Jigar Jayswal

A
Summer Internship Project

On
“To Check the Awareness Level and Perception of
Investors about Exchange Traded Currency
Derivative”
At
Marwadi Shares & Finance Ltd.
SUBMITTED TO:
S.V. Institute of Management, Kadi.
Gujarat Technological University
In Partial Fulfillment of the requirements of Master of Business
Administration (MBA) Program
Batch 2009-11
SUBMITTED BY:
JAYSWAL JIGAR I. (M0911-032)
PATEL SANDIP A. (M0911-080)
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S. V. Institute of Management. Kadi
PREFACE
The liberalization of Indian economy in 1990s, high economic growth rate in
the last decade, increasing exports, imports as well as private equity, FII, FDI
capital flows and NRI remittances have led to increase in volatility in the
USD/INR market. These factors coupled with demand for commodities,
changes in interest rate, inflation, money supply and global developments
have led to increased forex risk.
RBI and SEBI have introduced exchange traded currency derivatives to enable
an efficient and transparent mechanism to hedge against volatility in currency
markets.
Globalization and integration of financial markets, coupled with progressive
increase of cross border flow of capital, have transformed the dynamics Indian
financial markets. This has increased the need for dynamic currency risk
management. The steady rise in India’s foreign trade along with liberalization
in foreign exchange regime has led to large inflow of foreign currency into the
system in the form of FDI and FII investments.
There is providing liquid, transparent and vibrant for foreign exchange rate risk
management. SEBI and RBI have allowed trading in currency futures for the
first time in India, based on USD/INR exchange rate.
The importance of the vibrant, mature and the efficient capital market in the
economic development via capital formation cannot be overstressed. The
stock market and commodity markets in India are on booming stage but
people are less aware and knowledge about the currency derivatives.
This report deals with the part of the availability of Exchange Traded Currency
Market. How it works and how it more comfortable than the Over The Counter
Currency Market.
Currency futures launched at NSE on Aug 29, 2008 and at MCX-SX on
october7, 2008 is seen as a platform that is particularly expected to help
small- and mid-sized companies to hedge their risks while dealing in foreign
exchange.
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ACKNOWLEDGEMENT
“Chain of mistakes leads towards failures, chain of failures leads to experience
and chain of experience leads to success”
Same is applicable to our research work. We do not claim that we have a
complete knowledge of the subject. There are many persons who directly or
indirectly helped us during our project.
It was a great opportunity for us to get Summer Training with a financial
organization like “MARWADI SHARES AND FINANCIAL PVT.LTD.”
First we would like to thank to Gujarat Technological University who has
give us the opportunity for getting the practical knowledge of the corporate.
We would also like to thank to head of Department Mr. Bhavin Pandya and
principal of SV Institute of Management Mr Sanjay Shah, kadi and also thanks
to Prof. Kalpesh Prajapati and Prof Nikunj Patel who guide us for our whole
project report. .
We would also like to thanks to the Marwadi shares and Finance limited and its
management who permit us for this great opportunity for the currency market
research and we also would like specially thanks to Mr. D B Prajapati
(branch manager of Mehsana) and Mr Jayendra Taskar (Relationship
manager at Mehsana) who help us and guide us for our our summer
internship training also thanks to the employees at Mehsana branch who help
us by providing us the information related to our summer project.
Sandip Patel
Jigar Jayswal
3
Executive summary
The purpose of our project report is “To check the awareness level and
perception of Investors about Exchange Traded Currency Future Derivative”.
The primary objective of our report is to check the knowledge of the investors
and their thinking about the Exchange Traded currency derivatives.
In India, stock market and commodity market are at very booming sector while
in foreign countries currency market is highly volatile than commodity and
stock market. In India, development of these three markets in the following
sequence. (1) Stock market (2) Commodity market (3) currency market, while
in the foreign countries (1) currency market (2) commodity market (3) stock
market.
In foreign countries, people give more importance and aware about currency
market while in India, people are less aware and give less importance to
currency trading.
A project report provides the information about the general competitive
environment and evolved the recent developments and happening in the
currency market. Report provides the comprehensive analysis of Exchange
Traded Currency Derivatives. Not only this but SWOT analysis explores the
areas of strengths, weakness, opportunity, and threats for the MARWADI
SHARES AND FINANCE LTD.
In our project, we have check the awareness level and perception of investor
about Exchange Traded Currency Derivatives. We have also put the
information regarding the currency, its utility, who can participate in currency
future and can’t, who are the players in currency trading, why there is need of
currency future trading for the EXIM firms etc.
We have got the information by questionnaire survey and done the survey of
200 samples and try to know the perception of investors about the ETCD.
We have done the analysis and interpretation of each and every question by
graphical presentation and we also have got some findings and give
suggestions.
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Literature Review
Management Motivations for Use of Foreign Currency Derivatives in India
Manoj Anand
Indian Institute of Management Lucknow
K. P. Kaushik Independent
IIMB Management Review, 20(3), July - September, 2008, pp. 324-339
Abstract:
The paper examines management motivations of foreign currency derivatives usage in corporate India and
identifies significant differences, if any, in the motivations of the firms who are either using foreign currency
derivatives or having a documented foreign exchange risk management policy vis-¿-vis the firms who do
not. It also captures the management motivations of foreign currency derivatives usage in a factor-analytic
framework.
The universe of companies selected for this study consisted of 640 companies, which are common across
two most widely used Indian stock market indices namely S&P CNX 500 and BSE 500 firms as at the end
of March 31, 2004 having foreign exchange exposure, which is a fair representation of corporate India. A
nationwide questionnaire-based survey was conducted to capture the management motivations of foreign
currency derivatives usage. 55 responses were received leading to a response rate of 8.59%.
The most of the respondent firms (70.4%) have documented foreign exchange risk management
plan/policy/programme. The transaction exposure as a foreign currency risk is more critical to the firms
(74.5%) followed by translation exposure (58.3% responded as moderate degree of risk) and economic
exposure (54.3% responded as low degree of risk). To reduce the volatility in profits after tax, cash flows,
and to reduce the cost of capital and thus increase the value of the firm on one side of the pole and to
reduce the risks faced by the management on the other side of the pole are the major motivations of the
firms using foreign currency derivatives in India. The firms with high debt ratio are more likely to use foreign
currency derivatives. The major objective of using derivatives is hedging the risk (96.1% responded as rank
one objective), for arbitrage purpose (55.3% assigned rank two) and price discovery (36.4% assigned rank
two and 33.3% assigned rank three). The speculation as objective of using foreign currency derivative is
the least preferred option (62.1% assigned it as rank four).
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The management motivations for the use of foreign currency derivatives captured in factor-analytic
framework are 'hedging to improve value of firm', 'management utility and compensation', 'accounting and
disclosure requirements', 'strengthen control systems', and 'avail tax benefits and reduce cost of capital'.
The firm characteristics such as high degree of debt ratio and ESOPs usage influence the use of foreign
currency derivatives. These seven factors explain 59.28% of the total variance.
Keywords: Risk Management and shareholder value, derivatives use, currency derivatives
JEL Classifications: F30, F31, G32

Working Paper Series
Date posted: June 27, 2007 ; Last revised: September 25, 2008
Suggested Citation
Anand, Manoj and Kaushik, K. P., Management Motivations for Use of Foreign Currency
Derivatives in India. IIMB Management Review, 20(3), July - September, 2008, pp. 324-339.
Available at SSRN: http://ssrn.com/abstract=996641
Contact Information
Manoj Anand (Contact Author)
Indian Institute of Management Lucknow ( email )
LUCKNOW 226 013
India
K. P. Kaushik
Independent ( email )
No Address Available
6
Index
7
SR.NO. PARTICULARS PAGE
NO.
PREFACE I
Acknowledgements II
Executive Summary III
Literature Review
1 Introduction to MARWADI GROUP 1
1.1 Company profile 2
1.2 Mission & Vision 3
1.3 Company Information 4
1.4 Membership 5
1.5 Milestones 6
1.6 Services At MARWADI 7
1.7 Core Competencies 7
2 Currency market
2.1 Introduction To Currency Market 8
2.2 Currency derivatives 10
2.3 History of Currency Derivatives 11
2.4 Development Of Currency Derivatives In 12
India
2.5 Growth of derivatives in India 13
2.6 Types Of Financial Derivatives 14
2.7 Trading Of Financial Derivatives 15
2.8 Terminology Of Currency Derivative 16
2.9 Utility Of Currency Derivatives 17
2.10 Parties Involved In Currency Derivatives 20
Trading
3 Exchange traded currency future Market 22
3.1 Introduction 22
3.2 Exchange Traded Currency Future 24

