A Study On Currency Derivatives

A STUDY ON CURRENCY DERIVATIVES
A Project Report Submitted in Partial Fulfillment for the Award Of POST GRADUATE DIPLOMA IN MANAGEMENT (Batch 2011-2013)
SUBMITTED BY Mr. Deepak sharma PGDM 2011-13 Regd. No.-7024 (Faculty guide) Dr. P. Chakravarthi (Director Academics) Prof. Mir Irfan ul Haq
VISHWA VISHWANI INSTITUTE OF SYSTEM AND MANAGEMENT HYDERABAD
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Declaration
I, Deepak Sharma hereby declare that this short-term project titled A STUDY ON CURRENCY DERIVATIVES is an original work done by me under the supervision of Mr. Naveen Dhonte, Branch Manager of Future Capital Holdings Hyderabad. This project report or any part thereof has not been submitted for any other degree to any other institute or college. This project is the result of sincere efforts by me, wherein the Endeavour to complete up with best possible result.
Signature of the student (Deepak Sharma) Date:
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Certificate from the organization
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Faculty Guide Certificate
I Prof. __________________ certify Mr/Mrs. __________________that the work done and the training undertaken by him/her is genuine to the best of my knowledge and acceptable.
Signature Date :
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Acknowledgement
I deeply acknowledge the guidance of my faculty guide Dr. P. chakravarthi (Prof. of Vishwa Vishwani Institute of System & Management Hyderabad) who has firmly inculcated the everlasting and invaluable teachings in me and made me get the deeper insight of knowledge and inspiration to realize this unprecedented project work. Ineffable are my feelings desperately indebted to him, a vivacious and enviable personality whose contribution is praiseworthy. I believe that anyone can take a leaf from his book. I cannot express my gratitude in words to Naveen Dhonti (Manager of FUTURE CAPITAL HOLDING) my company guide for the rigorous proof reading and sharing his precious time. He is the person who has given me timely feedback, suggestion and motivated me to embark on this strenuous project. I am very grateful to my institution who has invariably been the beacon of my advancement through their timely appreciation.
Signature of the student (Name of the student) Date : Place:
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INDEX
Chapter.No. Content Page No.
Chapter 1 Chapter 2
Introduction Company Profile Industry Profile Literature Review About Topic
7-10 11-21 22-25 26-27 28-50
Chapter 3 Chapter 4
Research Methodology 51 Data Analysis & Interpretation 52-67
Chapter 5
Findings Recommendations Conclusions
68 69 70
Bibliography
Books / Articles referred Websites referred
71
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CHAPTER 1
INTRODUCTION TO CURRENCY DERIVATIVES
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. For example, If any Indian firm borrows funds from international financial market in US dollars for short or long term then at maturity the same would be refunded in particular agreed currency along with accrued interest on borrowed money. It means that the borrowed foreign currency brought in the country will be converted into Indian currency, and when borrowed fund are paid to the lender then the home currency will be converted into foreign lenders currency. an exchange of one currency for another. The price of one currency in terms of other currency is known as exchange rate. 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 the 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,
VISHWA VISHWANI INSTITUTE OF SYSTEM AND MANAGEMENT HYDERABAD Page 7
Thus, the currency units of a country involve
Specifically in developed countries, the currency risk has become substantial for many business firms. As a result, these firms are increasingly turning to various risk hedging products like foreign currency futures, foreign currency forwards, foreign currency options, and foreign currency swaps.
OBJECTIVES OF THE STUDY:

The basic idea behind undertaking Currency Derivatives project is to gain knowledge about currency future market. To understand the ways of considering currency future price. To analyze different currency future derivatives. To analyze the hedging in currency future.
HISTORY OF CURRENCY DERIVATIVES

Currency futures were first created at the Chicago Mercantile Exchange (CME) 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. The abandonment of the Bretton Woods agreement resulted in currency values being allowed to float, increasing the risk of doing business. 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. Today, CME offers 41 individual FX futures and 31 options contracts on 19 currencies, all of which trade electronically on the exchanges CME Glob ex platform. It is the largest regulated marketplace for FX trading. Traders of CME FX futures are a diverse group that includes multinational corporations, hedge funds, commercial banks, investment banks, financial managers, commodity trading advisors (CTAs), proprietary
trading firms; currency overlay managers and individual investors. They trade in order to transact business, hedge against unfavorable changes in currency rates, or to speculate on rate fluctuations.
UTILITY OF CURRENCY DERIVATIVES

