CHENNAI: Exchange traded currency derivatives would provide an excellent opportunity to hedge currency risk for corporates and individuals" according to Huzan Mistry, National Stock Exchange (NSE).
Addressing the Session on 'Exchange Traded Currency Derivates Market', organised by the Confederation of Indian Industry (CII) here she said that unlike OTC markets, exchange traded currency derivatives provide high level of transparency in price and a robust, independent and individual clearing corporation.
Incidentally, NSE was the first exchange to have received approval from Securities and Exchange Board of India for setting up currency futures segment.
"Currency Futures are standardized foreign exchange contracts 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 purchase / sale date" said Ms Mistry. It would help investors in hedging the currency rate fluctuations and market risks. However, in India, currently the trades in Rs Vs US Dollar alone are permitted. In due course, currency derivatives based on other foreign currencies may also be introduced.
In her detailed presentation on 'Currency Derivatives', Ms Mistry outlined the various processes, procedures and execution of currency future trading through the NSE. She said that all resident Indian entities and individuals are permitted to trade in currency futures even if there is no underlying exposure to foreign currency.
For players with underlying exposure in foreign currency, the currency derivative provides another window for hedging and / or optimizing treasury gains. However as this a nascent product for India, the exposure is limited to a maximum of USD 5 million per entity/individual. Currently RBI has approved only USD-INR currency futures and the contracts to the maximum for 12 months.
According to Ms Mistry, the current OTC trading in forex through banks sees an average daily volume of USD 34 billion.
It will also not call for physical settlement. Forex trading in OTC market through banks invariably involves credit from banks too, and hence comes with attendant risks and limitations, which are not there is currency derivatives. In particular, there is no need for collateral or differential in rates / exposure limit / tenor based on clients financial soundness / size etc.
Addressing the Session on 'Exchange Traded Currency Derivates Market', organised by the Confederation of Indian Industry (CII) here she said that unlike OTC markets, exchange traded currency derivatives provide high level of transparency in price and a robust, independent and individual clearing corporation.
Incidentally, NSE was the first exchange to have received approval from Securities and Exchange Board of India for setting up currency futures segment.
"Currency Futures are standardized foreign exchange contracts 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 purchase / sale date" said Ms Mistry. It would help investors in hedging the currency rate fluctuations and market risks. However, in India, currently the trades in Rs Vs US Dollar alone are permitted. In due course, currency derivatives based on other foreign currencies may also be introduced.
In her detailed presentation on 'Currency Derivatives', Ms Mistry outlined the various processes, procedures and execution of currency future trading through the NSE. She said that all resident Indian entities and individuals are permitted to trade in currency futures even if there is no underlying exposure to foreign currency.
For players with underlying exposure in foreign currency, the currency derivative provides another window for hedging and / or optimizing treasury gains. However as this a nascent product for India, the exposure is limited to a maximum of USD 5 million per entity/individual. Currently RBI has approved only USD-INR currency futures and the contracts to the maximum for 12 months.
According to Ms Mistry, the current OTC trading in forex through banks sees an average daily volume of USD 34 billion.
It will also not call for physical settlement. Forex trading in OTC market through banks invariably involves credit from banks too, and hence comes with attendant risks and limitations, which are not there is currency derivatives. In particular, there is no need for collateral or differential in rates / exposure limit / tenor based on clients financial soundness / size etc.
