“Currency Futures –

Awareness Program
Opportunities on
and Trading
Currency
Strategies”Futures

Hyderabad
BIFT, 27th Sept’2010
 Agenda
Ø About MCX Stock Exchange Ltd – Share Holders

Ø Financial Market Structure

Ø Global Currency Markets

Ø Indian Currency Markets

Ø Fundamental Factors affecting currencies

Ø Product Specifications

Ø Trading Strategies

Ø Benefits of Currency Futures

Ø Future Growth Drivers

22
About MCX-SX

MCX-SX, India’s new stock exchange recognized by SEBI, and currently operates in the Exchange
Traded Currency Derivatives segment.

MCX-SX is promoted by the India’s No.1 commodity exchange, MCX, leading exchange technology
solution provider, Financial Technologies (India) Limited, 18 banks and financial institutions.

MCX-SX officially launched on October 6th 2008, offering a trading platform for USD/INR currency
futures. The average daily turnover has been over $ 3 billion with a market share of over 50% in the
currency derivatives segment.

MCX-SX has over 600 members spread across 479 centers in India.

MCX-SX will launch Interest Rate Futures, Cash Equities, F&O, Debt Products and SME segments on
its platform, subject to regulatory approval.

An independent approved Clearing Corporation, MCX-SX CCL is in place to undertake clearing &
settlement activities for its members.

33
Shareholding of MCX-SX

Allhabad Bank Indian Overseas Bank

Andhra Bank Multi Commodity Exchange of India Ltd
Axis Bank Oriental Bank of Commerce
Bank of Baroda Punjab & Sind Bank
Bank of India Punjab National Bank
Corporation Bank State Bank of Indore
Financial Technologies (I) Ltd Syndicate Bank
HDFC Bank UCO Bank
IFCI Limited Union Bank of India
IL & FS Financial Services Ltd United Bank of India
Indian Bank Vijaya Bank

* Names in alphabetical order

44
Financial Market Structure

Foreign
Money
Exchange
Markets Bond
Markets
Capital Markets
Markets

Equity
Commodity Markets
Markets

55
Foreign Exchange Markets

One of the largest and most liquid in the world

Daily turnover of $ 4 Trillion
Main trading centers are
London (38%),
New York (22%),
Tokyo (10%)
Singapore (9%)
Over 85% of all FX transactions involve 7 major currencies
Market never sleeps and has its own rhythm ( 24/7 )
Starts in Sydney and ends in St. Francisco
Markets : Spot, Forward & Futures
Currency Futures started in 1972 at CME
Daily Average Turnover in CME is around $100 Billion
Around-the-clock FX trading

Click to edit Master text styles

Second level
● Third level

● Fourth level

● Fifth level

77
Indian Foreign Exchange Market

Daily Turnover - US$48 billion in 2007 -08.

Inter-bank constituting 72%.

59% of the total market USDINR.

56% constitutes forwards & swaps.

USDINR volatility has seen an average increase of over 7% p.a. but touched 28% in 2008.

Derivatives Market is 6 times bigger than Cash segment

Available FX Derivatives: Futures, Forwards, Options & Swaps.

88
Currency Future

Agreements between two parties on a Regulated Exchange, to exchange one

currency for another at Specified date in the future and at Specified Price.

Size and maturity of the contracts are standardized

99
Indian Markets

Market Daily Volume in Crs

Segments (Approx)
 

CASH 20,000
F&O 70,000
Commodity 30,000
Currency 60,000
*Currency Market Operational from Oct’2008
Contract Specification

Trading Hours 9:00 AM to 5:00 PM (Monday to Friday)

Contract Size US$ 1,000
Price Quotation INR per USD
Tick Size INR 0.0025
Minimum Initial Margin 1.75% on first day & 1% thereafter
Contracts All months with a maturity duration of 12 months
Settlement Mechanism Cash Settled in Indian Rupee