3.3 Need For Exchange Traded Currency 25
Futures
3.4 Currency Futures Terminology 26
3.5 Advantages Of Currency Futures 29

3.6 Disadvantages Of Futures 31
4 Research Methodology 32
4.1 Objectives Of The Research 32
4.2 Methodology 33
5 Data Analysis & Interpretation 34
6 Hypothesis Testing 53
7 Findings 55
8 Suggestions 568
9 S. Conclusion
V. Institute of Management. Kadi 58
10 Bibliography 59
9
10
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12
13
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Chapter-1 INTRODUCTION TO MARWADI GROUP
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1.1 COMPANY PROFILE
Marwadi Shares & Finance Limited is a Gujarat based financial service

group dealing in equities / commodities broking and portfolio management
services. In the last 15 years MSFL has grown into a network of more than70
branches with an 850+ committed professional people and 475+ channel
partners across India. MSFL has kept the faith of over 1.90 lakh investors and
it's growing. After establishing supremacy in Gujarat, now expanding
nationwide and to fuel growth plans they recently raised capital from UK-based
investment companies. MSFL got 5th rank in best broking houses also.
Marwadi Group strength lies in its team of confident, young, talented, qualified
and experienced professionals to carry out different functions under the able
leadership of its management.
“Marwadi Shares and Finance Limited” is a huge and very reputed organization
in the world of securities and finance. The organization enjoys a large market
share with highly loyal customers, who in-turn provides a huge business to
them.
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1.2 MISSION & VISION
"To be a world-class financial services provider by

arranging all conceivable financial services under one-roof
at affordable costs through cost effective delivery systems,
and achieve organic growth in business by adding newer
lines of business.”
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1.3 COMPANY INFORMATION
Name : Marwadi Shares & Finance Pvt. Ltd.
Head Office : Marwadi Financial Center

Nr. Kathiawad Gymkhana
Dr. Radhakrishnana Road
18
Rajkot – 360 001
Ph No : 248 13 13
E-Mail : smarwadi@hotmail.com
Web Site : www.marwadionline.com
Directors : Mr. Ketan Marwadi

: Mr. Deven Marwadi
: Mr. Sandeep Marwadi
C.E.O. :Mr. Jeyakumar A. S.
General Manager : Mr. Hareshbhai Maniar
Company Secretery : Mr. Tushit Mangukiya
DP Manager : Mr. Arvind Gamot
H R Manager : Mr. Akshay Goswami

Account Manager : Mr. Suresh Vichi
: Mr. Jayant Vithlani
: Mr. Bhargav Pathak
1.4 MEMBERSHIP
Equity & Derivatives:

 National Stock Exchange of India Ltd. (NSE)
 Bombay Stock Exchange Ltd. (BSE)
 Multi Commodity Exchange of India Ltd. (MCX & MCX-SX)
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Commodities Derivatives:
 National Commodity & Derivatives Exchange Ltd. (NCDEX)
 Multi Commodity Exchange of India Ltd. (MCX)
Depository Participation:
 National Securities Depository Ltd. (NSDL)
 Central Depository Services India Ltd. (CDSL)
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1.5 MILESTONES
The company crossed the following milestones to reach its present position
as the leading retail broking house in India:
• 1992 - Marwadi Shares And Finance Pvt. Ltd. was incorporated.

• 1996 - Became a corporate member of National Stock Exchange Of India
- (NSE)
• 1998 - Became a member of Saurashtra Kutch Stock Exchange
(MARWADI SHARES & FINANCE LTD.)
• 1999 - Launched Depository services of Depository Participant under
National Depository Security Ltd. (NSDL)
• 2000 - Commenced Derivative trading after obtaining registration as
Clearing and Trading Member in NSE.
• 2003 - (MCBPL) became a corporate member of the National Commodity
and Derivatives Exchange of India Ltd.
• 2003 - (MCBPL) became a corporate member of The Multi Commodity
Exchange of India Ltd.
• 2004 - Became a corporate member of Bombay Stock Exchange Ltd.
(BSE)
• 2004 - Launched Depository Services of Depository Participant under
Central Depository Services (India) Ltd.
• 2005 - Launched Portfolio Management Services
• 2006 - MSFPL converted to Public Limited (Marwadi Shares And Finance
Limited)
• 2006 - The Company raised private equity from ICGU Limited, a wholly
owned subsidiary of India Capital Growth Fund.
• 2007 - The Company raised further private equity from Caledonia
Investments.
• 2008 – Adjudged the 5th Largest Broking House by Dun & Bradstreet.
• 2009 – Growing Institutional Business.
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• 2009 – Moves in to 90,000 Square Feet State of Art Infrastructure.
1.6 SERVICES @ MARWADI
 Equity & Derivatives

 Commodity
 Internet Trading
 Depository Participant
 IPO
 Mutual Fund
 PMS
 Research
 Currency trading
1.7 CORE COMPETENCES
 Commodities research & broking services

 Online or offline trading facility
 Depository services through CDSL
 Web based 24 x 7 back office software
 Good understanding of the sub-broker and retail customer needs
 Professional work culture with a personal touch
 Cost- effective processes
 Streaming quotes & real time charts for BSE /NSE [cash / derivatives]
 Single connectivity and speedy execution of trades.
 Online technical support & help desk.
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Chapter 2
2.1 INTRODUCTION TO CURRENCY MARKET
Each country has its own currency through which both national and
international transactions are performed. All the international business
transactions involve an exchange of one currency for another.The foreign
exchange markets of a country provide the mechanism of exchanging different
currencies with one and another, and thus, facilitating transfer of purchasing
power from one country to another.
With the multiple growths of international trade and finance all over the world,
trading in foreign currencies has grown tremendously over the past several
decades. Since the exchange rates are continuously changing, so the firms are
exposed to the risk of exchange rate movements. As a result the assets or
liability or cash flows of a firm which are denominated in foreign currencies
undergo a change in value over a period of time due to variation in exchange
rates.
This variability in value of assets or liabilities or cash flows is referred to

exchange rate risk. Since the fixed exchange rate system has been fallen in
the early 1970s, specifically in developed countries, the currency risk has
become substantial for many business firms that was the reason behind
development of currency derivatives.
The financial environment today has more risks than earlier. Successful
24
business firms are those that are able to manage these risks effectively. Due to
changes in the macroeconomic structures and increasing internationalization
of businesses, there has been a dramatic increase in the volatility of economic
variables such as interest rates, exchange rates, commodity prices etc. Firms
that monitor their risks carefully and manage their risks with judicious policies
enjoy a more stable business than those who are unable to identify and
manage their risks. There are many risks which are influenced by factors
external to the business and therefore suitable mechanisms to manage and
reduce such risks need to be adopted. One of the modern day solutions to
manage financial risks is ‘hedging’.
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2.2 CURRENCY DERIVATIVES
In the Indian context the Securities Contracts (Regulation) Act, 1956 [SC(R)A]
defines "Derivative" to include-
1. A security derived from a debt instrument, share, loan whether secured or
unsecured, risk instrument or contract for differences or any other form of
security.
2. A contract which derives its value from the prices, or index of prices, of
underlying securities.
 The Underlying Securities for Derivatives are :

1. Commodities: Castor seed, Grain, Pepper, Potatoes, etc.
2. Precious Metal: Gold, Silver
3. Short Term Debt Securities: Treasury Bills
4. Interest Rates
5. Common shares/stock
6. Currency derivatives
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2.3 HISTORY OF CURRENCY DERIVATIVES
In 1971, the Bretton Woods system of administering fixed foreign exchange

