174 79.311 1.000

In a currency pair, the first currency is referred to as the base currency and the second

currency is referred to as the 'counter/terms/quote' currency. The exchange rate tells the worth of



the base currency in terms of the terms currency, i.e. for a buyer, how much of the terms

currency must be paid to obtain one unit of the base currency. For example, a USD-INR rate

of Rs. 48.0530 implies that Rs. 48.0530 must be paid to obtain one US Dollar. Foreign

exchange prices are highly volatile and fluctuate on a real time basis. In foreign exchange

contracts, the price fluctuation is expressed as appreciation/depreciation or the

strengthening/weakening of a currency relative to the other. A change of USD-INR rate from

Rs. 48 to Rs. 48.50 implies that USD has strengthened/ appreciated and the INR has

weakened/depreciated, since a buyer of USD will now have to pay more INR to buy 1USD

than before.

Fixed Exchange Rate Regime and Floating Exchange Rate Regime:

There are mainly two methods employed by governments to determine the value of domestic

currency vis-a-vis other currencies: fixed and floating exchange rate.

Fixed exchange rate regime:

Fixed exchange rate, also known as a pegged exchange rate, is when a currency's value is

maintained at a fixed ratio to the value of another currency or to a basket of currencies or to

any other measure of value e.g. gold. In order to maintain a fixed exchange rate, a government

participates in the open currency market. When the value of currency rises beyond

the permissible limits, the government sells the currency in the open market, thereby

increasing its supply and reducing value. Similarly, when the currency value falls beyond

certain limit, the government buys it from the open market, resulting in an increase in its

demand and value. Another method of maintaining a fixed exchange rate is by making it illegal

to trade currency at any other rate. However, this is difficult to enforce and often leads to a

black market in foreign currency.

Floating exchange rate regime:



Unlike the fixed rate, a floating exchange rate is determined by a market mechanism through

supply and demand for the currency. A floating rate is often termed "self-correcting", as any

fluctuation in the value caused by differences in supply and demand will automatically

be corrected by the market. For example, if demand for a currency is low, its value will

decrease, thus making imported goods more expensive and exports relatively cheaper. The

countries buying these export goods will demand the domestic currency in order to make

payments, and the demand for domestic currency will increase. This will again lead to

appreciation in the value of the currency. Therefore, floating exchange rate is self correcting,

requiring no government intervention. However, usually in cases of extreme appreciation or

depreciation of the currency, the country's Central Bank intervenes to stabilize the

currency. Thus, the exchange rate regimes of floating currencies are more technically called a

managed float.

Factors Affecting Exchange Rates:

There are various factors affecting the exchange rate of a currency. They can be classified as

fundamental factors, technical factors, political factors and speculative factors.

Fundamental factors:

The fundamental factors are basic economic policies followed by the government in relation

to inflation, balance of payment position, unemployment, capacity utilization, trends in import

and export, etc. Normally, other things remaining constant the currencies of the countries

that follow sound economic policies will always be stronger. Similarly, countries having

balance of payment surplus will enjoy a favorable exchange rate. Conversely, for countries

facing balance of payment deficit, the exchange rate will be adverse.

Technical factors:

Interest rates: Rising interest rates in a country may lead to inflow of hot money in the

country, thereby raising demand for the domestic currency. This in turn causes appreciation in

the value of the domestic currency.



Inflation rate: High inflation rate in a country reduces the relative competitiveness of the

export sector of that country. Lower exports result in a reduction in demand of the domestic

currency and therefore the currency depreciates.

Exchange rate policy and Central Bank interventions: Exchange rate policy of the country

is the most important factor influencing determination of exchange rates. For example, a country

may decide to follow a fixed or flexible exchange rate regime, and based on this, exchange

rate movements may be less/more frequent. Further, governments sometimes participate in

foreign exchange market through its Central bank in order to control the demand or supply of

domestic currency.

Political factors:

Political stability also influences the exchange rates. Exchange rates are susceptible to political

instability and can be very volatile during times of political crises.

Speculation:

Speculative activities by traders worldwide also affect exchange rate movements. For example,

if speculators think that the currency of a country is over valued and will devalue in near

future, they will pull out their money from that country resulting in reduced demand for that

currency and depreciating its value.

