Beruflich Dokumente
Kultur Dokumente
)imited to large
customers banks,
institutions, etc.
Open to an one who is in need of
hedging facilities or has risk capital to
speculate
(eliver /ore than 68 percent
settled b actual deliver
"ctual deliver has ver less even
below one percent
%ecured &isk is high being less
secured
+ighl secured through margin
deposit.
ANAL9S#S
#NTEREST RATE PAR#T9 PR#NC#PLE
For currencies which are full convertible, the rate of exchange for an date other
than spot is a function of spot and the relative interest rates in each currenc. 'he
assumption is that, an funds held will be invested in a time deposit of that
currenc. +ence, the forward rate is the rate which neutraliEes the effect of
differences in the interest rates in both the currencies. 'he forward rate is a function
of the spot rate and the interest rate differential between the two currencies, adjusted
for time. #n the case of full convertible currencies, having no restrictions on
borrowing or lending of either currenc the forward rate can be calculated as
followsK
Future &ate Q 9spot rate: Z5 V interest rate on home currenc P period[ K
Z5 V interest rate on foreign currenc P period[
For example,
"ssume that on Banuar 58, ?88?, six month annual interest rate was 7
percent p.a. on #ndian rupee and ,% dollar six month rate was 3 percent p.a. and
spot 9 &eGT : exchange rate was *3.$-88. ,sing the above e<uation the theoretical
future price on Banuar 58, ?88?, expiring on Bune 6, ?88? is > the answer will be
&s.*3.768N per dollar. 'hen, this theoretical price is compared with the <uoted
futures price on Banuar 58, ?88? and the relationship is observed.
PRODUCT DE5#N#T#ONS O5 CURRENC9 5UTURE ON
NSEKBSE
Under,y'n/
#nitiall, currenc futures contracts on ,% (ollar M #ndian &upee 9,%T!#1&:
would be permitted.
Trad'n/ H%ur*
'he trading on currenc futures would be available from 6 a.m. to - p.m.
S'Ee %( $he &%n$ra&$
'he minimum contract siEe of the currenc futures contract at the time of
introduction would be ,%T 5888. 'he contract siEe would be periodicall
aligned to ensure that the siEe of the contract remains close to the minimum
siEe.
Ju%$a$'%n
'he currenc futures contract would be <uoted in rupee terms. +owever, the
outstanding positions would be in dollar terms.
Ten%r %( $he &%n$ra&$
'he currenc futures contract shall have a maximum maturit of 5? months.
A)a',a7,e &%n$ra&$*
"ll monthl maturities from 5 to 5? months would be made available.
Se$$,emen$ me&han'*m
'he currenc futures contract shall be settled in cash in #ndian &upee.
Se$$,emen$ +r'&e
'he settlement price would be the &eserve ;ank &eference &ate on the date of
expir. 'he methodolog of computation and dissemination of the &eference
&ate ma be publicl disclosed b &;#.
5'na, *e$$,emen$ day
'he currenc futures contract would expire on the last working da 9excluding
%aturdas: of the month. 'he last working da would be taken to be the same as
that for #nterbank %ettlements in /umbai. 'he rules for #nterbank %ettlements,
including those for Oknown holidas4 and Osubse<uentl declared holida4 would
be those as laid down b F.("#.
'he contract specification in a tabular form is as under>
Under,y'n/ &ate of exchange between one ,%( and
#1&
Trad'n/ H%ur*
CM%nday $% 5r'dayD
86>88 a.m. to 8->88 p.m.
C%n$ra&$ S'Ee ,%( 5888
T'&2 S'Ee 8.?- paisa or #1& 8.88?-
Trad'n/ Per'%d /aximum expiration period of 5? months
C%n$ra&$ M%n$h* 5? near calendar months
5'na, Se$$,emen$ da$eK
a,ue da$e
)ast working da of the month 9subject to
holida calendars:
La*$ Trad'n/ Day 'wo working das prior to Final
%ettlement
Se$$,emen$ Cash settled
5'na, Se$$,emen$ Pr'&e 'he reference rate fixed b &;# two
working das prior to the final settlement
date will be used for final settlement
CURRENC9 5UTURES PA9O55S
" paoff is the likel profitGloss that would accrue to a market participant with
change in the price of the underling asset. 'his is generall depicted in the
form of paoff diagrams which show the price of the underling asset on the F!
axis and the profitsGlosses on the R!axis. Futures contracts have linear paoffs.