rates was abolished in favour of market-determination of foreign exchange
rates; a system of fluctuating exchange rates was introduced. Besides market-
determined fluctuations, there was a lot of volatility in other markets around
the world due to increased inflation and the oil shock. Corporates struggled to
cope up with the uncertainty in profits. It was then that financial derivatives –
foreign currency, interest rate, and commodity derivatives emerged as means
of managing risks facing corporations.
The Chicago Mercantile Exchange (CME) created FX futures, the first ever
financial futures contracts, in 1972. The contracts were created under the
guidance and leadership of Leo Melamed, CME Chairman Emeritus. The FX
contract capitalized on the U.S. abandonment of the Bretton Woods
agreement, which had fixed world exchange rates to a gold standard after
World War II. By creating another type of market in which futures could be
traded, CME currency futures extended the reach of risk management beyond
commodities, which were the main derivative contracts traded at CME until
then. The concept of currency futures at CME was revolutionary, and gained
credibility through endorsement of Nobel-prize-winning economist Milton
Friedman.
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2.4 DEVELOPMENT OF CURRENCY DERIVATIVES IN INDIA
In India, the economic liberalization in the early nineties provided the
economic rationale for the introduction of FX derivatives. Business houses
started actively approaching foreign markets not only with their products but
also as a source of capital and direct investment opportunities. With limited
convertibility on the trade account being introduced in 1993, the environment
became even more favorable for the introduction of these hedge products.
Hence, the development in the Indian forex derivatives market should be seen
along with the steps taken to gradually reform the Indian financial markets.
The first step towards introduction of derivatives trading in India was the
Securities Laws (Amendment) Ordinance, 1995, which withdrew the prohibition
on options securities. SEBI set up a 24 member committee under the
chairmanship of Dr. L. C. Gupta on November 18, 1996 to develop appropriate
regulatory framework for derivatives trading in India. The committee
recommended that the derivatives should be declared as ‘securities’ so that
regulatory framework applicable to trading of ‘securities’ could also govern
trading of derivatives.
The trading in index options commenced in June 2001 and the trading in
options on individual securities commenced in July 2001. Futures contracts
on individual stocks were launched in November 2001.
RBI and SEBI jointly constituted a standing technical committee to analyze the
currency market around the world and lay down the guidelines to introduce
Exchange Traded Currency Futures in the Indian market. The committee
submitted its report on May 29, 2008. Further RBI and SEBI issued
circulars in this regard on August 06, 2008.
Currently, Indian Currency market trades with all the major currencies like
28
USD, EURO, YEN and POUND are traded.
2.5 Growth of derivatives in India
Date Progress
14 December NSE asked SEBI for permission to trade index futures.
1995
18 November SEBI setup L. C. Gupta Committee to draft a policy framework for
1996 index futures
11 May 1998 L. C. Gupta Committee submitted report.
7 July 1999 RBI permitted OTC forward rate agreements (FRAs) and interest
rate swaps
24 May 2000 SIMEX chose Nifty for trading futures and options on an Indian
index.
25 May 2000 SEBI gave permission to NSE and BSE to do index futures trading.
9 June 2000 Trading of BSE Sensex futures commenced at BSE.
12 June 2000 Trading of Nifty futures commenced at NSE.
31 August 2000 Trading of futures and options on Nifty to commence at SIMEX
June 2001 Trading of Equity Index Options at NSE
July 2001 Trading of Stock Options at NSE
9 November Trading of Single Stock futures at BSE
2002
June 2003 Trading of Interest Rate Futures at NSE
13 September Weekly Options at BSE
2004
1 January 2008 Trading of Chhota(Mini) Sensex at BSE
1 January 2008 Trading of Mini Index Futures & Options at NSE
6 August Circulars regarding Currency Futures by RBI & SEBI
2008
29 August Trading of Currency Futures at NSE
2008
2 October Trading of Currency Futures at BSE
2008
7 October MCX-SX came into existence with USD/INR pair
2008
16 June 2010 The all new United Stock Exchange started mock trading in
Currency Futures.
2.6 TYPES OF FINANCIAL DERIVATIVES
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One form of classification of derivative instruments is between commodity
derivatives and financial derivatives. The basic difference between these is the
nature of the underlying instrument assets.
In commodity derivatives the underlying instrument is commodity which may
be wheat, cotton, pepper, sugar, jute, turmeric, corn, crude oil natural gas,
gold, silver, zinc and so on.
In financial derivatives the underlying instrument may be treasury bills, stocks,
bonds, foreign exchange, stock index etc. it is to be noted that financial
derivative is fairly standard and there are no quality issues whereas in
commodity derivative, the quality may be the underlying matters.
2.7 TRADING OF FINANCIAL DERIVATIVES
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Derivatives traded at exchanges are standardized contracts having
standard delivery dates and trading units.
OTC derivatives are customized contracts that enable the parties to

select the trading units and delivery dates to suit their requirements.
A major difference between the two is that of counterparty risk – the risk of
default by either party. With the exchange traded derivatives, the risk is
controlled by exchanges through clearing house which act as a contractual
intermediary and impose margin requirement. In contrast, OTC derivatives
signify greater liability.
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2.8 TERMINOLOGY OF CURRENCY DERIVATIVE
Futures:
A futures contract is an agreement between two parties to buy or sell an
asset at a certain time in the future at a certain price. Futures contracts are
special types of forward contracts in the sense that they are standardized and
are generally traded on an exchange. A currency futures contract provides a
simultaneous right and obligation to buy and sell a particular currency at a
specified future date, a specified price and a standard quantity.
Forwards:
A forward contract is a customized contract between two parties, where
settlement takes place on a specific date in the future at today's pre-agreed
price. The exchange rate is fixed at the time the contract is entered into. The
basic objective of a forward market in any underlying asset is to fix a price for
a contract to be carried through on the future agreed date and is intended to
free both the purchaser and the seller from any risk of loss which might incur
due to fluctuations in the price of underlying asset.
In India only currency forwards and currency futures are only

allowed. Currency swaps and currency option is yet not allowed in
India.
Recently MCX-SX has started to offer currency futures contracts in US Dollar-

Indian Rupee (USD-INR,) Euro-Indian Rupee (EUR-INR), Pound
Sterling-Indian Rupee (GBP-INR) and Japanese Yen-Indian Rupee (JPY-
INR). Clearing and Settlement is conducted through the MCX Stock Exchange
Clearing Corporation Ltd (MCX-SX CCL).
This year SEBI is also thinking about launching Currency Options for
facilitating all the investors, exporters, importers and MNCs.
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2.9 UTILITY OF CURRENCY DERIVATIVES
Traders in the foreign exchange market make thousands of trades daily,

buying and selling currencies while exchanging market information may be
used for varied purposes:
• For the import and export needs of companies and individuals

• For direct foreign investment
• To profit from the short-term fluctuations in exchange rates
• To manage existing positions
• To purchase foreign financial instruments
Exchange rates are an important consideration when making

international investment decisions. The money invested overseas incurs
an exchange rate risk.
When an investor decides to "cash out," or bring his money home, any gains
could be magnified or wiped out depending on the change in the exchange
rates in the interim. Thus, changes in exchange rates can have many effects
on an economy:
• Affects the prices of imported goods

• Affects the overall level of price and wage inflation
• Influences tourism patterns
• May influence consumers’ buying decisions and investors’ long-term
commitments.
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In the volatile FX market, traders constantly try to predict the behavior of
other market participants. If they correctly anticipate their opponents’
strategies, they can act first and beat the competition.
 Traders make money by purchasing currency and selling it later at a

higher price, or, anticipating the market is heading down, selling at a
high price and buying back at a lower price later.
 To predict the movements of currencies, traders often try to determine

whether the currency’s price reflects its fundamental value in terms of
current economic conditions. Examining inflation, interest rates, and the
relative strength of the country’s economy helps them make a
determination.
 Currency-based derivatives are used by exporters invoicing

receivables in foreign currency, willing to protect their earnings from the
foreign currency depreciation by locking the currency conversion rate at
a high level.
 Their use by importers hedging foreign currency payables is

effective when the payment currency is expected to appreciate and the
importers would like to guarantee a lower conversion rate.
 Investors in foreign currency denominated securities would like to

secure strong foreign earnings by obtaining the right to sell foreign
currency at a high conversion rate, thus defending their revenue from
the foreign currency depreciation.
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 Multinational companies use currency derivatives being engaged in
direct investment overseas. They want to guarantee the rate of
purchasing foreign currency for various payments related to the
installation of a foreign branch or subsidiary, or to a joint venture with a
foreign partner.
 A high degree of volatility of exchange rates creates a fertile

ground for foreign exchange speculators. Their objective is to guarantee
a high selling rate of a foreign currency by obtaining a derivative
contract while hoping to buy the currency at a low rate in the future.
The most commonly used instrument among the currency

derivatives are currency forward contracts(OTC). These are
large notional value selling or buying contracts obtained by
exporters, importers, investors and speculators from banks with
denomination normally exceeding 2 million USD.
 Currency futures provide an additional tool for hedging currency risk.