Quotes

In currency markets, the rates are generally quoted in terms of USD. The price of a currency in

terms of another currency is called 'quote'. A quote where USD is the base currency is referred

to as a 'direct quote' (e.g. 1 USD - INR 48.5000) while a quote where USD is referred to as the

terms currency is an 'indirect quote' (e.g. 1INR = 0.021USD).



USD is the most widely traded currency and is often used as the vehicle currency. Use of

vehicle currency helps the market in reduction in number of quotes at any point of time, since

exchange rate between any two currencies can be determined through the USD quote for

those currencies. This is possible since a quote for any currency against the USD is readily

available. Any quote not against the USD is referred to as 'cross' since the rate is calculated

via the USD.

For example, the cross quote for EUR-GBP can be arrived through EUR-USD quote * USD-

GBP quote (i.e. 1.406 * 0.606 = 0.852). Therefore, availability of USD quote for all currencies

can help in determining the exchange rate for any pair of currency by using the cross-rate.

Tick-Size:

Tick size refers to the minimum price differential at which traders can enter bids and offers.

For example, the Currency Futures contracts traded at the NSE have a tick size of Rs. 0.0025.

So, if the prevailing futures price is Rs. 48.5000, the minimum permissible price movement can

cause the new price to be either Rs. 48.4975 or Rs. 48.5025. Tick value refers to the amount of

money that is made or lost in a contract with each price movement.

Spreads:

Spreads or the dealer's margin is the difference between bid price (the price at which a dealer is

willing to buy a foreign currency) and ask price (the price at which a dealer is willing to sell a

foreign currency). the quote for bid will be lower than ask, which means the amount to be paid

in counter currency to acquire a base currency will be higher than the amount of counter

currency that one can receive by selling a base currency. For example, a bid-ask quote for

USDINR of Rs. 47.5000 - Rs. 47.8000 means that the dealer is willing to buy USD by

paying Rs. 47.5000 and sell USD at a price of Rs. 47.8000. The spread or the profit of the

dealer in this case is Rs. 0.30.



Spot Transaction and Forward Transaction:

The spot market transaction does not imply immediate exchange of currency, rather the

settlement (exchange of currency) takes place on a value date, which is usually two business

days after the trade date. The price at which the deal takes place is known as the spot rate

(also known as benchmark price). The two-day settlement period allows the parties to confirm

the transaction and arrange payment to each other.

A forward transaction is a currency transaction wherein the actual settlement date is at a

specified future date, which is more than two working days after the deal date. The date of

settlement and the rate of exchange (called forward rate) is specified in the contract. The

difference between spot rate and forward rate is called forward margin". Apart from forward

contracts there are other types of currency derivatives contracts, which are covered in

subsequent chapters.

Foreign Exchange Spot (cash) market

The foreign exchange spot market trades in different currencies for both spot and

forward delivery. Generally they do not have specific location, and mostly take place primarily

by means of telecommunications both within and between countries. It consists of a network of

foreign dealers which are often banks, financial institutions, large concerns, etc. The large banks

usually make markets in different currencies.

In the spot exchange market, the business is transacted throughout the world on a

continual basis. So it is possible to transaction in foreign exchange markets 24 hours a day. The

standard settlement period in this market is 48 hours, i.e., 2 days after the execution of the

transaction. The spot foreign exchange market is similar to the OTC market for securities. There

is no centralized meeting place and any fixed opening and closing time. Since most of the



business in this market is done by banks, hence, transaction usually do not involve a physical

transfer of currency, rather simply book keeping transfer entry among banks. Exchange rates are

generally determined by demand and supply force in this market. The purchase and sale of

currencies stem partly from the need to finance trade in goods and services. Another important

source of demand and supply arises from the participation of the central banks which would

emanate from a desire to influence the direction, extent or speed of exchange rate movements.

Currency Futures :

Derivatives are financial contracts whose value is determined from one or more underlying

variables, which can be a stock, a bond, an index, an interest rate, an exchange rate etc. The

most commonly used derivative contracts are forwards and futures contracts and options.

There are other types of derivative contracts such as swaps, swaptions, etc. Currency

derivatives can be described as contracts between the sellers and buyers whose values are

derived from the underlying which in this case is the Exchange Rate. Currency derivatives are

mostly designed for hedging purposes, although they are also used as instruments for

speculation.

Currency markets provide various choices to market participants through the spot market or

derivatives market. Before explaining the meaning and various types of derivatives contracts,

let us present three different choices of a market participant. The market participant may enter

into a spot transaction and exchange the currency at current time.

