For the benefit of candidates of Risk management of CAIIB & DTIRM
Persons resident in India have a menu of over-the-counter (OTC) products, such as currency forwards, swaps and options for hedging their currency risk. In the context of liberalisation of the capital accounts, as also continued development of the financial markets, wider hedging opportunities could enhance the flexibility for the residents to manage their currency risk dynamically. International experiences have also established that the exchange traded currency futures contracts facilitate efficient price discovery, enable better counterparty credit risk management, wider participation, trading of standardized product, reduce transaction costs, etc. Accordingly, as a part of further developing the derivatives market in India and adding to the existing menu of foreign exchange hedging tools available to the residents RBI has introduced currency futures in recognized stock exchanges or new exchanges recognized by the Securities and Exchange Board of India (SEBI) in the country. Persons resident in India are permitted to participate in the currency futures market in India subject to directions contained in the Currency Futures (Reserve Bank) Directions, 2008
“Currency Futures” means a standardised foreign exchange derivative contract traded on a recognized stock exchange to buy or sell one currency against another on a specified future date, at a price specified on the date of contract, but does not include a forward contract.
Currency futures are permitted in US Dollar - Indian Rupee or any other currency pairs, as may be approved by the Reserve Bank from time to time.
Features of currency futures
Standardized currency futures shall have the following features:
a. Only USD-INR contracts are allowed to be traded.
b. The size of each contract shall be USD 1000.
c. The contracts shall be quoted and settled in Indian Rupees.
d. The maturity of the contracts shall...