View
223
Download
0
Embed Size (px)
Citation preview
sCurrency DerivativeA 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 DerivativeA 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