The market participant wants to exchange the currency at a future date. Here the market

participant may either:

Enter into a futures/forward contract, whereby he agrees to exchange the currency in the

future at a price decided now, or,



Buy a currency option contract, wherein he commits for a future exchange of currency,

with an agreement that the contract will be valid only if the price is favorable to the

participant.

Forward Contracts:

Forward contracts are agreements to exchange currencies at an agreed rate on a specified

future date. The actual settlement date is more than two working days after the deal date. The

agreed rate is called forward rate and the difference between the spot rate and the forward

rate is called as forward margin. Forward contracts are bilateral contracts (privately

negotiated), traded outside a regulated stock exchange and suffer from counter-party risks

and liquidity risks. Counter Party risk means that one party in the contract may default on

fulfilling its obligations thereby causing loss to the other party.

Futures Contracts

Futures contracts are also agreements to buy or sell an asset for a certain price at a future

time. Unlike forward contracts, which are traded in the over-the-counter market with no

standard contract size or standard delivery arrangements, futures contracts are exchange

traded and are more standardized. They are standardized in terms of contract sizes, trading

parameters, settlement procedures and are traded on a regulated exchange. The contract size is

fixed and is referred to as lot size.

Since futures contracts are traded through exchanges, the settlement of the contract is

guaranteed by the exchange or a clearing corporation and hence there is no counter party risk.

Exchanges guarantee the execution by holding an amount as security from both the parties.

This amount is called as Margin money. Futures contracts provide the flexibility of closing

out the contract prior to the maturity by squaring off the transaction in the market. Table

3.1draws a comparison between a forward contract and a futures contract.



Comparison of Forward and futures Contracts:

Forward Contract Futures Contract

Nature of Contract

Non-standardized/Customized contract

Standardized contract

Trading Informal Over-the-Counter market; Private contract between parties

Traded on an exchange

Settlement Single - Pre-specified in the contract

Daily settlement, known as Daily mark to market settlement and Final Settlement.

Risk Counter-Party risk is present since no guarantee is provided

Exchange provides the guarantee of settlement and hence no counter party risk.

Hedging using Currency Futures:

Hedging in currency market can be done through two positions, viz. Short Hedge and Long

Hedge. They are explained as under:

Short-Hedge:

A short hedge involves taking a short position in the futures market. In a currency market,

short hedge is taken by someone who already owns the base currency or is expecting a future

receipt of the base currency.

Long Hedge:INDUS BUSINESS ACADEMY FPB1113/072 Page 44


A long hedge involves holding a long position in the futures market. A Long position holder

agrees to buy the base currency at the expiry date by paying the agreed exchange rate. This

strategy is used by those who will need to acquire base currency in the future to pay any

liability in the future.

Speculation in Currency Futures:

Futures contracts can also be used by speculators who anticipate that the spot price in the future

will be different from the prevailing futures price. For speculators, who anticipate a

strengthening of the base currency will hold a long position in the currency contracts,in order to

profit when the exchange rates move up as per the expectation. A speculator who anticipates a

weakening of the base currency in terms of the terms currency, will hold a short position in the

futures contract so that he can make a profit when the exchange rate moves down.

Speculation in Futures Market

Suppose the current USD-INR spot rate is INR 48.0000 per USD. Assume that the current 3-

months prevailing futures rate is also INR 48.0000 per USD. Speculator ABC anticipates that

due to decline in India's exports, the USD (base currency) Is going to strengthen against INR

after 3 months. ABC forecasts that after three months the exchange rate would be INR 49.50

per USD. In order to profit,ABC has two options:

Option A: Buy 1000 USD in the spot market, retain it for three months, and sell them after 3

months when the exchange rate increases: This will require an investment of Rs. 48,000 on the

part of ABC (although he will earn some Interest on Investing the USD). On maturity date,If

the USD strengthens as per expectation (i.e. exchange rate becomes INR 49.5000 per

USD),ABC will earn Rs. (49.50 - 48)*1000, i.e. Rs. 1500 as profit.

Option B: ABC can take a long position in the futures contract - agree to buy USD after 3

months@ Rs. 48.0000 per USD: In a futures contract,the parties will just have to pay only the

margin money upfront. Assuming the margin money to be 10% and the contract size Is USD



1000, ABC will have to Invest only Rs. 4800 per contract. With Rs. 48,000, ABC can enter

into 10 contracts. The margin money will be returned once the contract expires.

