sCurrency Derivative

A Era of New Revenue

Foreign Exchange

Foreign exchange rate is the value of foreign

currency relative to domestic currency

Exchange of currencies is done in the foreign

exchange market, which is one of the biggest financial market

History of Forex

Britton Wood Agreement found its way into forex history 1944

US Dollar become the new standard of the financial market

IMF (International Monetary Fund) setup to track & monitor of currencies

World Bank launch setting up International Monetary stability

Exchange Rate

Base Currency

• First currency in a currency pair

Terms Currency

• Second currency in a currency pair

Example of Exchange Rate

Base Currency

Term Currency

Relationship

US Dollar Indian Rupees (US$ - INR)

British Pound INR (GBP – INR)

Japanese Yen US $ (JPY – USD)

Currency Table

USD EUR GBP JPY

USD 1 0.7468 0.6627 99.19

EUR 1.339 1 0.8869 132.66

GBP 1.509 1.1275 1 149.53

JPY 0.0101 0.0075 0.0067 1

Factor affecting Exchange Rate

Fundamental Factor

Economy

Government Policies

Currency Derivative

A Future Contract

Traded on Exchange

To Buy or Sell

Underlying Assets

At A Future Date

On Specified Price

Why Currency Future? Transparency & Efficient Price Discovery

Elimination of Counter Party Risk

Access to all type of Market Participant

Standardized Product

Trading Platform

Exchange in Currency Trading

National Stock Exchange (NSE)

Multi Commodity Exchange of India Ltd. (MCX)

Contact Specification Underlying USD – INR

Lot Size 1000 USD

Quotation / Price Quote Rs. Per USD

Tick Size 0.25 paisa or INR 0.0025

Trading Hours Monday to Friday (9:00 a.m. to 5:00p.m.)

Contract Trading Cycle 12 month trading cycle

Last trading day Two working days prior to the last business day of the expiry month at 12 noon

Final settlement day Last working day (excluding Saturdays) of the expiry monthThe last working day will be the same as that for interbank settlement in Mumbai

Base Price The oretical price on the 1st day of the contract.

Minimum initial margin 3 to 5% of contract value

Extreme loss margin 1% of MTM value of gross open position

settlement Daily settlement: T+1Final settlement: T+2

Mode of settlement Cash settlement in Indian rupees

Final settlement price RBI reference rate

Contact Specification Underlying EURO – INR

Lot Size 1000 EURO

Quotation / Price Quote Rs. Per EUR

Tick Size 0.25 paisa or INR 0.0025

Trading Hours Monday to Friday (9:00 a.m. to 5:00p.m.)

Contract Trading Cycle 12 month trading cycle

Last trading day Two working days prior to the last business day of the expiry month at 12 noon

Final settlement day Last working day (excluding Saturdays) of the expiry monthThe last working day will be the same as that for interbank settlement in Mumbai

Base Price The oretical price on the 1st day of the contract.

Minimum initial margin 3 To 5% of contract value

Extreme loss margin 0.03% of MTM value of gross open position

settlement Daily settlement: T+1Final settlement: T+2

Mode of settlement Cash settlement in Indian rupees

Final settlement price RBI reference rate

Contact Specification Underlying POUND STERLING – INR

Lot Size 1000 POUND STERLING

Quotation / Price Quote Rs. Per GBP

Tick Size 0.25 paisa or INR 0.0025

Trading Hours Monday to Friday (9:00 a.m. to 5:00p.m.)

Contract Trading Cycle 12 month trading cycle

Last trading day Two working days prior to the last business day of the expiry month at 12 noon

Final settlement day Last working day (excluding Saturdays) of the expiry monthThe last working day will be the same as that for interbank settlement in Mumbai

Base Price The oretical price on the 1st day of the contract.

Minimum initial margin 3 To 5% of contract value

Extreme loss margin 0.5% of MTM value of gross open position

settlement Daily settlement: T+1Final settlement: T+2

Mode of settlement Cash settlement in Indian rupees

Final settlement price RBI reference rate for US$ and EURO

Contact Specification Underlying JPY – INR

Lot Size 100000 YEN

Quotation / Price Quote Rs. Per 100 YEN

Tick Size 0.25 paisa or INR 0.0025

Trading Hours Monday to Friday (9:00 a.m. to 5:00p.m.)

Contract Trading Cycle 12 month trading cycle

Last trading day Two working days prior to the last business day of the expiry month at 12 noon

Final settlement day Last working day (excluding Saturdays) of the expiry monthThe last working day will be the same as that for interbank settlement in Mumbai

Base Price The oretical price on the 1st day of the contract.

Minimum initial margin 3 To 5% of contract value

Extreme loss margin 0.7% of MTM value of gross open position

settlement Daily settlement: T+1Final settlement: T+2

Mode of settlement Cash settlement in Indian rupees

Final settlement price RBI reference rate for US$ and EURO

Participants in Currency Market

Importers &

Exporters Hedgers

Speculators

Traders Arbitragers

Strategies using Currency Future

Long Hedge

Example – ABC Ltd a importer purchase a machinery worth of 10000 $ @ Rs. 46.50 and delivery time of 6 month and payment against delivery

Strategies using Currency Future

Date Spot Market Futures Market

Leg I

At the time of contract

Contract Value

10000$ * 46.50 =46,50,000

Buy 10 lot Contract@ 46.60

Leg IIAt the time of delivery

Payment of 10000$ @ 47.50 $/Rs

Close position of 10 lot long @ 47.55 $/Rs

Net Payoff 10000$ * 1 =10000 Loss

10000$ * 1 = 10000 Profit

Strategies using Currency Future

Short Hedge

Example – ABC Ltd a exporter sold a machinery worth of 10000 $ @ Rs. 46.50 and delivery time of 6 month

and payment against delivery

Strategies using Currency Future

Date Spot Market Futures Market

Leg I

At the time of contract

Contract Value

10000$ * 46.50 =46,50,000

Sell 10 lot Contract@ 46.60

Leg IIAt the time of

delivery

Receive of 10000$ @ 45.50 $/Rs

Close position of 10 lot long @ 45.55 $/Rs

Net Payoff 10000$ * 1 =10000 Loss

10000$ * 1 = 10000 Profit

Trading Platform

Economy of a country denotes currency value

Very less speculative trading

Correlation with following markets :

Commodities International/COMEX Gold Price

• USD/INR depreciation leads to rise in MCX gold prices International Crude Price

Equities

Why to Trade in Currency Futures?

Important Website

rbi.org.in

THANK YOU