Last Trading Day 2 working days prior to the last BD of the expiry month

Final Settlement Rate RBI USDINR Reference Rate

Final Settlement Date Last working day of month, except Saturday.
Symbol USDINR EURINR GBPINR JPYINR
1 (1 unit denotes
Unit of 1 (1 unit denotes 1 (1 unit denotes 1 (1 unit denotes
1000 POUND
trading 1000 USD) 1000 EURO) 100000 YEN)
STERLING)

Margin 3% - 4% 3% - 5% 3% - 5% 4% - 5%

Calendar Rs. 400/- for a spread Rs.700/- for a Rs.1500/- for a Rs. 600 for a spread
spreads of 1 month spread of 1 month, spread of 1 month of 1 month

Final
settlement RBI reference rate RBI reference rate RBI reference rate RBI reference rate
price (FSP)
 Avg. Approx
Margin Today's
Daily Product Lot Size Value Value
Money Margin
Volatility per Lot

39 ps USD/I $ 47 47,0 3% - 1400

NR 1000 00 4%
50 ps EUR/I € 61 61,0 3% - 2500
NR 1000 00 5%
55 ps GBP/I £ 72 72,0 3% - 2500
NR 1000 00 5%
60 ps YEN/I ¥ 54 54,0 3% - 2500
* ¥100 =Rs.54
NR 1000 00 5%
10ps00* $1000 = Rs.100
Factors Affecting USDINR

Click to edit Master text styles

Second level
● Third level

● Fourth level

● Fifth level

1616
Factors Influencing Rate of Exchange

• Inflation rates
• Interest rates
• Trade Balance ( EXIM )
• Volume of international reserves with central bank
• Attractiveness of domestic investment environment.
( Stock Market )
• Economic Indicators
• Global Currency Movement
• RBI Reference Rate
Indicators for Day Trading

Global Currency Pairs Movement ( EURUSD)

Global & Indian Equity Markets (SENSEX / NIFTY )
Movement in Gold
USDINR Spot Movement
Factors Affecting FX Market

Fundamental Analysis
Thorough analysis of economic and
political data with the goal of
determining future movements in a
financial market.

Technical Analysis
An effort to forecast future market
activity by analyzing market data such
as charts, price trends, and volume.
USDINR Vs SENSEX
Strategies

• Hedging

• Jobbing

• View Based Trading

• Spread Trading
Inter currency spread
Inter calendar spread
Increasing Volatility

Robust economic growth

Policy Liberalization: ECB, FII,

FDI investments

Towards full capital account

convertibility

Liberalized Remittance Scheme

SEBI-RBI have allowed trading in currency futures for the first time in India
based on the USD / INR exchange rate.
Using CF to Hedge Currency Risk
Transaction
Transaction
An
Anexporter
exporterwho
whohas
hasexecuted
executedananexport
exportorder
orderand
and
money is to be received on 31 Mar’10, say USD
money is to be received on 30 Aug’10, say USD
1,00,000.
1,00,000.USD/INR
USD/INRwas
wasAtAt46.80
47.00when
whencontract
contractwas
was
executed.
executed.
Risk
Risk
Rupee
Rupeewill
willappreciate
appreciateand
andexport
exportwill
willrealize
realizeUSD
USD
100,000 at a rate lower than 46.80
100,000 at a rate lower than 47.00
Hedge
HedgeStrategy
Strategy
Sell
Sell100
100contracts
contractsofofeach
eachexpiry
expiry31
30Mar’10.
Aug’10. 2424
Payoff of Hedge vis-à-vis the
Transaction
Bill size = 1,00,000 USD ( 100 Lots )
Aug end 2010 future = 47.20
Sell 100 contract for 30 Aug 2010
At Expiry
Spot on Profit /Loss on Futures Profit /Loss on Physical
Expiry Market market
(Hedging/trading a/c) (Bank A/c)
46 INR 120,000 profit INR 100,000 loss
= (47.20- 46)*100*1000 =(47.00 - 46)*100*1000
48 INR 80,000 Loss INR 100,000 profit
=(48 – 47.20)*100*1000 =(48- 47.00)*100*1000
So if rupee moves either way, corporate is
hedged against currency fluctuation.
2525
View Based Trading
 Comments Strategy

Unemployment rate in the Japan rose to the highest level in more than two years,
Sell JPY/INR
according to official figures.