After 3 months, if the USD strengthens as per the expectation, ABC will earn the difference

on settlement. ABC will earn (Rs 49.5000 - 48.0000) * 1000,i.e. Rs. 1500 per contract. Since

ABC holds 'long' position In 10 contracts, the total profit will be Rs. 15000. However, if the

exchange rate does not move as per the expectation, say the USD depreciates and the exchange

rate after 3 months becomes Rs. 47.0000 per USD, then in option A, ABC will lose only Rs.

(48-47) * 1000 = Rs. 1000, but In option B,ABC will lose Rs. 10000 (Rs. 1000 per contract *

10 contracts).

Thus taking a position in futures market, rather than in spot market, give speculators a chance

to make more money with the same investment (Rs.48,000). However,if the exchange rate does

not move as per expectation, the speculator will lose more in the futures market than in the

spot market. Speculators are willing to accept high risks in the expectation of high returns.

Speculators prefer taking positions in the futures market to the spot market because of the low

investment required in case of futures market. In futures market, the parties are required to pay

just the margin money upfront, but in case of spot market, the parties have to invest the full

amount, as they have to purchase the foreign currency.



NSE's Currency Derivatives Segment:

The phenomenal growth of financial derivatives across the world is attributed to the

fulfillment of needs of hedgers, speculators and arbitrageurs by these products. In this chapter

we look at contract specifications, participants, the payoff of these contracts, and finally at

how these contracts can be used by various entities at the NSE.

Contract specification:

Underlying Rate of exchange between one USD and INR

Trading Hours (Monday to Friday)

09:00a.m. to 05:00p.m.

Contract Size USD 1000

Tick Size 0.25 paise or INR 0.0025

Trading Period Maximum expiration period of 12 months

Contract Months 12 near calendar months

Final Settlement date/ Value date Last working day of the month (subject to holiday calendars)

Last Trading Day Two working days prior to Final Settlement Date

Settlement Cash settled

Final Settlement Price The reference rate fixed by RBI two working days prior to the final settlement date will be used for final settlement



Basis of trading

The NEAT-CDS system supports an order driven market, wherein orders

match automatically. Order matching is essentially on the basis of security,

its price and time. All quantity fields are in contracts and price in Indian

rupees. The exchange notifies the contract size and tick size for each of the

contracts traded on this segment from time to time. When any order

enters the trading system, it is an active order. It tries to find a match on

the opposite side of the book. If it finds a match, a trade is generated. If it

does not find a match, the order becomes passive and sits in the respective

outstanding order book in the system.

Corporate hierarchy

In the trading software, a trading member has the facility of defining a

hierarchy amongst users of the system. This hierarchy comprises corporate

manager, branch manager and dealer.

1) Corporate manager: The term 'Corporate manager' is assigned to a

user placed at the highest level in a trading firm. Such a user can perform

all the functions such as order and trade related activities, receiving reports

for all branches of the trading member firm and also all dealers of the firm.

Additionally, a corporate manager can define limits for the branches and

dealers of the firm.

2) Branch manager: The branch manager is a term assigned to a user who is placed under

the corporate manager. Such a user can perform and view order and trade related activities



for all dealers under that branch. Additionally, a branch manager can define limits for the

dealers under that branch.

3) Dealer: Dealers are users at the lower most level of the hierarchy. A dealer must be

linked either with the branch manager or corporate manager of the firm. A Dealer can

perform view order and trade related activities only for oneself and does not have access to

information on other dealers under either the same branch or other branches.

Cases given below explain activities possible for specific user categories:

Corporate manager of the clearing member

Corporate manager of the clearing member has limited rights on the trading system. A

corporate manager of the clearing member can perform following functions:

On line custodian/ 'give up' trade confirmation/ rejection for the participants

Limit set up for the trading member I participants

View market information like trade ticker, Market Watch etc.

View net position of trading member I Participants

Corporate Manager of the trading member

This is the top level of the trading member hierarchy with trading right. A corporate manager

of the trading member can broadly perform following functions:

Order management and trade management for self

View market infonmation

Set up branch level and dealer level trading limits for any branch/ dealer of the

trading member

View, modify or cancel outstanding orders on behalf of any dealer of the trading

member



View, modify or send cancel request for trades on behalf of any dealer of the trading

member

View day net positions at branch level and dealer level and cumulative net position

at firm level.