#n simple words, it means that the losses as well as profits for the buer and the
seller of a futures contract are unlimited. Options do not have linear paoffs.
'heir pa offs are non!linear. 'hese linear paoffs are fascinating as the can be
combined with options and the underling to generate various complex paoffs.
+owever, currentl onl paoffs of futures are discussed as exchange traded
foreign currenc options are not permitted in #ndia.
Pay%(( (%r 7uyer %( (u$ure*= L%n/ (u$ure*
'he paoff for a person who bus a futures contract is similar to the paoff for a
person who holds an asset. +e has a potentiall unlimited upside as well as a
potentiall unlimited downside. 'ake the case of a speculator who bus a two!
month currenc futures contract when the ,%( stands at sa &s.*$.56. 'he
underling asset in this case is the currenc, ,%(. When the value of dollar
moves up, i.e. when &upee depreciates, the long futures position starts making
profits, and when the dollar depreciates, i.e. when rupee appreciates, it starts
making losses. Figure *.5 shows the paoff diagram for the buer of a futures
contract.
Pay%(( (%r 7uyer %( (u$ure=
'he figure shows the profitsGlosses for a long futures position. 'he
investor bought futures when the ,%( was at &s.*$.56. #f the price goes
up, his futures position starts making profit. #f the price falls, his futures
position starts showing losses.
Pay%(( (%r *e,,er %( (u$ure*= Sh%r$ (u$ure*
P
&
O
F
#
'
)
O
%
%
,%(
(
8
*$.56
'he paoff for a person who sells a futures contract is similar to the paoff for a
person who shorts an asset. +e has a potentiall unlimited upside as well as a
potentiall unlimited downside. 'ake the case of a speculator who sells a two
month currenc futures contract when the ,%( stands at sa &s.*$.56. 'he
underling asset in this case is the currenc, ,%(. When the value of dollar
moves down, i.e. when rupee appreciates, the short futures position starts ?-
making profits, and when the dollar appreciates, i.e. when rupee depreciates, it
starts making losses. 'he Figure below shows the paoff diagram for the seller
of a futures contract.
Pay%(( (%r *e,,er %( (u$ure=
'he figure shows the profitsGlosses for a short futures position. 'he investor
sold futures when the ,%( was at *$.56. #f the price goes down, his futures
position starts making profit. #f the price rises, his futures position starts
showing losses
PR#C#NG 5UTURES H COST O5 CARR9 MODEL
Pricing of futures contract is ver simple. ,sing the cost!of!carr logic, we
calculate the fair value of a futures contract. .ver time the observed price
deviates from the fair value, arbitragers would enter into trades to capture the
arbitrage profit. 'his in turn would push the futures price back to its fair value.
'he cost of carr model used for pricing futures is given below>
5MSeNCrOrf)T
where>
rQCost of financing 9using continuousl compounded interest rate:
rfQ one ear interest rate in foreign
'Q'ime till expiration in ears
.Q?.75N?N
'he relationship between F and % then could be given as
P
&
O
F
#
'
)
O
%
%
,%(
(
8
*$.56
F Se^9r rf :T ! Q
'his relationship is known as interest rate parit relationship and is used in
international finance. 'o explain this, let us assume that one ear interest rates
in ,% and #ndia are sa 7X and 58X respectivel and the spot rate of ,%( in
#ndia is &s. **.
From the e<uation above the one ear forward exchange rate should be
F Q ** P e^98.58!8.87 :P5Q*-.$*
#t ma be noted from the above e<uation, if foreign interest rate is greater than
the domestic rate i.e. rf \ r, then F shall be less than %. 'he value of F shall
decrease further as time ' increase. #f the foreign interest is lower than the
domestic rate, i.e. rf ] r, then value of F shall be greater than %. 'he value of F
shall increase further as time ' increases.