 Further development of domestic foreign exchange market.
 Permit trades other than hedges with a view to moving gradually
towards fuller capital account convertibility.
 Provide a platform to retail segment of the market to ensure broad based
participation based on equal treatment.
 Efficient method of credit risk transfer through the Exchange.
 Create a market to facilitate large volume transactions to go through on
an anonymous basis without distorting the levels.
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2.10 PARTIES INVOLVED IN CURRENCY DERIVATIVES
TRADING
Exporter:
CDs are used by exporters invoicing the receivables in foreign currency,
willing to protect the earnings foreign currency depreciation by locating the
currency conversion rate at a high level.
Importers:
Importers use CDs for hedging the payables in foreign currency when
the foreign currency is expected to appreciate and they would always like to
guarantee a low conversion rate.
Investors:
Investors in foreign currency denominated securities would like to secure
strong foreign earnings by obtaining the right to sell the foreign currency at a
high conversion rate, thus defending their revenue from foreign currency
derivatives.
MNCs:
MNCs use CDs being engaged in direct investment oversease. They want
to guarantee the rate of purchasing foreign currency for various payments
related to installation of a foreign branch or subsidiary, or to joint venture
payment with foreign partners.
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PARTICIPANTS OF CURRENCY MARKET
Hedgers:
They use derivatives markets to reduce or eliminate the risk associated
with price of an asset. Majority of the participants in derivatives market
belongs to this category.
Speculators:
They transact futures and options contracts to get extra leverage in
betting on future movements in the price of an asset. They can increase both
the potential gains and potential losses by usage of derivatives in a
speculative venture.
Arbitrageurs:
Their behavior is guided by the desire to take advantage of a
discrepancy between prices of more or less the same assets or competing
assets in different markets. If, for example, they see the futures price of an
asset getting out of line with the cash price, they will take offsetting positions
in the two markets to lock in a profit.
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Chepter-3 Exchange traded currency future Market
3.1 Introduction
Futures is a standardized forward contract to buy (long) or sell (short) the

underlying asset at a specified price at a specified future date through a
specified exchange. Futures contracts are traded on exchanges that work as a
buyer or seller for the counterparty. Exchange sets the standardized terms in
term of quality, quantity, price quotation, date and delivery place (in case of
commodity).
Features:
The features of a futures contract may be specified as follows:
• These are traded on an organized exchange like NSE, BSE, MCX etc.
• These involve standardized contract terms viz. the underlying asset, the
time of maturity and the manner of maturity etc.
• These are associated with a clearing house to ensure smooth functioning
of the market.
• There are margin requirements and daily settlement to act as further
safeguard.
• These provide for supervision and monitoring of contract by a regulatory
authority.
• Almost ninety percent future contracts are settled via cash settlement
instead of actual delivery of underlying asset.
41
Futures contracts being traded on organized exchanges impart liquidity
to the transaction. The clearinghouse, being the counter party to both sides of
a transaction, provides a mechanism that guarantees the honoring of the
contract and ensuring very low level of default.
Types:
Following are the important types of financial futures contract:

• Stock Future or equity futures,
• Stock Index futures,
• Currency futures, and
• Interest Rate bearing securities like Bonds, T- Bill Futures.
42
3.2 EXCHANGE TRADED CURRENCY FUTURES
Future markets were designed to solve the problems that exist in forward
markets. A futures contract is an agreement between two parties to buy or sell
an asset at a certain time in future at a certain price. But unlike forward
contracts, the futures contracts are standardized and exchange traded. To
facilitate liquidity in the futures contracts, the exchange specifies certain
standard features of the contract. A futures contract is standardized contract
with standard underlying instrument, a standard quantity and quality of the
underlying instrument that can be delivered (or which can be used for
reference purposes in settlement) and a standard timing of such settlement. A
futures contract may be offset prior to maturity entering into an equal and
opposite transaction.
3.3 NEED FOR EXCHANGE TRADED CURRENCY FUTURES

43
Exchange traded futures as compared to OTC forwards serve the same
economic purpose yet differ in fundamental ways. An individual entering into a
forward contract agrees to transect at a forward price on a future date. On the
maturity date, the obligation of the individual equals to the forward price at
which the contract was executed. Except on the maturity date no money
changes hands.
On the other hand in case of exchange traded currency futures contract mark
to market obligation is settled on a daily basis. Since the profit or loss in a
future market are collected/paid on a daily basis, the scope of building mark to
market loss in the books of various participants gets limited The counter party
risk in future contract is further eliminated by the presence of a clearing
corporation, which by assuming counterparty guarantee eliminates credit risk.
Further in an exchange traded scenario where the market lot is fixed at a much
lesser size than the OTC market, equitable opportunity is provided to all the
classes of investors whether large or small to participate in the future market.
The transaction on an exchange are executed on a price time priority ensuring
that the best price is available to all categories of market participant
irrespective of their size. Other advantages of an exchange traded market
would be greater transparency, efficiency and accessibility.
44
3.4 CURRENCY FUTURES TERMINOLOGY
Spot price:
The price at which an asset trades in the spot market. In the case of USD/INR,
spot value is T + 2.
Futures price:
The price at which the futures contract trades in the futures market.
Contract cycle:
The period over which a contract trades. The currency futures contracts on the
SEBI recognized exchanges have one-month, two-month, and three-month up
to twelve-month expiry cycles. Hence, these exchanges will have 12 contracts
outstanding at any given point in time.
Value Date/Final Settlement Date:

The last business day of the month will be termed the Value date/ Final
Settlement date of each contract. The last business day would be taken to the
same as that for Inter-bank Settlements in Mumbai. The rules for Inter-bank
Settlements, including those for ‘known holidays’ and ‘subsequently declared
holiday’ would be those as laid down by Foreign Exchange Dealers’ Association
of India (FEDAI).
Expiry date:
It is the date specified in the futures contract. All contracts expire on the last
working day (excluding Saturdays) of the contract months. The last day for the
trading of the contract shall be two working days prior to the final settlement
date or value date.
45
Contract size:
The amount of asset that has to be delivered under one contract which is also
called as lot size. In the case of USD/INR it is USD 1000; EUR/INR it is EUR
1000; GBP/INR it is GBP 1000 and in case of JPY/INR it is JPY 100,000.
Basis:
In the context of financial futures, basis can be defined as the futures price
minus the spot price. There will be a different basis for each delivery month for
each contract. In a normal market, basis will be positive. This reflects that
futures prices normally exceed spot prices.
Cost of carry:
The relationship between futures prices and spot prices can be summarized in
terms of what is known as the cost of carry. This measures (in commodity
markets) the storage cost plus the interest that is paid to finance or ‘carry’ the
asset till delivery less the income earned on the asset. For equity derivatives
carry cost is the rate of interest.
Initial margin:
The amount that must be deposited in the margin account at the time a
futures contract is first entered into is known as initial margin.
Marking-to-market:
In the futures market, at the end of each trading day, the margin account is
adjusted to reflect the investor's gain or loss depending upon the futures
closing price. This is called marking-to-market.
46
3.5 ADVANTAGES OF CURRENCY FUTURES
Low Commissions:
A highly competitive market keeps a tab on brokerage, keeping fees to bare
minimum.
No Middlemen:
Futures/Options currency trading allows clients to trade directly on the
exchange platform.
Standardized Lot Size:

Lots or contract sizes are determined and fixed by the exchanges.
Low Transaction Cost:

The retail transaction cost (the bid/ask spread) is typically less than 0.1
percent under normal market conditions.
Almost Instantaneous Transactions:

High liquidity and low bid/ask spreads lead to immediate trades.
Affordability:
Margins are very low and the contract size is very small. As per the
specification of NSE, USD-INR currency future contract, lot size is 1000$.
Margin is 1.75%.
Low Margins, High Leverage:

Margins of 3-5% increase leverage possibilities. These 2 factors increase the
potential for making higher profits (and losses).
47
Online Access:
The advent of online (Internet) trading platforms helps you to trade at your
convenience from your home, office or on the go.
No one can corner the market:

The Forex market is so vast and has so many participants that no single entity,
not even a central bank, can control the market price for an extended period
of time. Even interventions by mighty central banks are becoming increasingly
ineffectual and short-lived. Thus central banks are becoming less and less
inclined to intervene to manipulate market prices.
Transparency:
It is possible for everyone to verify trade details on NSE if anyone have a doubt
that the broker has tried to cheat.
48
3.6 DISADVANTAGES OF FUTURES
Standardization:
It is not possible to obtain a perfect hedge in terms of amount and timing.
Cost:
Forwards have no upfront cost, while margining requirements may effectively
drive the cost of hedging in futures up.
Small lots:
Generally it is not possible to hedge small exposures.
49
Chapter-4
50
RESEARCH METHODOLOGY
4.1 OBJECTIVES OF THE PROJECT
The basic idea behind undertaking this project is to check the awareness
level and perception about the currency future among investors.
Primary objectives:
 To measure the perception of investors about currency future.
 To check the awareness level of the investors about the availability of
exchange traded currency future.
Secondary objective:
 To make the investors aware about the availability of the currency
trading available in north gujarat.
 To study the behavior of investors towards the exchange traded currency
derivatives.
 To make the investors aware about the services provided by the ETCD.
 To know the investors knowledge about ETCD.
 To know the investors preferences regarding the different investment
options.
 To know the investors purpose of investing in currency derivatives.
 To know the investors satisfaction level of OTC market.
 To know reason of not investing through the ETCD.
 To know the investors preference of impact of different factors to the
currency derivatives.
51
4.2 METHODOLOGY
Research Type: Basic Research