Branch manager of trading member

The next level in the trading member hierarchy with trading right is the branch

manager. One or more dealers of the trading member can be a branch manager

for the trading member. A branch manager of the trading member can broadly

perform the following functions:

Order management and trade management of self

View market information

Set up dealer level trading limits for any dealer linked with the branch

View, modify or cancel the outstanding orders on behalf of any dealers linked with the

branch

View, modify or send cancel request for trades on behalf of any dealer of the dealer

linked with the branch

View day net positions at branch level and dealer level

FOREIGN EXCHANGE QUOTATIONS

Foreign exchange quotations can be confusing because currencies are quoted in

terms of other currencies. It means exchange rate is relative price. For example, If one US dollar

is worth of Rs. 45 in Indian rupees then it implies that 45 Indian rupees will buy one dollar of

USA, or that one rupee is worth of 0.022 US dollar which is simply reciprocal of the former

dollar exchange rate.



Base Currency/ Terms Currency:

In foreign exchange markets, the base currency is the first currency in a

currency pair. The second currency is called as the terms currency. Exchange rates are quoted in

per unit of the base currency. That is the expression Dollar-Rupee, tells you that the Dollar is

being quoted in terms of the Rupee. The Dollar is the base currency and the Rupee is the terms

currency. Exchange rates are constantly changing, which means that the value of one currency in

terms of the other is constantly in flux. Changes in rates are expressed as strengthening or

weakening of one currency vis-à-vis the second currency. Changes are also expressed as

appreciation or depreciation of one currency in terms of the second currency. Whenever the base

currency buys more of the terms currency, the base currency has strengthened / appreciated and

the terms currency has weakened /depreciated. For example, if Dollar – Rupee moved from Rs.

43.00 to Rs. 43.25 the Dollar has appreciated and the Rupee has depreciated. And if it moved

from 43.0000 to 42.7525 the Dollar has depreciated and Rupee has appreciated.

It has been observed that in most futures markets, actual physical delivery of the

underlying assets is very rare and hardly has it ranged from 1 percent to 5 percent. This is

because most of futures contracts in different products are predominantly speculative

instruments. For example, X purchases American Dollar futures and Y sells it. It leads to two

contracts, first, X party and clearing house and second Y party and clearing house. Assume next

day X sells same contract to Z, then X is out of the picture and the clearing house is seller to Z

and buyer from Y, and hence, this process is goes on.

REGULATORY FRAMEWORK FOR CURRENCY FUTURES

With a view to enable entities to manage volatility in the currency market,

RBI on April 20, 2007 issued comprehensive guidelines on the usage of foreign currency

forwards, swaps and options in the OTC market. At the same time, RBI also set up an Internal

Working Group to explore the advantages of introducing currency futures. With the expected

benefits of exchange traded currency futures, it was decided in a joint meeting of RBI and SEBI

on February 28, 2008, that an RBI-SEBI Standing Technical Committee on Exchange Traded

Currency and Interest Rate Derivatives would be constituted.



To begin with, the Committee would evolve norms and oversee the implementation of

Exchange traded currency futures. The Terms of Reference to the Committee was as under: 1. to

coordinate the regulatory roles of RBI and SEBI in regard to trading of Currency and Interest

Rate Futures on the Exchanges.2.To suggest the eligibility norms for existing and new

Exchanges for Currency and Interest Rate Futures trading.3.To suggest eligibility criteria for the

members of such exchanges.

Currency futures were introduced in recognized stock exchanges in India in August 2008. The

currency futures market is subject to the guidelines issued by the Reserve Bank of India (RBI)

and the Securities Exchange Board of India (SEBI) from time to time. Amendments were also

made to the Foreign Exchange Management Regulations to facilitate introduction of the

currency futures contracts in India. Earlier persons resident in India had access only to the

over-the-counter (OTC) products for hedging their currency risk, which included - forwards,

swaps, options. Introduction of exchange traded currency futures contracts has facilitated

efficient price discovery, counterparty risk management, wider participation (increased

liquidity) and lowered the transaction costs etc.

Membership

Categories of membership (NSE)

Members are admitted in the Currency Derivatives Segments in the following categories:

Only Trading Membership of NSE

Membership in this category entitles a member to execute trades on his own account as well as

account of his clients in the Currency Derivatives segment. However, clearing and settlement

of trades executed through the Trading Member would have to be done through a Trading-cum

Clearing Member or Professional Clearing Member on the Currency Derivatives Segment of

the Exchange (Clearing and settlement is done through the National Securities Clearing

Corporation Ltd. - NSCCL, a wholly owned subsidiary of the NSE). The exchange assigns a



unique trading member ID to each trading member. Each trading member can have more than

one user and each user is assigned a unique User-ID.

