Currency Futures Option An Exchange Traded Derivative

Currency Futures & Option An Exchange Traded Derivative

OTC V/S CF OTC Market (Forward) Currency Futures Product Traded on the Exchange OTC Product Agreements Customized Standard Price Transparency Low High Underlying exposure Required Not required Accessibility Credit dependent High Liquidity Subject to credit limits High Credit Exposure Yes Mitigated through the clearing corporation Margins (Collateral) Subject to banks relation & market condition Required Daily MTM No Yes

Currency Futures: Product Design Category Description Exchange NSE & MCX – SX Settlement Cash settled in INR on relevant RBI reference rate Underlying USD/INR currency pair Expiry Date Two working days prior to last business day of the month Contract Size USD 1000 Margin Dictated by exchange (currently at 2. 09%) Min Price fluctuation 0. 25 paisa or INR 0. 0025 Contract Months All months with max maturity of 12 months

Margin Calculation • USDINR: 1389. 58 per lot or 2. 09% Calculation : 66. 50*1000 = 66, 500 = 1389. 58/66500 = 2. 09% • EURINR: 1777. 87 per lot or 2. 34% • GBPINR: 2739. 28 per lot or 2. 88% • JPYINR: 2308. 05 per lot or 3. 76%

PROBLEM § USD/INR spot rate on 11 th April was 66. 42/66. 43 § On 11 th April future contract was trading at 66. 58/66. 5825 § Contract expiry date 27 April § On expiry date, contract settled at 66. 7225 One of the investor has bought 15 lot of 27 th April contract as on 11 th April & exited at settlement rate on expiry date. So, what will be his total profit ? ?

ANSWER § He buy at 66. 5825 & sell at 66. 7225. Thus Net profit is, = ((66. 7225 -66. 5825)-. 02)*1000*15 = Rs. 1, 800 We assume brokerage of two paise on round trip.

CF as hedging tool Why corporate use CF to hedge their exposure ? Accessibility No need for proof of Underlying exposure Lower margin Execution Great Prices with transparency Online trading terminal for immediate access Hedging Timing Benefit No need to pay bid-offer spreads in spot and forwards OTC Lower transaction Cost

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