Research Design: Descriptive Research Design
Sampling Techniques: Non probability Convenience Sampling
Type of Data
1. Primary Data
The primary data was collected by filling up the questionnaires through the
different investors of OTC market of North Gujarat specified by the company.
2. Secondary Data
The secondary data was provided to us by the company directly and was
collected from the Internet, magazines and related books.
Research Instrument: Questionnaire
Contact method: Personal interview, Telephonic interview.
Sample Size: 200 sample
Research Areas: Mehsana, Palanpur, Disa, Unjha, Visnagar
52
Chapter-5
53
Data Analysis & Interpretation
1. Please rank the following investment avenue as per your

investment preference.
Objective: To know the investors most preferred investment
option.
Weighta
Particulars R-1 R-2 R-3 R-4 R-5 R-6 Total ge Rank
Equity
Market 95 62 26 14 3 0 1032 24.57 1
Commodity
Market 8 26 42 63 39 22 635 15.12 4
Bank Deposit 71 76 22 17 9 5 968 23.05 2
Currency
Market 5 11 36 41 84 23 543 12.93 5
Mutual Fund 20 23 54 44 38 21 680 16.19 3
Other 1 2 20 21 27 129 342 8.14 6
4200
Interpretation:
From the above question, we come to know about investors
most preferred investment option is equity market because they are more
aware and give high return from equity market while currency, commodity are
least preferred because of they have less awareness, less knowledge of these
54
investment avenue.
2. Since how long you are investing in the above investment
option.
Objective: To know the time period of investment experience in the
Responden In
Particulars ts (%)
Last 1year 6 3
Last 1 to 3 years 10 5
Last 3 to 5 years 44 22
Above Last more than 5
years 140 70
investment option.
55
Interpretation:
From this question, we come to know about the most
investors have experience of investing more than 5 years so that they are
aware that which investment option is good/bad for investment.
Particulars No. of In (%)

Friends 8 4
Self 14 7
Family 8 4
Consultant/Broker 110 55
News papers 18 9
News channels 36 18
Business magazine 6 3
3. From whom do you get advice for your investment?

(please tick any one)
Objective: To know about the investors preferred media for the
investment advice so it shows importance of that media
56
Interpretation:
From the above question, we come to know that 110 investors from
our sample size consider the investment advice from consultant/broker than
any other because they believe that they get best investment advice with their
financial analyst services and secondly people preferred news channels
because they shows the risk and return analysis with the calculation for the
investment. E.g. CNBC TV18 sometimes shows the different mutual funds and
SIP (systematic investment plan) analysis by analyst for the investment.
4. Do you know about the currency trading?

Objective: To know the awareness about the currency trading
57
Answe Awareness about currency trading No of Respondents
r (in %)
200
Yes 100%
0
No 0%
Interpretation:
We have asked this question to know currency trading awareness level and
whether they are aware or not aware about the currency market but they are
not aware about the availability of exchange traded currency future, services
and advantages of ETCD.
58
5. What is your perception about currency market?
Objective: To know the perception of investors about the currency
Proportio Respond
Perception n ents
Less risky 32% 64
Risky 47% 94
Very risky 15% 30
Can't say 6% 12
t 100% 200
market
Interpretation:
Objective behind asking this question to know the innvestors

59
perception aboout the currency derivatives.From the survey, we come to know
that 47% investors believe that currency trading is risky and 32% believe that
currency trading is less risky. But there is less return, less investment and less
risk than the other investment option.
Respond
Trading in ETCD Answer ents
Yes 9% 18
No 91% 182 6. Are you
Total 100% 200
aware
about trading in ETCD?
Objective: To know the awareness about the trading in
Exchange traded currency derivative.
Interpretation:
This question shows the investors awareness about the Exchange traded
60
currency Derivatives market and to know whether they are trading through
Exchange and if they had done trade through Exchange traded Currency
derivatives then there is no need to make them aware but if they are trading
through Over the Counter then there is need to make them aware about
Exchange Traded Currency Derivative because we are focusing on the ETCD.
Here from the Percenta Respond
survey, we Mechanism ge ents
Hedging 72.22% 13
come to know
Arbitraging 11.11% 2
that 91% are Speculation 16.67% 3
not aware and Total 100% 18
not trading through Exchange Traded Currency Derivative and 9% know and
trading through Exchange Traded Currency Derivatives.
(a) If yes then which type of mechanism you are using for
trading in currency market?

Objective: To know about the purpose/mechanism used for currency
trading by the investors in Exchange Traded Currency Derivative.
61
Interpretation:
After knowing the awareness about the ETCD, there is a need to know the
purpose of investing in ETCD. From this question, we want to know about
which type of investors they are? Sothat we come to know that 68% use
currency trading for hedging(EXIM firms use) purpose to reduce the future risk
arise because of exchange rate fluctuation,10% use for arbitrage to take the
benefit of difference between two different market and 22% use currency
trading for speculation to fluctuate the exchange rate.
(b) If no then please give the reason(please tick any

one)
Objective: To know the reason why they are not trading
through Exchange Traded Currency Derivative.
Percentag Responde
Reasons e nts
Lack of awareness 40.11% 73
Not available 26.92% 49
Lack of knowledge 14.29% 26
Highly Speculative 12.64% 23
Others 6.04% 11
62
Total 100% 182
Interpretation:
If the investors are not aware and also trading through ETCD, there is need
arise to know the reason of not investing through ETCD. We come to know
from the research that 40% are not aware about ETCD, 27% give response of
not availability of ETCD, 14% have lack of knowledge of ETCD and 13% believe
that it is highly speculative and 6% are not investing for some other reasons.
Investors have wrong belief of currency but there is increase in the volume of
currency and exchanges also focusing on the ETCD and showing the
importance of currency future trading by different expert interviews on news
channels. E.g. on TV channel BLOOMBERG TV on 17th July, 2010. They are
showing the discussion of different well known firm’s executives on the
currency future trading at MCX-SX.
7. Type of currency preferred please rank them.

Objective: To know the investors most preferred and most traded
currency contract in the Exchange Traded Currency Derivative.
Weight
Particulars R-1 R-2 R-3 R-4 Total age Rank
USD/INR 147 24 19 10 708 0.35 1
EUR/INR 26 83 54 37 498 0.25 2
GBP/INR 18 63 65 54 445 0.22 3
63
JPY/INR 9 30 62 99 349 0.17 4
Total 2000
Interpretation:
The objective of this question is to know about the most
traded and most preferred currency which give more return and mostly used
by the currency traders. In India, USD/INR is available for trading in currency
derivative. From the research, we come to know that USD/INR is most traded
and most preferred currency because it gives more return and that currency is
used in most economy for the currency future trading.
8. Scale the following.
Objective: To know the investors viewpoint about the

different sentences related to the ETCD.
(a) Currency fluctuation impacts on equity and commodity market.

(5 for strongly agree and 1 for strongly disagree)
64
5 4 3 2 1
Strongly Agre Indifferen Dis Strongly Dis Mean
Agree e t Agree Agree score
22 68 83 18 9 3.38
Interpretation:
Mean score is 3.38 so it show that the perception of the investors show a high
impact of currency fluctuation on equity and commodity market in
comparison with other financial instruments available in the market.
(b) Currency trading through ETCM is easily available. (5 for

strongly agree and 1 for strongly disagree)
5 4 3 2 1
Strongl
y
Strongl Agre Indifferen Disagre Disagre Mean
y Agree e t e e Score
3 9 23 51 114 1.68
Interpretation:
Mean is 1.68. The perception of the investors show a high disagreeness of
easy availability of Exchange Traded Currency Derivative in the north Gujarat
region. Thus they know that Exchange Trading For currency not available in
North Gujarat.
(c) There are more future opportunities in currency market

rather than other investment option.
5 4 3 2 1
65
Strongl
y
21 83 58 29 9 3.39
Interpretation:
Mean score is 3.39 Which falls between indifferent and agree so the
perception of the investors show the positive reply towards the future
opportunities in the currency market rather than other investment option.
(d) OTC currency trading takes more time than ETCD.
5 4 3 2 1
Strongl
y
18 12 156 9 5 3.145
Interpretation:
Mean Score is 3.145 which fall between indifferent and agree so the
perception of the investors show that investing in trading in the Over The
Counter market takes more time than the Exchange Traded Currency
Derivatives. It shows that investors are somewhat agree with the statement.
9. Please show your awareness about services provided