Orders by trading members on their own account are called proprietary orders and orders

entered by the trading members on behalf of their clients are called client orders. Trading

Members are required to specify in the order, whether they are proprietary orders or clients

orders.

Both Trading Membership of NSE and Clearing Membership of NSCCL

Membership in this category entitles a member to execute trades on his own account as well as

on account of his clients and to clear and settle trades executed by themselves as well as by

other trading members who choose to use clearing services of the member in the Currency

Derivatives Segment.

Professional Clearing Membership of NSCCL

These members are not trading members. Membership in this category entitles a member to

clear and settle trades of such members of the Exchange who choose to clear and settle

their trades through this member. SEBI has allowed banks to become clearing member

and/or trading member of the Currency Derivatives Segment of an exchange.

Self Clearing Membership of NSCCL

Membership in this category entitles a member to clear and settle transactions on its own

account or on account of its clients only. A Self-Clearing member is not entitled to clear or settle

transactions in securities for any other trading member(s). Self clearing membership may be

availed jointly with trading membership on Currency Derivatives segment and would be

separately registered with SEBI. New members and existing SEBIregistered members on other

segments of National Stock Exchange may apply for self clearing membership jointly with

trading membership of Currency Derivatives segment,subject to fulfillment of prescribed



eligibility criteria. Further,existing trading members on Currency Derivatives Segment may also

apply for self clearing membership,subject to fulfillment of prescribed eligibility criteria.

Who cannot become a member?

Further to the capital and network requirements, no entity will be admitted as a member/partner or director of the member if:

It has been adjudged bankrupt or a receiver order in bankruptcy has been made against him or he has been proved to be insolvent even though he has obtained his final discharge;

It has compounded with his creditors for less than full discharge of debts;

It has been convicted of an offence involving a fraud or dishonesty;

It is engaged as a principal or employee in any business other than that of Securities, except as a broker or agent not involving any personal financial liability or for providing merchant banking, underwriting or corporate or investment advisory services, unless he undertakes to severe its connections with such business on admission, if admitted;

It has been at any time expelled or declared a defaulter by any other Stock Exchange or he has been debarred from trading in securities by an Regulatory Authorities like SEBI, RBIetc;

It incurs such disqualification under the provisions of the Securities Contract (Regulations) Act, 1956 or Rules made there-under so as to disentitle such persons from seeking membership of a stock exchange;

It incurs such disqualification consequent to which NSE determines it to be not in public interest to admit him as a member on the Exchange, provided that in case of registered firms, body corporates and companies, the condition will apply to, all partners in case of partnership firms, all directors in case of companies;

The entity is not a fit and proper person in terms of the SEBIguidelines



7. FINDINGS, SUGGESTIONS & CONCLUSION

Findings:

New concept of Exchange traded currency future trading is regulated by higher authority

and regulatory. The whole function of Exchange traded currency future is regulated by

SEBI/RBI, and they established rules and regulation so there is very safe trading is

emerged and counter party risk is minimized in currency Future trading. And also time

reduced in Clearing and Settlement process up to T+1 day’s basis.

Larger exporter and importer has continued to deal in the OTC counter even exchange

traded currency future is available in markets because, there is a limit of USD 100

million on open interest applicable to trading member who are banks. And the USD 25

million limit for other trading members so larger exporter and importer might continue to

deal in the OTC market where there is no limit on hedges.

In India RBI and SEBI has restricted other currency derivatives except Currency future,

at this time if any person wants to use other instrument of currency derivatives in this

case he has to use OTC.



