Description
the forex market in India, market players in India, authorized dealers in India, role of CCIL in forex market. It also explains currency derivatives in India, forward amd futures contracts, payoff profiles, margin requirements, what is marked to market, arbitrage strategy etc
Foreign Exchange Market in India
Pratap Chandra Biswal MDI, Gurgaon
FX Markets in India: A Prelude
• FX Market developed in 1978 when government allowed banks to trade in FX • Today over 70% of FX trading takes place in inter-bank market • Market consists of over 90 ADs, mostly banks • Largely a OTC market served by electronic trading platforms that support order matching and negotiations • Since 2002, clearing and settlement in interbank market is largely carried out by CCIL
1
Market Players in India
• • • • Authorized Dealers in India Foreign exchange brokers - intermediaries Customers – Individuals, corporates FEDAI and RBI
Authorized Dealers in India
• ADs cover
– commercial banks, who undertake all spheres of FX transactions (AD category I) – licensed money changers and travel agents, who enjoy limited authorization for encashment of traveler’s check and notes (AD category II) – specified hotels and government owned shops are also given restricted licenses to accept payment form non-residents – IDBI and EXIM Bank are permitted handle and hold foreign currencies in a restricted way (AD category III)
2
Role of CCIL in FX Market
• CCIL was set up in 2001 • It clears and settles transactions in govt securities, money market instruments, FX and derivative products • Settlement of FX transaction started in Nov, 2002 • FX segment accepts inter-bank spot and forward transactions in USD-INR for settlement • For cross currencies, CCIL settles through Continuous Linked System (CLS) • From Dec 2009, CCIL also offering guarantee on forward contracts
Turnover in FX Market USD BN
3
Turnover in FX Market USD BN
Forex Settlement Volumes
4
Composition of Volumes at CCIL
FX Trading Platforms
• Reuters’ and ICAP are the most popular trading platforms for EMEs • In India FX trading takes place in
– FX CLEAR by CCIL set up in Aug 2003 – FX Direct by IBS Forex (P) Ltd in 2002 – Two more by Reuters
• FX CLEAR and FX Direct offer real time order matching and negotiated modes for dealing • They cover USD-INR, EUR-USD, USD-JPY etc.
5
FX CLEAR Volumes
Currency Derivatives in India
6
Forward and Futures Contracts
• Forward / futures contracts are agreements to exchange currencies at an agreed rate on a specified future date
7
Forward Rate Quotations
• Consider the example from above: for USD, the spot rate is Rs.46.3650= $1.00 While the 180-day forward rate is Rs.47.0900 = $1.00
FX Rate Quotations
USD SPOT JUL.2010 AUG.2010 SEP.2010 OCT.2010 NOV.2010 DEC.2010 JAN.2011 FEB.2011 MAY.2011 46.3650 46.6350 46.7400 46.8400 46.9300 47.0150 47.0900 47.1650 47.2350 47.4600 GBP 67.1900 67.5900 67.7475 67.9025 68.0425 68.1750 68.2950 68.4150 68.5275 68.8900 EUR 57.0175 57.3900 57.5425 57.6800 57.8075 57.9300 58.0425 58.1575 58.2650 58.6075 *JPY 50.6350 50.9800 51.1225 51.2675 51.4025 51.5325 51.6625 51.7925 51.9175 52.3100
8
Payoff Profiles
profit
If you agree to sell anything in the future at a set price and the spot price later falls then you gain.
0 F180(Rs./$) = 47.0900
S180(Rs/$)
If you agree to sell anything in the future at a set price and the spot loss price later rises then you lose. Short position
Payoff Profiles
profit Long position
0 100 F180(Rs./$) = 47.0900 loss
S180(Rs./$)
9
10
11
Calendar Spread
12
13
14
15
Hedging Scenario
Hedging Scenario
16
17
18
19
Thank you!!!
20
doc_225389663.pdf
the forex market in India, market players in India, authorized dealers in India, role of CCIL in forex market. It also explains currency derivatives in India, forward amd futures contracts, payoff profiles, margin requirements, what is marked to market, arbitrage strategy etc
Foreign Exchange Market in India
Pratap Chandra Biswal MDI, Gurgaon
FX Markets in India: A Prelude
• FX Market developed in 1978 when government allowed banks to trade in FX • Today over 70% of FX trading takes place in inter-bank market • Market consists of over 90 ADs, mostly banks • Largely a OTC market served by electronic trading platforms that support order matching and negotiations • Since 2002, clearing and settlement in interbank market is largely carried out by CCIL
1
Market Players in India
• • • • Authorized Dealers in India Foreign exchange brokers - intermediaries Customers – Individuals, corporates FEDAI and RBI
Authorized Dealers in India
• ADs cover
– commercial banks, who undertake all spheres of FX transactions (AD category I) – licensed money changers and travel agents, who enjoy limited authorization for encashment of traveler’s check and notes (AD category II) – specified hotels and government owned shops are also given restricted licenses to accept payment form non-residents – IDBI and EXIM Bank are permitted handle and hold foreign currencies in a restricted way (AD category III)
2
Role of CCIL in FX Market
• CCIL was set up in 2001 • It clears and settles transactions in govt securities, money market instruments, FX and derivative products • Settlement of FX transaction started in Nov, 2002 • FX segment accepts inter-bank spot and forward transactions in USD-INR for settlement • For cross currencies, CCIL settles through Continuous Linked System (CLS) • From Dec 2009, CCIL also offering guarantee on forward contracts
Turnover in FX Market USD BN
3
Turnover in FX Market USD BN
Forex Settlement Volumes
4
Composition of Volumes at CCIL
FX Trading Platforms
• Reuters’ and ICAP are the most popular trading platforms for EMEs • In India FX trading takes place in
– FX CLEAR by CCIL set up in Aug 2003 – FX Direct by IBS Forex (P) Ltd in 2002 – Two more by Reuters
• FX CLEAR and FX Direct offer real time order matching and negotiated modes for dealing • They cover USD-INR, EUR-USD, USD-JPY etc.
5
FX CLEAR Volumes
Currency Derivatives in India
6
Forward and Futures Contracts
• Forward / futures contracts are agreements to exchange currencies at an agreed rate on a specified future date
7
Forward Rate Quotations
• Consider the example from above: for USD, the spot rate is Rs.46.3650= $1.00 While the 180-day forward rate is Rs.47.0900 = $1.00
FX Rate Quotations
USD SPOT JUL.2010 AUG.2010 SEP.2010 OCT.2010 NOV.2010 DEC.2010 JAN.2011 FEB.2011 MAY.2011 46.3650 46.6350 46.7400 46.8400 46.9300 47.0150 47.0900 47.1650 47.2350 47.4600 GBP 67.1900 67.5900 67.7475 67.9025 68.0425 68.1750 68.2950 68.4150 68.5275 68.8900 EUR 57.0175 57.3900 57.5425 57.6800 57.8075 57.9300 58.0425 58.1575 58.2650 58.6075 *JPY 50.6350 50.9800 51.1225 51.2675 51.4025 51.5325 51.6625 51.7925 51.9175 52.3100
8
Payoff Profiles
profit
If you agree to sell anything in the future at a set price and the spot price later falls then you gain.
0 F180(Rs./$) = 47.0900
S180(Rs/$)
If you agree to sell anything in the future at a set price and the spot loss price later rises then you lose. Short position
Payoff Profiles
profit Long position
0 100 F180(Rs./$) = 47.0900 loss
S180(Rs./$)
9
10
11
Calendar Spread
12
13
14
15
Hedging Scenario
Hedging Scenario
16
17
18
19
Thank you!!!
20
doc_225389663.pdf