66
by the Exchange Traded Currency Derivatives.
Objective: To know the awareness among the investors about the
services provided by the Exchange Traded Currency Derivative.
(a) Lot size 1lot=1000USD
Interpretation:
3 2 1
Partially Not Mean
Aware aware aware Score
146 36 18 2.64
Mean score is 2.64 so the perception of the investors falls between partially
aware and aware so that it shows the investors are aware about the lot size
available in Exchange Traded Currency Derivatives.
(b) Cost per Rs.100=Rs.0.03
3 2 1
Partially Not Mean
22 44 134 1.44
Interpretation:
Mean score is 1.44 which is fall between not aware and partially aware so the
perception of the investors show that they are not or less aware about the cost
of currency trading through exchange is less than the Over The Counter
market.
67
(c) Profit earned through ETCM consider as business income
3 2 1
Partially Not
Aware aware aware Mean Score
14 22 164 1.25
Interpretation:
Mean score is 1.25 which shows the response of the investors that they are not
or less aware that the profit earn through Exchange Traded Currency
Derivatives is consider as business income while in Over The Counter, it
consider as taxable income.
(d) Time availability in ETCD is more than OTC market.
3 2 1
Partially Not Mean
12 74 114 1.49
Interpretation:
Mean score is 1.49 so it shows the investor’s perception of not aware or
partially aware about the time period available for trading in Exchange is more
than the Over The Counter trading.
68
(e) ETCD provide live/current currency rate for trading
3 2 1
Partially Not Mean
26 16 158 1.34
Interpretation:
Mean score is 1.34 which falls between not aware and partially aware which
shows that the investors are less or not aware that Exchange trading currency
market provides market/spot price for currency trading.
69
10. Show your satisfaction level from the OTC market
services.
Objective: To know the satisfaction level of investors from the

services of over the counter market
No. of
Particulars Respondent In (%)
Highly satisfied 19 10.44
Moderately
satisfied 26 14.29
Indifferent 57 31.32
Moderately
dissatisfied 67 36.81
Highly dissatisfied 13 7.14
Interpretation:
This question is asked to know whether the investors are satisfied with the
services provided by the OTC market or not. It shows their satisfaction level
from OTC market so that the firm can come to know its opportunities in the
OTS market investors and can make the investors interested for the trading in
Exchange Traded Currency Derivatives by satisfying their requirement.
70
11. Please rank the following factors according to their
effectiveness to the currency exchange rate?
Objective: To know the investors view about the most impacting

factors to the currency exchange rate.
Weighta Ran
Particulars R-1 R-2 R-3 R-4 R-5 R-6 R-7 R-8 Total ge k
Export-import
data 61 48 33 23 16 13 4 2 1600 0.211921 1
Political stability 4 7 10 14 23 47 58 37 597 0.079073 7
Interest rate 26 29 31 35 42 26 8 3 1037 0.137351 4
GDP data 40 45 41 32 21 14 5 2 1179 0.156159 2
Inflation data 21 22 26 29 31 36 21 14 911 0.120662 5
Natural
Calamities 2 2 4 5 18 29 43 97 421 0.055762 8
Fiscal /
monetary data 13 14 18 19 23 24 52 37 710 0.09404 6
Tax data 33 33 37 43 26 11 9 8 1095 0.145033 3
7550
Interpretation:
This question shows the factors effectiveness on exchange rates according to
the investor preference. It shows the most impacting factor on exchange rates
is export-import data because EXIM firms required more currency for their
international trades and least impacting factor on currency rate is natural
calamities because it occurs very less.
12. If currency trading in ETCM will available in north

Gujarat, are you interested to trade in currency market?
Objective: To know the investors interest to trade in Exchange traded

Currency Derivative in the North Gujarat Region.
Particular No. of In
s Respondents (%)
Yes 151 83
71
No 31 17
Interpretation:
From the above question, we come to know about the interested
investors in exchange traded currency futures are 83% because not availability
of ETCD in north Gujarat and 17% are not interested investors. So from the
above question, the firm can get the pioneer advantage of newly launching
ETCD in north Gujarat and it also required awareness and interest of investors.
13. “Currency trading through ETCM is more beneficial and

easy than OTC market”. Please give your opinion?
Objective: To know the investors viewpoint about the Exchange Traded

Currency Derivative
72
Particular No. Of
s Respondents IN (%)
Agree 152 76
Disagree 48 24
Interpretation:
From this question, we want to know about investor’s perception of benefits
and easiness of currency future trading. In this, 76% investors are agree with
the statement and 24% are disagree with the above statement because of
their lack of knowledge about ETCD.
73
74
Chapter-6
Hypothesis Testing
Test-1 Whether 50% of the respondents believes that investment in currency
is risky?
P=0.5
Q=0.5
n=200
α =0.05
H0: Z=0.5(50% of the respondents believes that investment in currency is

risky)
H1: Z<0.5(More than 50% of the respondents believes that investment in
currency is risky)
Z= x-µ/σ
=0.47-0.50/0.03536
=-0.8484
σ=√p*q/200
=√0.5*0.5/200
=0.03536
75
Here we have taken our null hypothesis that 50% Investors are believe that
Exchange Traded Currency Market is risky. Here our 47% findings are
believed that ETCM is risky. After used z test we found that z value comes
-0.85 with 0.05 significant level z value placed at expected zone which
show that our null hypothecation “50% of the respondents believes
investing in currency is risky” is accepted. Means 50% Investors believed
that ETCM is risky.
Test-2 whether 25% of the respondents are trading in exchange traded
currency market?
P=0.25
Q=0.75
n=200
α =0.05
H0: Z=0.25 (25% of the respondents are trading in exchange trading

currency market)
H1: Z<0.25 (Less than 25% of the respondents are trading in exchange
trading currency market)
Z= x-µ/σ
=0.09-0.25/0.0306
=-5.2257
σ=√p*q/200
=√0.25*0.75/200
=0.0306
76
Here we have taken our null hypothesis that 25% Investors are trading
through Exchange Traded Currency Market. Here our 9% findings are
invested through ETCM. After used z test we found that z value comes
-5.22. with 0.05 significa=nt level z value placed at unexpected zone which
show that our null hypothecation “25% of the respondents are trading in
exchange treading currency market” is reject. Means less than 25%
Investor trading in ETCM.
77
Chapter-7
FINDINGS
We have found that……

 Market for currency trading is potential but very few investors are aware
about ETCD.
78
 Exporters and importers are agree that research based investing in ETCD
is beneficial for hedging idea.
 Most investors are using OTC for hedging.
 Investors are use banks more for the currency trading.
 Investors are more concern with rate fluctuation in prices.
 Major investor in currency derivatives are Export-Import Company’s than

speculators and arbitragers.
 Investors believe that currency trading give good return with lower risk
because of easily available contracts.
 Investors face problems while invest in currency through OTC then ETCD.
 USD/INR is mostly traded currency due to high liquidity in it.
 Investors believe that ETCD are more beneficial than OTC in different
ways.
79
Chapter-8
SUGGESTIONS
80
 The firm can make the large investors aware about the Exchange Traded
Currency derivatives by arranging the personal meeting or by
advertisement of the availability of the Exchange Traded Currency
Derivatives at MARWADI in North Gujarat.
 The firm can arrange the seminars of Exchange Traded currency
Derivatives for the awareness by the expert people.
 The firm can motivate the speculators for invest in currency trading by
showing its impact on equity and commodity and also showing them
earning from it.
 Export import firms more concerns for exchange rate changes because
slight change in it make them high lose so Exchange traded currency
derivatives provides currency at market price.
 The firm can also get the customers of its other products by these
seminars and personal meets.
 They can marketing of its new product by providing the research based
call of currency trading to active client base
SWOT analysis
Strength:
81
 Good presence and strong network into the north Gujarat with 22 sub-
brokers in MEHSANA, 18 in PALANPUR etc and 8 branches in North
Gujarat.
 Well skilled and experience employees having more than 3 years of

experience and employees co-relation is good.
 The firm has good risk management service in all segments.
 The firm has very good investment advice in commodity as well as

currency market with 80% successful ratio.
 Low cost for online trading in every products of firm.
Weakness:
 Centralized decision making.
 Less focus on marketing activity.
 Lack of professional management.
Opportunities:
 The firm has the opportunity of pioneer advantage of new product
development and advertisement of currency trading availability.
 The firm have the opportunity in to reach to the untapped market.
Threats:
 Highly competitive market.
 Uncertainty of the market.
82
83
Chapter-9
CONCLUSION
Currency market is 10 times more than equity market. After completion of our project, we
conclude that mostly hedgers are done their hedging through banks (Over the counter market)
where they use their bank facilities. From OTC, they face many problem like transparency of price,
settlement time, contract size etc…
They are not aware regarding Exchange Traded Currency Trading which will help them for better
exchange risk minimization.
84
85
Chapter-10
BIBLIOGRAPHY
Websites
• www.mcx-sx.com
• www.nseindia.com
• www.commodityonline.com
• www.marwadionline.com
• www.rbi.gov.in
• www.netdania.com
• www.bseindia.com
• www.financeindia.com
• www.forexmarket.com
Books
Naresh k Malhotra & Satyabhushandash, “Marketing Research”, Fifth