HEDG#NG W#TH CURENC9 5UTURES
.xchange rates are <uite volatile and unpredictable, it is possible that
anticipated profit in foreign investment ma be eliminated, rather even ma
incur loss. 'hus, in order to hedge this foreign currenc risk, the traders4 oftenl
use the currenc futures. For example, a long hedge 9#.e.., buing currenc
futures contracts: will protect against a rise in a foreign currenc value whereas
a short hedge 9i.e., selling currenc futures contracts: will protect against a
decline in a foreign currenc4s value.
#t is noted that corporate profits are exposed to exchange rate risk in man
situation. For example, if a trader is exporting or importing an particular
product from other countries then he is exposed to foreign exchange risk.
%imilarl, if the firm is borrowing or lending or investing for short or long
period from foreign countries, in all these situations, the firm4s profit will be
affected b change in foreign exchange rates. #n all these situations, the firm can
take long or short position in futures currenc market as per re<uirement.
'he general rule for determining whether a long or short futures position will
hedge a potential foreign exchange loss is>
)oss from appreciating in #ndian rupeeQ %hort hedge
)oss form depreciating in #ndian rupeeQ )ong hedge
The &h%'&e %( under,y'n/ &urren&y
'he first important decision in this respect is deciding the currenc in which
futures contracts are to be initiated. For example, an #ndian manufacturer wants
to purchase some raw materials from Aerman then he would like future in
Aerman mark since his exposure in straight forward in mark against home
currenc 9#ndian rupee:. "ssume that there is no such future 9between rupee and
mark: available in the market then the trader would choose among other
currencies for the hedging in futures. Which contract should he chooseW
Probabl he has onl one option rupee with dollar. 'his is called cross hedge.
Ch%'&e %( $he ma$ur'$y %( $he &%n$ra&$
'he second important decision in hedging through currenc futures is selecting
the currenc which matures nearest to the need of that currenc. For example,
suppose #ndian importer import raw material of 588888 ,%( on 5
st
1ovember
?858. "nd he will have to pa 588888 ,%( on 5
st
Februar ?855. "nd he
predicts that the value of ,%( will increase against #ndian rupees nearest to due
date of that pament. #mporter predicts that the value of ,%( will increase more
than -5.8888.
%o what he will do to protect against depreciating in #ndian rupeeW %uppose
spots value of 5 ,%( is *6.N-88. Future @alue of the 5,%( on 1%. as below>
Pr'&e Wa$&h
Order
B%%2
C%n$ra&$
Be*$
Buy J$y
Be*$
Buy Pr'&e
Be*$
Se,, Pr'&e
Be*$
Se,, J$y
LTP %,ume
O+en
#n$ere*$
,%(#1&
?3558N
*3* *6.N--8 *6.N-7- 75? *6.N--8 -N-83 *$7N-
,%(#1&
?65?8N
5N6 *6.36?- *6.7888 35? *6.7$88 573*-$ 555N$8
,%(#1&
?N8586
5 *6.NN-8 *6.6?-8 ? *6.6*-8 --6N 53N86
,%(#1&
?-8?86
588 -8.5888 -8.??7- 5 -8.56?- $775 3$37
,%(#1&
?78$86
588 *6.6??- -8.-888 - *6.65?- $55 N6?
,%(#1&
?N8*86
5 -8.8888 -5.8888 - -8.-888 ! ?7N
,%(#1&
?78-86
! ! -5.8888 - *7.5888 ! -83
,%(#1&
?38386
?- *6.8888 ! ! -8.8888 ! 553
,%(#1&
?68786
5 *N.8N7- ! ! *6.5-88 ! **
,%(#1&
?78N86
? *N.53?- -8.-888 5 -8.$888 3 ??5-
,%(#1&
?N8686
5 *N.?$7- ! ! -5.?888 ! 76
,%(#1&
?N5886
5 *N.$588 -$.5688 ? -8.6688 ! ?
,%(#1&
?35586
5 *N.$N?- ! ! -8.6?7- ! !
