Currency

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Currency

  1. 1. sCurrency Derivative A Era of New Revenue
  2. 2. Foreign ExchangeForeign exchange rateis 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
  3. 3. History of Forex Britton Wood Agreement found its way into forex history 1944US Dollar become the new standard of the financial marketIMF (International Monetary Fund) setup to track & monitor of currencies World Bank launch setting up International Monetary stability
  4. 4. Exchange Rate Base Currency • First currency in a currency pair Terms Currency• Second currency in a currency pair
  5. 5. Example of Exchange Rate Base Term RelationshipCurrency Currency US Dollar Indian Rupees (US$ - INR)British Pound INR (GBP – INR)Japanese Yen US $ (JPY – USD)
  6. 6. Currency Table USD EUR GBP JPYUSD 1 0.7468 0.6627 99.19EUR 1.339 1 0.8869 132.66GBP 1.509 1.1275 1 149.53JPY 0.0101 0.0075 0.0067 1
  7. 7. Factor affecting Exchange Rate Fundamental Technical Political Factor Factor Factor Economy Interest Speculation Rates Government Inflation Policies Rate Exchange Rate Policy Central Bank Intervention
  8. 8. Currency Derivative A Future Contract Traded on Exchange To Buy or Sell Underlying Assets At A Future Date On Specified Price
  9. 9. Why Currency Future?Transparency & Efficient Price Discovery Elimination of Counter Party Risk Access to all type of Market Participant Standardized Product Trading Platform
  10. 10. Exchange in Currency Trading National Stock Exchange (NSE)Multi Commodity Exchange of India Ltd. (MCX)
  11. 11. Contact SpecificationUnderlying USD – INRLot Size 1000 USDQuotation / Price Quote Rs. Per USDTick Size 0.25 paisa or INR 0.0025Trading Hours Monday to Friday (9:00 a.m. to 5:00p.m.)Contract Trading Cycle 12 month trading cycleLast trading day Two working days prior to the last business day of the expiry month at 12 noonFinal settlement day Last working day (excluding Saturdays) of the expiry month The last working day will be the same as that for interbank settlement in MumbaiBase Price The oretical price on the 1st day of the contract.Minimum initial margin 3 to 5% of contract valueExtreme loss margin 1% of MTM value of gross open positionsettlement Daily settlement: T+1 Final settlement: T+2Mode of settlement Cash settlement in Indian rupeesFinal settlement price RBI reference rate
  12. 12. Contact SpecificationUnderlying EURO – INRLot Size 1000 EUROQuotation / Price Quote Rs. Per EURTick Size 0.25 paisa or INR 0.0025Trading Hours Monday to Friday (9:00 a.m. to 5:00p.m.)Contract Trading Cycle 12 month trading cycleLast trading day Two working days prior to the last business day of the expiry month at 12 noonFinal settlement day Last working day (excluding Saturdays) of the expiry month The last working day will be the same as that for interbank settlement in MumbaiBase Price The oretical price on the 1st day of the contract.Minimum initial margin 3 To 5% of contract valueExtreme loss margin 0.03% of MTM value of gross open positionsettlement Daily settlement: T+1 Final settlement: T+2Mode of settlement Cash settlement in Indian rupeesFinal settlement price RBI reference rate
  13. 13. Contact SpecificationUnderlying POUND STERLING – INRLot Size 1000 POUND STERLINGQuotation / Price Quote Rs. Per GBPTick Size 0.25 paisa or INR 0.0025Trading Hours Monday to Friday (9:00 a.m. to 5:00p.m.)Contract Trading Cycle 12 month trading cycleLast trading day Two working days prior to the last business day of the expiry month at 12 noonFinal settlement day Last working day (excluding Saturdays) of the expiry month The last working day will be the same as that for interbank settlement in MumbaiBase Price The oretical price on the 1st day of the contract.Minimum initial margin 3 To 5% of contract valueExtreme loss margin 0.5% of MTM value of gross open positionsettlement Daily settlement: T+1 Final settlement: T+2Mode of settlement Cash settlement in Indian rupeesFinal settlement price RBI reference rate for US$ and EURO
  14. 14. Contact SpecificationUnderlying JPY – INRLot Size 100000 YENQuotation / Price Quote Rs. Per 100 YENTick Size 0.25 paisa or INR 0.0025Trading Hours Monday to Friday (9:00 a.m. to 5:00p.m.)Contract Trading Cycle 12 month trading cycleLast trading day Two working days prior to the last business day of the expiry month at 12 noonFinal settlement day Last working day (excluding Saturdays) of the expiry month The last working day will be the same as that for interbank settlement in MumbaiBase Price The oretical price on the 1st day of the contract.Minimum initial margin 3 To 5% of contract valueExtreme loss margin 0.7% of MTM value of gross open positionsettlement Daily settlement: T+1 Final settlement: T+2Mode of settlement Cash settlement in Indian rupeesFinal settlement price RBI reference rate for US$ and EURO
  15. 15. Participants in Currency Market Importers & Hedgers Exporters Traders Speculators Arbitragers
  16. 16. 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
  17. 17. Strategies using Currency Future Date Spot Market Futures Market Leg I Contract Value Buy 10 lot Contract@ 46.60At the time of contract 10000$ * 46.50 = 46,50,000 Leg II Payment of 10000$ Close position of 10At the time of delivery @ 47.50 $/Rs lot long @ 47.55 $/Rs Net Payoff 10000$ * 1 =10000 10000$ * 1 = 10000 Loss Profit
  18. 18. Strategies using Currency Future Short HedgeExample – ABC Ltd a exporter sold a machinery worth of 10000 $ @ Rs. 46.50 and delivery time of 6 month and payment against delivery
  19. 19. Strategies using Currency Future Date Spot Market Futures Market Leg I Contract Value Sell 10 lot Contract@ 46.60At the time of 10000$ * 46.50 = contract 46,50,000 Leg II Receive of 10000$ @ Close position of 10At the time of 45.50 $/Rs lot long @ 45.55 $/Rs delivery Net Payoff 10000$ * 1 =10000 10000$ * 1 = 10000 Loss Profit
  20. 20. Trading Platform
  21. 21. Why to Trade in Currency Futures? 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
  22. 22. Important Websiterbi.org.in fedai.org.in
  23. 23. THANK YOU
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