The euro zone recorded an external trade deficit of 32.1 billion euros (40.5
??? Sell EUR/INR
billion U.S. dollars) in 2008.

FOMC statement against dollar BUY EURINR

If European equity market crashes Sell EUR/INR

India economy is booming, stock markets on year high, trading on positive note ??? SELL USDINR

CPI Figures in UK are at all time high SELL GBPINR

Crude oil Trading at all time high ??? BUY USDINR

China's central bank increased the reserve requirement ratio (RRR) of large
??? SELL USDINR
commercial banks
 Spread Trading
Inter currency spread
Inter Calender Spread

Spreads between different contracts within the Exchange

If expressed view is – Difference to move up

• Sell near month in currency futures.

• Buy far month in currency futures.

If expressed view is – Difference to move down

• Buy near month in currency futures.

• Sell far month in currency futures
CF to Hedge MCX Gold Price Risk

Anyone who follows the gold should follow currency

markets closely. Gold prices are quoted in dollar and
generally move in opposite direction. This reciprocal
relationship between gold and the dollar is often
evident on regular basis

MCX Gold % Price Change ~ INTL. Gold % Price Change

+ MCX-SX USDINR % Price Change

MCX ~ INTL. GOLD + MCX-SX

CF to Hedge MCX Gold Price Risk

MCX-SX
MCX POSITION POSITION

VIEW - UP BUY SELL

VIEW - DOWN SELL BUY

To capitalize change in global commodity

prices, trading in currency future is must.
 Costing Across Segments

Type of Charges Cash Futures Commodity Currency

(Cost per crore) Segment Segment Segment Segment
(non-delivery)
Exchange 0.0035% 0.002% 0.00250% No charges
Transaction Fee (Rs. 350) (Rs. 200) (Rs. 250) (Rs.0)

SEBI fees 0.0001% 0.0001% No charges 0.0001%

(Rs. 10 ) (Rs. 10) (Rs 10)

Service Tax 10.3% 10.3% 10.3% 10.3%

(Rs. 36.05) (Rs.20.60) (Rs.25.75) (Rs.0)

STT/CTT 0.0125% 0.017% NA NA

(Rs.1250) (Rs.1700) (Rs.0) (Rs.0)

Margin 15%-25% 15%-25% 5%-15% 4%-6%

Stamp Duty 0.002% 0.002% 0.002% 0.002%
(Maharashtra) (Rs.200) (Rs.200) (Rs.200) (Rs.200)

Total Cost Per Crore

Turnover ( approx. )
Rs.3,096.05 Rs.1,280.60 Rs.475.75 Rs.210
Margins
( approx. )
15,00,000 Rs.15,00,000 Rs.5,00,000 Rs.4,00,000
Future Growth Drivers for FX
Futures in India
• Broad basing of market participants.

• Increase in NRI investments.

• Enhance participation from Micro, Small & Medium

Enterprises.

• Enhancing trading limits.

• Extension of trading hours.

• Increase in lot size.

• Introduction of new currency contracts on Euro, Japanese

Yen, Pound Sterling etc & cross currencies.

• Introduction of exchange traded Forex options.

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Why MCX-SX?

• Concentration of actual users – hedgers (strong relationship between commodity prices &
exchange rates).

• Experience in running an interbank FX trading platform & Futures trading platform.

• Very strong penetration in semi-urban & rural areas.

• MCX has a track record in product innovation.

• Proven state of the art technology, which is robust and scalable.

• Chain of global linkages for product expertise & best practices.

• Thought leader & trend setter in its industry.

3636
CURRENCY MARKETS CALLING
CURRENCY MARKETS
CALLING

Thank You
Ramesh.varakhedkar@mcx-sx.com

9642704619