%,ume A* On "6ONOO":!: !.=::=::
H%ur* #ST
1o. of Contracts
?**3*-
&ules, ;elaws 2 &egulations
/embership
Circulars
"rchives
A* On "6ON%)O":!! !"=::=:: H%ur* #ST
,nderling &;# reference rate
,%(#1& *6.N-88
)ist of +olidas
S%,u$'%n=
+e should bu ten contract of ,%(#1& ?N85?855 at the rate of *6.NN-8. @alue
of the contract is 9*6.NN-8P5888P588: Q*6NN-88. 9@alue of currenc future per
,%(Pcontract siEeP1o of contract:.
For that he has to pa -X margin on -6NN-88. /eans he will have to pa
&s.?66*?- at present.
"nd suppose on settlement da the spot price of ,%( is -5.8888. On settlement
date paoff of importer will be 9-5.8888!-6.NN-8: Q5.55- per ,%(. "nd
95.55-P588888: Q555-88.&s.
Ch%'&e %( $he num7er %( &%n$ra&$* Ched/'n/ ra$'%D
"nother important decision in this respect is to decide hedging ratio +&. 'he
value of the futures position should be taken to match as closel as possible the
value of the cash market position. "s we know that in the futures markets due to
their standardiEation, exact match will generall not be possible but hedge ratio
should be as close to unit as possible. We ma define the hedge ratio +& as
follows>
+&Q @F / @c
Where, @F is the value of the futures position and @c is the value of the cash
position.
%uppose value of contract dated ?N
th
Banuar ?855 is *6.NN-8.
"nd spot value is *6.N-88.
+&Q*6.NN-8G*6.N-88Q5.885.
5#ND#NGS
Cost of carr model and #nterest rate parit model are useful tools to find
out standard future price and also useful for comparing standard with
actual future price. "nd it4s also a ver help full in "rbitraging.
1ew concept of .xchange traded currenc future trading is regulated b
higher authorit and regulator. 'he whole function of .xchange traded
currenc future is regulated b %.;#G&;#, and the established rules and
regulation so there is ver safe trading is emerged and counter part risk
is minimiEed in currenc Future trading. "nd also time reduced in
Clearing and %ettlement process up to 'V5 da4s basis.
)arger exporter and importer has continued to deal in the O'C counter
even exchange traded currenc future is available in markets because,
'here is a limit of ,%( 588 million on open interest applicable to trading
member who are banks. "nd the ,%( ?- million limit for other trading
members so larger exporter and importer might continue to deal in the
O'C market where there is no limit on hedges.
#n #ndia &;# and %.;# has restricted other currenc derivatives except
Currenc future, at this time if an person wants to use other instrument
of currenc derivatives in this case he has to use O'C.
SUGGEST#ONS
Curren&y 5u$ure need $% &han/e *%me re*$r'&$'%n '$ 'm+%*ed *u&h a* &u$ %((
,'m'$ %( 4 m',,'%n USD, Ban %n NR#P* and 5##P* and Mu$ua, 5und* (r%m
Par$'&'+a$'n/.
N%0 'n e1&han/e $raded &urren&y (u$ure *e/men$ %n,y %ne +a'r USDO#NR '*
a)a',a7,e $% $rade *% $here '* a,*% %ne m%re demand 7y $he e1+%r$er* and
'm+%r$er* $% 'n$r%du&e an%$her +a'r 'n &urren&y $rad'n/. L'2e POUNDO#NR,
CADO#NR e$&.
#n OTC $here '* n% ,'m'$ (%r $rader $% 7uy %r *h%r$ Curren&y (u$ure* *% $here
demand ar'*e* $ha$ 'n E1&han/e $raded &urren&y (u$ure *h%u,d ha)e
'n&rea*e ,'m'$ (%r Trad'n/ Mem7er* and a,*% a$ &,'en$ ,e)e,, 'n re*u,$ OTC
u*er* 0',, d')er$ $% E1&han/e $raded &urren&y 5u$ure*.