Edition, Publish by Dorling Kinersley(India) Pvt.Ltd.
Panneerselvam R. “Research Methodology”, Eastern Economy Edition, By

Prentice-Hall of India Private Limited.
Richard I. Levin, David S Rubin, “Statistics for Management”, Pearson

Education, 7th Edition.
NCFM: Currency Future Module

Euan and Rasnik, “International Financial Market”
Magazines
• Portfolio organizer
• Capital market
• Dalaal Street
Other sources
• Report of the RBI-SEBI standing technical committee on exchange traded
currency futures, 2008
86
87
Chapter-11
Annexure
DETAILS OF CONTRACT SPECIFICATION OF USD/INR

FUTURES
USDINR
Symbol
Instrument Type FUTCUR

1 (1 unit denotes 1000 USD)
Unit of
trading
The exchange rate in Indian Rupees

Underlying
for a US Dollar
Tick size Rs.0.25 paise or INR 0.0025

Trading hours Monday to Friday
9:00 a.m. to 5:00 p.m
Contract trading cycle 12 month trading cycle.
Last trading day Two working days prior to the last
business day of the expiry month at
12 noon.
Final settlement day Last working day (excluding
Saturdays) of the expiry month. The
last working day will be the same as
that for Interbank Settlements in
Mumbai.
Quantity Freeze Above 10,000
Base price Theoretical price on the 1st day of the
contract. On all other days, DSP of the
contract
Price operating range Tenure up to 6 months Tenure
88
USDINR
Symbol
more than 6 months

+\- 3% of base price +\- 5% of base
price
Position limits Clients Trading members Banks
Higher of 6% of Higher of 15% Higher
of total open interest of the total open
15% of total
or USD 10 million interest or open
interest USD 50 million or USD 100
Million
Minimum initial margin 1.75% on day 1, 1% thereafter
Extreme loss margin 1% of MTM value of open position.
Calendar spreads Minimum Rs. 250/- per contract for all
months of spread
Settlement Daily settlement : T + 1
Final settlement : T + 2
Mode of settlement Cash settled in Indian Rupees
Daily settlement price (DSP) Calculated on the basis of the last half
an hour weighted average price
Final settlement price (FSP) RBI reference rate
89
90
Questionnaire
We are the students of S.V. Institute of Management, Kadi. We are

preparing project report on “To check the awareness level and perception
about Exchange Traded currency derivatives” so we want your
perception and some information about currency derivatives. Be sure that this
information is use only for our academic purpose.
1. Please rank the following investment avenue as per your investment

preference.
Equity Market Currency Market
Commodity Market Mutual Fund
Bank Deposit Other
2. Since how long you are investing in above investment option?
Last 1year Last 1 to 3 years

Last 3 to 5 years Above Last more than 5 years
3. From whom do you get advice for your investment? (Please tick any one)
Friends Self
Family Consultant/Broker
News papers News channels
Business magazine
4. Do you know about the Currency Trading?
Yes No
91
5. What is your perception about Currency market? (Please tick any one)
Less Risky Very Risky
Risky Can’t say
6. Are you aware about trading in exchange traded Currency market?
Yes No
 If Yes, Than
Which type of mechanism you are using for trading in Currency Market?
Hedging Arbitraging
Speculation
 If No then please give reason(please tick any one)
Lack of awareness Not available
Lack of knowledge Highly speculative
Others
7. Type of currency preferred please rank them.
USD/INR GBP/INR
EUR/INR JPY/INR
92
8. Scale the following.
Particular Strongly Agre Indifferenc Disagre Strongly

Agree e e e Disagree
Currency fluctuation
impacts on equity and
commodity market.
Currency trading through
ETCM is easily available.
There are more future

opportunities in currency
market rather than other
investment option.
OTC currency trading takes
more time than ETCM
9. Please show your awareness level about the services provided by the
Exchange Traded Currency Market.
No. Particular Aware Partially Not

Aware Aware
1. In ETCM, 1lot=1000USD
2. Cost Rs.100= Rs.0.03
3. Profit earned through ETCM consider as
business income.
4. Time availability in ETCM is more than
OTC market.
5. ETCM provide live/current currency rate
for trading.
10. Show your satisfaction level from the OTC market services?
Highly satisfied moderately satisfied
Indifferent Moderately dissatisfied
Highly dissatisfied
93
11. Please rank the following factors according to their effectiveness to
the currency market?
Export-import data Political stability
Interest rate GDP data
Inflation data Natural Calamities
Fiscal / monetary data Tax data
12. If currency trading in ETCM will available in north Gujarat, are you
interested to trade in currency market?
Yes No
13. “Currency trading through ETCM is more beneficial and easy than OTC
market”. Please give your opinion?
Agree Disagree
NAME:-
AGE: -
21-25 year 26-30 years
31-35 years 36-40 years
41-45 years 46-50 years
above 50 years
94
Thanks for spending your precious time
Article of Business Standard
95
Contract Specifications for Euro-INR
Symbol EURINR
Unit of trading 1 (1 unit denotes 1000 EURO)
Underlying EURO
Quotation/Price
Rs. per EUR
Quote
Tick size 0.25 paise or INR 0.0025
Monday to Friday
Trading hours
9:00 a.m. to 5:00 p.m.
Contract trading
12 month trading cycle.
cycle
Settlement price RBI Reference Rate on the date of expiry
Two working days prior to the last business day of the
Last trading day
expiry month at 12 noon.
Last working day (excluding Saturdays) of the expiry
Final settlement month.
day The last working day will be the same as that for Interbank
Settlements in Mumbai.
Theoretical price on the 1st day of the contract. On all
Base price
other days, DSP of the contract
Tenure greater than 6
Price operating Tenure upto 6 months
months
range
+/-3 % of base price +/- 5% of base price
Clients Trading Members Banks
Higher of 6% of Higher of 15% of Higher of 15% of
Position limits total open the total open the total open
interest or EUR 5 interest or EUR 25 interest or EUR 50
million million million
Minimum initial
2.8% on First day & 2% thereafter
margin
Extreme loss 0.3% of MTM value of gross open positions.
96
margin
Rs.700/- for a spread of 1 month, 1000/- for a spread of 2
Calendar spreads
months, Rs.1500/- for a spread of 3 months or more
Daily settlement : T + 1
Settlement
Mode of
Cash settled in Indian Rupees
settlement
DSP shall be calculated on the basis of the last half an
Daily settlement hour weighted average price of such contract or such
price (DSP) other price as may be decided by the relevant authority
from time to time.
Final settlement
RBI reference rate
price (FSP)
Contract Specifications for Japanese Yen-INR
97
Symbol JPYINR
Unit of trading 1 (1 unit denotes 100000 YEN)
Underlying JPY
Quotation/Price
Rs per 100 YEN
Quote
Monday to Friday
Trading hours
9:00 a.m. to 5:00 p.m.
Contract trading
cycle
Exchange rate published by the Reserve Bank in its Press
Settlement price
Release captioned RBI Reference Rate for US$ and Euro.
Last trading day
Theoretical price on the 1st day of the contract. On all
Base price
other days, DSP of the contract
months
range
Higher of 6% of Higher of 15% of Higher of 15% of
Position limits total open the total open the total open
interest or JPY interest or JPY 1000 interest or JPY
200 million million 2000 million
Minimum initial
4.50% on first day & 2.30% thereafter
margin
Extreme loss
0.7% of MTM value of gross open positions.
margin
Rs. 600 for a spread of 1 month; Rs 1000 for a spread of 2
Calendar spreads
months and Rs 1500 for a spread of 3 months or more
98
Settlement
Mode of
settlement
DSP shall be calculated on the basis of the last half an
Daily settlement hour weighted average price of such contract or such
price (DSP) other price as may be decided by the relevant authority
from time to time.
Final settlement Exchange rate published by the Reserve Bank in its Press
price (FSP) Release captioned RBI Reference Rate for US$ and Euro.
Hedging scenarios
Hedging against Indian Rupee appreciation
Suppose a mango pulp exporter receives an export order worth, say,

