Interest Rate Futures in India and the Global Level, and Its Analysis
INTEREST RATE FUTURES IN INDIA Dr. Shashi Srivastava * Divya Srivastava ** Abstract
In the era of globalization, one of the macro-economic variable that has come into great focus is interest rate. The volatility of interest rates has increased manifold in the last couple of years. Interest rate risk management has become very important and assorted instruments like interest rate derivatives (interest rate swaps, forward rate agreement and interest rate futures) have been developed to deal with such types of risk. Therefore the present paper has been designed to through light on this particular segment with reference to Interest Rate Futures in India. The paper will attempt to throw light upon interest rate futures at global level. It will examine the use of interest rate futures in India. Further, it will focus on the regulatory framework on IRFs laid by RBI. The paper will also analyze the applicability of Interest rate future in Indian economy. For this secondary data has been collected from the website of BIS, RBI, NSE, etc. The time frame used in the paper is from June 2003 to Sep 2003 as IRF was traded in those three months only and from 31 Aug.2009 till 31 Mar.2010. The study investigates the trading activity using volume, change in volume, open interest, change in open interest, open, close, low and settlement price, applicable and annualized volatility. In spite of decrease in the volume traded the market continues to grow at slow pace as new money is flowing in the market. Indian IRF market is dominated by hedgers as the volatility seems to be low. As the investment in GOI securities increases the investment in IRF will also increase.
Key words: Interest Rate Futures, trading activity.
*Asst. Professor, Faculty of Management Studies, Banaras Hindu University , Varanasi
**Research Scholar, Faculty of Management Studies, Banaras
In the era of globalization, one of the macro-economic variable that has come into great focus is interest rate. The volatility of interest rates has increased manifold in the last couple of years. Interest rate risk management has become very important and assorted instruments like interest rate derivatives (interest rate swaps, forward rate agreement and interest rate futures) have been developed to deal with such types of risk. Therefore the present paper has been designed to through light on this particular segment with reference to Interest Rate Futures in India. The paper will attempt to throw light upon interest rate futures at global level. It will examine the use of interest rate futures in India. Further, it will focus on the regulatory framework on IRFs laid by RBI. The paper will also analyze the applicability of Interest rate future in Indian economy. For this secondary data has been collected from the website of BIS, RBI, NSE, etc. The time frame used in the paper is from June 2003 to Sep 2003 as IRF was traded in those three months only and from 31 Aug.2009 till 31 Mar.2010. The study investigates the trading activity using volume, change in volume, open interest, change in open interest, open, close, low and settlement price, applicable and annualized volatility. In spite of decrease in the volume traded the market continues to grow at slow pace as new money is flowing in the market. Indian IRF market is dominated by hedgers as the volatility seems to be low. As the investment in GOI securities increases the investment in IRF will also increase.
Key words: Interest Rate Futures, trading activity.
*Asst. Professor, Faculty of Management Studies, Banaras Hindu University , Varanasi
**Research Scholar, Faculty of Management Studies, Banaras
References: 1. Bhar Rama Prasad & Chiarela Carl (1995). Interest Rate Futures: Estimation of volatility parameter in arbitrage free framework. 2. Costa E.C.D. , Nespoli M & Robitaille Patrice(Oct 2007) Brazilian Interest Rate Futures: Evolution and Forecast Performance. 3. Pati Chandra Pratap(2007). The Relationship between price volatility, Trading Volume and Market Depth: Evidence from an Emerging Indian Stock index Futures Market, South Asian Journal of Management, Volume 15, No.2. 4. Shetty V.P., IBA Bulletin (Feb 2005), Interest rate risk in investment portfolio and its impact on the profitability of banks.