#n #nd'a $he re/u,a$%ry %( 5'nan&'a, and Se&ur'$'e* mar2e$ CSEB#D ha* Ban %n
%$her Curren&y Der')a$')e* e1&e+$ Curren&y 5u$ure*, *% $h'* re*$r'&$'%n
*eem unrea*%na7,e $% e1+%r$er* and 'm+%r$er*. And a&&%rd'n/ $% #nd'an
('nan&'a, /r%0$h n%0 '$P* 7e&%me ne&e**ary $% 'n$r%du&'n/ %$her &urren&y
der')a$')e* 'n E1&han/e $raded &urren&y der')a$')e *e/men$.
CONCLUS#ONS
By (ar $he m%*$ *'/n'('&an$ e)en$ 'n ('nan&e dur'n/ $he +a*$ de&ade ha* 7een $he
e1$ra%rd'nary de)e,%+men$ and e1+an*'%n %( ('nan&'a, der')a$')e*QThe*e
'n*$rumen$* enhan&e* $he a7','$y $% d'((eren$'a$e r'*2 and a,,%&a$e '$ $% $h%*e 'n)e*$%r*
m%*$ a7,e and 0',,'n/ $% $a2e '$O a +r%&e** $ha$ ha* und%u7$ed,y 'm+r%)ed na$'%na,
+r%du&$')'$y /r%0$h and *$andard* %( ,')'n/*.
The &urren&y (u$ure /')e* $he *a(e and *$andard'Eed &%n$ra&$ $% '$* 'n)e*$%r* and
'nd')'dua,* 0h% are a0are a7%u$ $he (%re1 mar2e$ %r +red'&$ $he m%)emen$ %( e1&han/e
ra$e *% $hey 0',, /e$ $he r'/h$ +,a$(%rm (%r $he $rad'n/ 'n &urren&y (u$ure. Be&au*e %(
e1&han/e $raded (u$ure &%n$ra&$ and '$* *$andard'Eed na$ure /')e* &%un$er +ar$y r'*2
m'n'm'Eed.
#n'$'a,,y %n,y NSE had $he +erm'**'%n 7u$ n%0 BSE and MCI ha* a,*% *$ar$ed &urren&y
(u$ure. #$ '* *h%0* $ha$ h%0 &urren&y (u$ure &%)er* /r%und 'n $he &%m+are %( %$her
a)a',a7,e der')a$')e* 'n*$rumen$*. N%$ %n,y 7'/ 7u*'ne**men and e1+%r$er and
'm+%r$er* u*e $h'* 7u$ 'nd')'dua, 0h% are 'n$ere*$ed and ha)'n/ 2n%0,ed/e a7%u$ (%re1
mar2e$ $hey &an a,*% 'n)e*$ 'n &urren&y (u$ure.
E1&han/e 7e$0een USDO#NR mar2e$* 'n #nd'a '* )ery 7'/ and $he*e e1&han/e $raded
&%n$ra&$ 0',, /')e m%re a0arene** 'n mar2e$ and a$$ra&$ $he 'n)e*$%r*.
B#BL#OGRAPH9
5'nan&'a, Der')a$')e* C$he%ry, &%n&e+$* and +r%7,em*D By= S.L. Gu+$a.
NC5M= Curren&y (u$ure M%du,e.
BC5M= Curren&y 5u$ure M%du,e.
Cen$er (%r *%&'a, and e&%n%m'& re*ear&hD P%,and
Re&en$ De)e,%+men$ 'n #n$erna$'%na, Curren&y Der')a$')e Mar2e$ 7y= Lu&Ran T.
Or,%0*2'D
Re+%r$ %( $he RB#OSEB# *$and'n/ $e&hn'&a, &%mm'$$ee %n e1&han/e $raded &urren&y
(u$ure*D ":!!
Re+%r$ %( $he #n$erna, W%r2'n/ Gr%u+ %n Curren&y 5u$ure* CRe*er)e Ban2 %( #nd'a,
A+r', ":!!D
We7*'$e*=
000.*e7'./%).'n
000.r7'.%r/.'n
000.(r%*$.&%m
000.0'2'+ed'a.&%m
000.e&%n%my0a$&h.&%m
000.7*e'nd'a.&%m
000.n*e'nd'a.&%m