10,000,000 from a Japanese food company with the delivery date being in 3
months time. At the time when contract is placed, the Japanese Yen (JPY) is
worth say Rs.51.05 per 100 JPY in the spot market, while on MCX-SX a futures
contract for an expiry date that matches with order payment date is trading,
say, at Rs.51. This puts the value of the order, when placed, at Rs.5,105,000.
However, if the domestic exchange rate appreciates significantly (to
Rs.50.20/100 JPY) when the order is paid for (which is one month after the
delivery date), the firm would receive only Rs.5,020,000 rather than
Rs.5,105,000.
To insure against such losses, the firm can, at the time it receives the order,
can enter into 100 JPY futures contract of 100,000 each to sell at Rs.51 per
100 JPY, which involves contracting to sell a foreign currency on expiry date at
the agreed exchange rate. Suppose on payment date the exchange rate is,
say, Rs.50.20, the exporter would receives only Rs.5,020,000 on selling the
Japanese Yen in the spot market, but gains Rs. 80,000 (i.e. 51 - 50.20 * 100 *
100,000/100 ) in the futures market. Thus, overall the firm receives
99
Rs.5,100,000 and protects itself from the sharp appreciation of domestic
currency against Japanese Yen.
In the short term, firms can make gains or losses from hedging. But the basic
purpose of hedging is to protect against excessive losses and to benefit from
knowing exactly how much it was going to get from its export deal to avoid the
uncertainty associated with future exchange rate movements.
Hedging against Indian Rupee depreciation
An automobile manufacturer in India placed an import order worth, say,

10,000,000 with a Japanese auto parts manufacturer. The current spot rate of
Japanese Yen is, say, Rs.51.05 per 100 Japanese Yen and at this rate the value
of the order is Rs.5,105,000. The importer is worried about sharp depreciation
of Indian Rupee against Japanese Yen in coming months when the payment is
due and brought 100 Japanese Yen futures contract ( 100,000 each) on MCX-
SX, say, at Rs.51.10/100 JPY. Suppose, at expiry date, Rupee depreciated to
Rs.51.50 the importer would have to pay Rs.5,150,000, but he would gain
Rs.40,000 (i.e. Rs.51.50 - 51.10 * 100 * 100,000/100) from the futures market
and the net outflow would be only Rs.5,110,000.
knowing exactly how much it was going to pay for the import order to avoid
the uncertainty associated with future exchange rate movements.
Contract Specifications for Pound Sterling-INR
Symbol GBPINR
Unit of trading 1 (1 unit denotes 1000 POUND STERLING)
Underlying POUND STERLING
100
Quotation/Price
Rs. per GBP
Quote
Monday to Friday
Trading hours
9:00 a.m. to 5:00 p.m.
Contract trading
cycle
Exchange rate published by the Reserve Bank in its Press
Settlement price
Release captioned RBI Reference Rate for US$ and Euro.
Last trading day
Theoretical price on the 1st day of the contract. On all other
Base price
days, DSP of the contract
months
range
Higher of 6% of Higher of 15% of
Higher of 15% of the
Position limits total open the total open
total open interest
interest or GBP 5 interest or GBP 50
or GBP 25 million
million million
Minimum initial
3.2% on first day & 2% thereafter
margin
Extreme loss
0.5% of MTM value of gross open positions.
margin
Rs.1500/- for a spread of 1 month, 1800/- for a spread of 2
Calendar spreads
months, Rs.2000/- for a spread of 3 months or more
Settlement
Mode of
settlement
Daily settlement DSP shall be calculated on the basis of the last half an hour
101
weighted average price of such contract or such other price
price (DSP) as may be decided by the relevant authority from time to
time.
Hedging against Indian Rupee appreciation
Suppose an Indian IT exporter receives an export order worth, say, 100,000

from a British trading firm with the delivery date being in 3 months time. At
the time when contract is placed, the British pound sterling (GBP) is worth say
Rs.74.05 in the spot market, while on MCX-SX a futures contract for an expiry
date that matches with order payment date is trading, say, at Rs.74. This puts
the value of the order, when placed, at Rs.7,405,000. However, if the domestic
exchange rate appreciates significantly (to Rs.73.20) when the order is paid
for (which is one month after the delivery date), the firm would receive only
Rs.7,320,000 rather than Rs.7,405,000.
To insure against such losses, the firm can, at the time it receives the order,
can enter into 100 British pound sterling futures contract of 1000 each to sell
at Rs.74 a British pound sterling, which involves contracting to sell a foreign
currency on expiry date at the agreed exchange rate. Suppose on payment
date the exchange rate is, say, Rs.73.20, the exporter would receives only
Rs.7,320,000 on selling the British pound sterling in the spot market, but gains
Rs. 80,000 (i.e. 74 - 73.20 * 100,000) in the futures market. Thus, overall the
firm receives Rs.7,400,000 and protects itself from the sharp appreciation of
domestic currency against British pound sterling.
knowing exactly how much it was going to get from its export deal to avoid
Hedging against Indian Rupee depreciation
An organic chemicals dealer in India placed an import order worth, say,

100,000 with a Britain manufacturer. The current spot rate of British pound
102
sterling is, say, Rs.74.05 and at this rate the value of the order is
Rs.7,405,000. The importer is worried about sharp depreciation of Indian
Rupee against British pound sterling in coming months when the payment is
due and brought 100 British pound sterling futures contract ( 100,000 each)
on MCX-SX, say, at Rs.74 a GBP. Suppose, at expiry date, Rupee depreciated to
Rs.75 the importer would have to pay Rs.7,500,000, but he would gain
Rs.100,000 (i.e. Rs.75 - 74 * 100 * 1000) from the futures market and the
resultant outflow would be only Rs.7,400,000.
knowing exactly how much it was going to pay for the import order to avoid
103

Jigar Jayswal

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Summer Internship Project

Marwadi Shares & Finance Ltd.

Management Motivations for Use of Foreign Currency Derivatives in India

IIMB Management Review, 20(3), July - September, 2008, pp. 324-339

JEL Classifications: F30, F31, G32

3.2 Exchange Traded Currency Future 24

3.5 Advantages Of Currency Futures 29

5 Data Analysis & Interpretation 34

Marwadi Shares & Finance Limited is a Gujarat based financial service

"To be a world-class financial services provider by

Name : Marwadi Shares & Finance Pvt. Ltd.

Head Office : Marwadi Financial Center

Directors : Mr. Ketan Marwadi

C.E.O. :Mr. Jeyakumar A. S.

General Manager : Mr. Hareshbhai Maniar

Company Secretery : Mr. Tushit Mangukiya

DP Manager : Mr. Arvind Gamot

H R Manager : Mr. Akshay Goswami

Equity & Derivatives:

• 1992 - Marwadi Shares And Finance Pvt. Ltd. was incorporated.

 Equity & Derivatives

1.7 CORE COMPETENCES

 Commodities research & broking services

This variability in value of assets or liabilities or cash flows is referred to

 The Underlying Securities for Derivatives are :

In 1971, the Bretton Woods system of administering fixed foreign exchange

2.6 TYPES OF FINANCIAL DERIVATIVES

2.7 TRADING OF FINANCIAL DERIVATIVES

OTC derivatives are customized contracts that enable the parties to

In India only currency forwards and currency futures are only

Recently MCX-SX has started to offer currency futures contracts in US Dollar-

Traders in the foreign exchange market make thousands of trades daily,

• For the import and export needs of companies and individuals

Exchange rates are an important consideration when making

• Affects the prices of imported goods

 Traders make money by purchasing currency and selling it later at a

 To predict the movements of currencies, traders often try to determine

 Currency-based derivatives are used by exporters invoicing

 Their use by importers hedging foreign currency payables is

 Investors in foreign currency denominated securities would like to

 A high degree of volatility of exchange rates creates a fertile

The most commonly used instrument among the currency

 Currency futures provide an additional tool for hedging currency risk.

Futures is a standardized forward contract to buy (long) or sell (short) the

The features of a futures contract may be specified as follows:

Following are the important types of financial futures contract:

3.3 NEED FOR EXCHANGE TRADED CURRENCY FUTURES

Value Date/Final Settlement Date:

Standardized Lot Size:

Low Transaction Cost:

Almost Instantaneous Transactions:

Low Margins, High Leverage:

No one can corner the market:

4.1 OBJECTIVES OF THE PROJECT

Research Type: Basic Research

Research Instrument: Questionnaire

Contact method: Personal interview, Telephonic interview.

Sample Size: 200 sample

Research Areas: Mehsana, Palanpur, Disa, Unjha, Visnagar

1. Please rank the following investment avenue as per your

Objective: To know the time period of investment experience in the

Particulars No. of In (%)

3. From whom do you get advice for your investment?