Data of USD-INR Futures Currency Prices(June 2012)

Trade Date Instrument Underlying’s Open Price

High Price

Low Price

Close Price

No. of Contracts

Value (Rs. lakhs)

27-Jun-12 FUTCUR USDINR 270612

57 57.205 56.97 57.18 964886 5,51,168.18


56.94 57.195 56.855 57.03 2416925 13,78,844.85


56.995 57.1275 56.4375 57.075 3252547 18,45,275.19


56.6325 57.39 56.6325 57.255 2879271 16,45,164.39


56.38 56.63 56.3225 56.4175 2727543 15,40,367.87


56 56.2525 55.8725 56.2125 2037053 11,42,043.51


55.9125 56.1625 55.8775 56.0425 1924063 10,78,295.65


55.255 56.06 55.255 56.015 2607472 14,53,139.61


55.72 55.78 55.6025 55.655 1212862 6,75,713.49


55.76 55.9375 55.6575 55.8425 1570679 8,76,708.35


55.8475 56.015 55.65 55.775 1672112 9,33,774.27


55.36 56.215 55.36 55.8875 2241006 12,55,570.87


55.4475 55.9375 55.1975 55.885 2476898 13,76,888.89


55.2175 55.8 55.2175 55.7175 2287441 12,71,163.78


55.32 55.38 55.065 55.1425 1815925 10,03,094.74


55.6575 55.815 55.515 55.5525 1885280 10,48,900.14


55.6425 56.075 55.4625 55.915 1787799 9,98,208.01


56.16 56.16 55.43 55.7075 2233738 12,43,205.48




56.5 56.61 56.01 56.1475 2831110 15,91,833.80

Price fluctuations in USD-INR in a month(June 2012)

1-Jun-12

3-Jun-12

5-Jun-12

7-Jun-12

9-Jun-12

11-Jun-12

13-Jun-12

15-Jun-12

17-Jun-12

19-Jun-12

21-Jun-12

23-Jun-12

25-Jun-12

27-Jun-12

0

50

100

150

200

250

Close PriceLow PriceHigh PriceOpen Price

The above graph shows the Open High Low Close prices of USD-INR in the month of June 2012.



Data of USD-INR Futures Currency Prices(July 2012)

Trade Date Instrument Underlying’s Open Price

High Price

Low Price

Close Price

No. of Contracts

Value (Rs. lakhs)

27-Jul-12 FUTCUR USDINR 270712

55.4525 55.58 55.3575 55.3925 1108198 6,14,622.45


56.065 56.11 55.5 55.5625 2777183 15,52,073.35


56.34 56.515 56.1275 56.165 2491329 14,03,302.67


56.11 56.2825 55.955 56.2325 2321294 13,02,610.04


55.63 56.07 55.63 56.015 2427470 13,57,091.73


55.28 55.4075 55.1325 55.3375 1818636 10,04,790.42


55.34 55.505 55.1625 55.2025 1929067 10,67,568.20


55.1 55.5725 55.055 55.5225 2270574 12,57,344.96


55.0125 55.2775 54.885 55.1725 2837194 15,62,991.85


55 55.3875 54.8825 55.3325 2888354 15,91,793.80


56.025 56.025 55.205 55.26 2888309 16,03,370.20


55.76 56.055 55.6625 56.025 2367968 13,23,018.19


55.7 55.9075 55.4175 55.6125 2729065 15,17,150.94


56.0725 56.1 55.485 55.5275 2140620 11,94,389.42


55.465 56.26 55.465 56.1125 1975553 11,08,667.60


55.59 55.8575 55.415 55.6925 2252537 12,53,877.24


54.86 55.35 54.8425 55.1925 2286950 12,61,236.41


54.58 55.07 54.4175 54.7675 2703881 14,80,439.60




55.6 55.645 54.7525 54.8525 2684574 14,80,207.00


55.78 56.125 55.66 55.7075 2105949 11,76,645.84

Price fluctuations in USD-INR in a month(July 2012)

2-Jul-1

2

4-Jul-1

2

6-Jul-1

2

8-Jul-1

2

10-Jul-1

2

12-Jul-1

2

14-Jul-1

2

16-Jul-1

2

18-Jul-1

2

20-Jul-1

2

22-Jul-1

2

24-Jul-1

2

26-Jul-1

20

50

100

150

200

250

Close PriceLow PriceHigh PriceOpen Price

The above graph shows the Open High Low Close prices of USD-INR in the month of July 2012



Following Graph indicates the fluctuations of the Turnover (in Crores) in

Currency Derivatives from inception.

