Currency Futures
Introduction
Currency Futures Defined
Currency Futures are standardised foreign exchange derivative contracts on a recognised stock exchange to buy or sell a standard quantity of one currency against another on a specified future date at a specified price.
It allows clients to take a view on the movement of the exchange rate as well as hedge against currency risk. Clients can use Currency Futures as a trading, investing and hedging tool.The Reserve Bank of India (RBI) has permitted the recognized stock exchanges to offer Currency Futures (CF) contracts in the currency pairs of USD-INR, Euro-INR, Japanese Yen (JPY)-INR and Pound Sterling (GBP)-INR. Axis Bank offers trading in currency futures in all permitted currency pairs.
Difference between Futures and Forwards
Futures are Exchange traded contracts whereas Forwards are over-the-counter (OTC) contracts. Futures are standardized with respect to quantity, quotation method and date of expiry whereas Forwards are tailored to meet the needs of the individual customers. As futures are exchange traded the counter party risk is minimal. Futures are marked to market (MTM) every day.
Eligibility for trade in Currency Futures
Only 'persons resident in India' may trade in Currency Futures to hedge an exposure to foreign exchange rate risk or otherwise. Any resident Indian or company including banks and financial institutions can participate in the Currency Futures market. At present Foreign Institutional Investors and Non-Resident Indians are not permitted to participate in the Currency Futures market.
Benefits of trading in Currency Futures
• Currency Futures trading is in a fully regulated and transparent market place.
• It does not require one to have an underlying exposure in foreign currency.
• If the Client has an underlying exposure in the foreign currency, Currency Futures can be used effectively to hedge the same. It allows hedge for near 12 calendar months.
• Currency Futures provide investors with
Currency Futures Defined
Currency Futures are standardised foreign exchange derivative contracts on a recognised stock exchange to buy or sell a standard quantity of one currency against another on a specified future date at a specified price.
It allows clients to take a view on the movement of the exchange rate as well as hedge against currency risk. Clients can use Currency Futures as a trading, investing and hedging tool.The Reserve Bank of India (RBI) has permitted the recognized stock exchanges to offer Currency Futures (CF) contracts in the currency pairs of USD-INR, Euro-INR, Japanese Yen (JPY)-INR and Pound Sterling (GBP)-INR. Axis Bank offers trading in currency futures in all permitted currency pairs.
Difference between Futures and Forwards
Futures are Exchange traded contracts whereas Forwards are over-the-counter (OTC) contracts. Futures are standardized with respect to quantity, quotation method and date of expiry whereas Forwards are tailored to meet the needs of the individual customers. As futures are exchange traded the counter party risk is minimal. Futures are marked to market (MTM) every day.
Eligibility for trade in Currency Futures
Only 'persons resident in India' may trade in Currency Futures to hedge an exposure to foreign exchange rate risk or otherwise. Any resident Indian or company including banks and financial institutions can participate in the Currency Futures market. At present Foreign Institutional Investors and Non-Resident Indians are not permitted to participate in the Currency Futures market.
Benefits of trading in Currency Futures
• Currency Futures trading is in a fully regulated and transparent market place.
• It does not require one to have an underlying exposure in foreign currency.
• If the Client has an underlying exposure in the foreign currency, Currency Futures can be used effectively to hedge the same. It allows hedge for near 12 calendar months.
• Currency Futures provide investors with