Recent Trends in Indian Capital Market - Currency Futures

Abstract

Risk is the inherent component involved in all the financial activities. Everybody tries to reduce the risk as to the extent of possible. With a view to enable entities to manage volatility in the currency market, RBI on April 20, 2007 issued comprehensive guidelines on the usage of foreign currency forwards, swaps and options in the OTC market. At the same time, RBI also set up an Internal Working Group to explore the advantages of introducing currency futures. The report of the Internal Working Group of RBI submitted in April 2008, recommended the introduction of exchange traded currency futures. Earlier, there were some instruments like forward contracts which were not traded through the stock exchanges. To overcome that problem, futures and options had also been introduced in our capital market. They have not provided the hedging facility with regard to foreign currencies. Now it is the time for innovative instruments which facilitates the players with attractive benefits. The currency futures are the contracts to buy or sell one currency with another currency at a specified price and date in the future. In simple terms "Currencyfwures are contracts to buy or sell one currency (only dollar-rupee as of now) against another at a specified price and date in the future" The National Stock Exchange has already started currency futures trading from August 29. The Bombay Stock and the Multi-Commodity Exchange are yet to get clearance from SEBI to start operations. In a nutshell, 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 or sale date.