29-Aug-0

8

22-Oct-

08

15-Dec-

08

7-Feb-09

2-Apr-0

9

26-May

-09

19-Jul-0

9

11-Sep-09

4-Nov-0

9

28-Dec-

09

20-Feb-10

15-Apr-1

0

8-Jun-10

1-Aug-1

0

24-Sep-10

17-Nov-1

0

10-Jan-11

5-Mar-

11

28-Apr-1

1

21-Jun-11

14-Aug-1

1

7-Oct-

11

30-Nov-1

1

23-Jan-12

17-Mar-

12

10-May

-12

3-Jul-1

2

26-Aug-1

20.00

5,000.0010,000.0015,000.0020,000.0025,000.0030,000.0035,000.00

Turnover (in crores)

Following Graph indicates the fluctuations of the Turnover (in Crores) in

‘NIFTY’ Index from Aug. 2008 to Aug 2012 .



1-Aug-0

8

22-Sep-08

13-Nov-0

8

4-Jan-09

25-Feb-09

18-Apr-0

9

9-Jun-09

31-Jul-0

9

21-Sep-09

12-Nov-0

9

3-Jan-10

24-Feb-10

17-Apr-1

0

8-Jun-10

30-Jul-1

0

20-Sep-10

11-Nov-1

0

2-Jan-11

23-Feb-11

16-Apr-1

1

7-Jun-11

29-Jul-1

1

19-Sep-11

10-Nov-1

1

1-Jan-12

22-Feb-12

14-Apr-1

2

5-Jun-12

27-Jul-1

20

5000

10000

15000

20000

25000

30000

Turnover (Rs. Cr)

Comparitive CAGR calculation of Turnover

Following is the CAGR calculation of the Turnover of Currency Derivatives

from 30 Aug. 2008 - 30 Aug. 2012.

(Rs. crores)

CAGR = Rs. 16,769.23 ^ ¼ - 1 *100

Rs. 291.05

= 175.5094 %

Following is the CAGR calculation of the Turnover of NSE’s NIFTY Index

from 29 Aug. 2008 - 29 Aug. 2012.

(Rs. crores)



CAGR = Rs. 8374.69 ^ ¼ - 1 *100

Rs. 5593.43

= 10.61719 %

From looking at the graphs and the CAGR calculations, it becomes clear that there is an increase

in investors showing interest in trading in Currency Derivatives. As there are fluctuations in the

trading turnover in the derivative market , the total trading turnover in currency derivatives has

shown tremendous growth from its inception. It showed a CAGR of 175.50 % as compared to

NIFTY’s 10.61 %.

SUGGESTIONS

Currency Future need to change some restriction it imposed such as cutoff limit of 5

million USD, Ban on NRI’s and FII’s and Mutual Funds from Participating.

Now in exchange traded currency future segment only one pair USD-INR is available to

trade so there is also one more demand by the exporters and importers to introduce

another pair in currency trading. Like POUND-INR, CAD-INR etc.

In OTC there is no limit for trader to buy or short Currency futures so there demand

arises, Exchange traded currency future should increase the limit for Trading Members

and also at client level, in result OTC users will divert to Exchange traded currency

Futures.



In India the regulatory of Financial and Securities market (SEBI) has Ban on other

Currency Derivatives except Currency Futures, so this restriction seem unreasonable to

exporters and importers. And according to Indian financial growth now it’s become

necessary to introducing other currency derivatives in Exchange traded currency

derivative segment.

CONCLUSION

By far the most significant event in finance during the past decade has been the

extraordinary development and expansion of financial derivatives. These instruments enhances

the ability to differentiate risk and allocate it to those investors most able and willing to take it- a

process that has undoubtedly improved national productivity growth and standards of livings.

The currency future gives the safe and standardized contract to its investors and

individuals who are aware about the Forex market or predict the movement of exchange rate so

they will get the right platform for the trading in currency future. Because of exchange traded

future contract and its standardized nature gives counter party risk minimized. Initially only NSE

had the permission but now BSE and MCX has also started currency future. It shows that how

currency future covers ground in the compare of other available derivatives instruments. Not



only big businessmen and exporter and importers use this but individual who are interested and

having knowledge about Forex market they can also invest in currency future.

Exchange between USD-INR markets in India is very big and these exchange traded

contract will give more awareness in market and attract the investors.

8. BIBLIOGRAPHY

Websites:

www.nse-india.com

www.mcxindia.com

www.ncdex.com

www.wikipedia.com

www.investopedia.com

www.sebi.gov.in

www.rbi.org.in

www.moneycontrol.com


http://www.moneycontrol.com/


Literature:

NCFM modules of National Stock Exchange

Data of USD-INR prices for the month of June-July.


Currency derivatives

Economy & Finance

Transcript of Currency derivatives