Currency Derivatives-FAQs

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Trading currency derivative

Bishnu Kumar , Manager at ICICI Bank Follow. Full Name Comment goes here. Are you sure you want to Yes No. Sina Harsini , Student of Business Administration B. Magarita Sara , Quantitative Analyst at Metropol Credit Reference Bureau. Krishna Prasad at Student. Embeds 0 No embeds. No notes for slide. FIM - Currency Futures PPT 1. The factors driving the growth of financial derivatives are: Unpredicted movements in exchange rates requires investors tohedge these risks.

A customized OTC contract between two parties. Option does not buy or sell the underlying directly but buys or sells the right without obligation on the underlying. Swaps are agreements between two parties to exchange cash flows in the future according to a prearranged formula. Swapping of interest related cash flows between the parties in the same currency. Swapping both principal and interest between the parties, with the cash flows in one direction being in a different currency than those in the opposite direction.

A currency future, also known as FX future, is astandardized contract , traded on an exchange, to buy orsell one currency for another at a specified date in thefuture at a price that is fixed on the purchase date. Bothparties of the futures contract must fulfill their obligations onthe settlement date. Futures have some distinct advantages over forward contracts: The OTC market is restricted to Authorized Dealers banks which are licensed by RBI to deal in FX , individuals and entities with FOREX exposures.

Retail speculators with no exposure to FX cannot trade in OTC market.

Overall portfolio in HEDGING Participant Risk Underlying Position Hedging Position Importer INR will weaken Short in Fx Long in CF Long Hedger Exporter INR will strengthen Long in Fx Short in CF Short Hedger 9. Initial MarginThe Initial Margin requirement is based on a worst case loss of aportfolio of an individual client across various scenarios of pricechanges.

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Initial margin for each contract is set by the Exchange. Calendar SpreadWhen a CF position at one maturity is hedged by an offsettingposition at a different maturity, Rs. MTM value wouldbe calculated on the basis of the last half an hour weightedaverage traded price of the futures contract. National Securities Clearing Corporation Limited NSCCL undertakes clearing and settlement of all trades executed on thecurrency derivatives segment of the exchange.

It also acts aslegal counterparty to all trades on the currency derivativessegment and guarantees their financial settlement. Start clipping No thanks. You just clipped your first slide! Clipping is a handy way to collect important slides you want to go back to later.

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