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Currency |
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Currency Derivatives
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The launch of currency derivatives in India opened one more lucrative avenue for
trading. The Committee on Fuller Capital Account Convertibility had recommended
introducing currency futures subject to risks. Accordingly RBI in the Annual Policy
Statement for the year 2007-2008 proposed to set up a working group on currency
futures to suggest a suitable framework to operationalise the proposal, in line
with the current legal and regulatory framework. 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. The report submitted by the Internal
Working Group in April 2008, recommended the introduction of exchange traded currency
futures. With the expected benefits 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 to be constituted. The committee submitted
its report on May 29, 2008 and in August 2008 with regulatory approval allowed exchanges
(NSE, BSE and MCX-SX) in India to launch currency derivatives for trading similar
to equity / commodity derivatives trading. The trading of derivatives is governed
by the provisions in the SC(R)A, the RBI Act, the SEBI Act, the rules and regulations
framed there under and the rules and bye-laws of stock exchanges. New products are
expected to be launched in the coming years to help market participants manage their
interest rate risks.
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“Currency derivatives can be described as contracts between the sellers and buyers,
whose values are to be derived from the underlying assets, the currency amounts.
These are basically risk management tools in forex and money markets.”
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From an economy-wide perspective, currency and interest rate futures contribute
to hedging of risks and help traders and investors in undertaking their economic
activity. Since there are first order gains from trade which contribute to output
growth and consumer welfare, currency futures can potentially have an important
impact on real economy. However, in a dynamic setting these investments could still
significantly impact capital formation in an economy and as such currency and interest
rate futures could be seen as a facilitator in promoting investments and aggregate
demand in the economy, thus promoting growth.
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RBI has currently permitted futures only on the USD-INR, EUR-INR, GBP-INR, JPY-INR rates. BNK Securities Pvt.
Ltd. offers trading facilities to investors on the Currency derivatives segment
of the NSE and MCX-SX.
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