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. 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. Alternatively, they may wish to obtain a foreign currency forward buying contract, expecting to sell the appreciating currency at a high future rate. In either case, they are exposed to the risk of currency fluctuations in the future betting on the pattern of the spot exchange rate adjustment consistent with their initial expectations. The most commonly used instrument among the currency derivatives are currency forward contracts. 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. The contracts guarantee the future conversion rate
between two currencies and can be obtained for any customized amount and any date in the future. They normally do not require a security deposit since their purchasers are mostly large business firms and investment institutions, although the banks may require Compensating deposit balances or lines of credit. Their transaction costs are set by spread between bank's buy and sell prices. Exporters invoicing receivables in foreign currency are the most frequent users of these contracts. They are willing to protect themselves from the currency depreciation by locking in the future currency conversion rate at a high level. A similar foreign currency forward selling contract is obtained by investors in foreign currency denominated bonds (or other securities) who want to take advantage of higher foreign that domestic interest rates on government or corporate bonds and the foreign currency forward premium. They hedge against the foreign currency depreciation below the forward selling rate which would ruin their return from foreign financial investment. Investment in foreign securities induced by higher foreign interest rates and accompanied by the forward selling of the foreign currency income is called a covered interest arbitrage
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CHAPTER -2 COMPANY PROFILE

COMPANY INTRODUCTION:
Future Capital Holdings Limited (FCH) is a provider of financial services across retail businesses and wholesale credit business. The company is preferred partners in helping its clients succeed in their businesses by providing innovative product solutions, high level of convenience & service supported by robust technology. The company believes that MSMEs are largely underserved in India and hence this is a large business opportunity. Financing of MSMEs is the largest component of the businesses done by the company, which is over 40% of the company's business. The company is also capitalizing on the growing consumption in India through financing Consumer durables and two wheelers. The company also provides Gold Loans, Vehicle loans, and Home Loans. Future Capital also provides debt finance and working capital finance to corporate against identified projects against security of receivables and inventories of the company. The cash flows from the projects are escrowed to Future Capital. The company also provides financing in the form of term loans to promoters of select corporate with proven track record against security of listed stock with adequate liquidity and value. The company further believes that retail business provides ample opportunities for growth, provides for ample diversification over a larger pool of customers, and finally gives us the opportunity to meet multiple needs of the customer across lending, investments, insurance and broking. Hence over the last 2 years, the company has significantly increased retail portfolio as a percentage of the total portfolio, from 18% of the loan portfolio to 45% as of now, and plans to grow this further. The company has a team of over 1000 employees, who are experienced in the financial industry. The
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company's senior management has excellent track records and each of them have between 15-20 years of experience in financial services. FCH has invested in People, Processes and Technologies and has placed a strong Credit and Risk Management Team. The credit team is a separate vertical within the organization, which undertakes detailed credit analysis, and processes files after checking credit performance with credit bureaus.
Companys Vision:
To capitalize on growing consumption in India, the key driver of the Indian economy and support the growth of the MSME enterprises To grow into a significant financial conglomerate and build businesses of retail loans, corporate loans, Wealth Management & Equity broking To be a preferred partner in helping our clients succeed in the rapidly evolving financial markets by providing innovative product solutions, high level of convenience & service supported by robust technology.&
Growth Path
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LEADERSHIP IN FUTURE CAPITAL HOLDINGS

INDEPENDENT DIRECTORS Shailesh Haribhakti Pradeep Mukharjee
Anil Singhvi
GN Bajpai
NC Singhal
Executive management
V.Vaidyanathan (vice-chairman and Managing Director) Apul Nayar (CEO- Retail Finance services) Shailesh Srirali (CEO-Wholesale credit) Aahok Shinkar (CEO & Head corporate center)
Pankaj Sanklecha (Chief Risk Officer)
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PRODUCT, SERVICES AND DISTRIBUTION OF COMPANY

Through Comprehensive Products and Services Suite, FCH has been able to address the Four Key Needs of a Consumer.
Borrowing Needs:
Protection Needs:
Mortgages (for SMEs) Gold Loans Consumer Durable Loans Two Wheeler Loans Home Loans Auto Loans
Life Insurance General Insurance Auto Insurance Health insurance Personal accident insurance Travel insurance
Investment Needs:
Gold Coins Property Broking Mutual Funds Structured products Real Estate Funds Equity Broking Commodity Broking
Planning Needs:
Estate Planning- Creation of Private Trust Wills Creation Real estate Advisory Wealth Management Financial Planning
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FCH-Lines of Business
Loan Against Property Loan Against Gold Consumer Durable Loan Home Loan Two Wheeler Loan Auto Loan Wealth Manager & Broking Wholesale Credit Wholesale Loan Syndication
WHOLESALE BUSINESS BBUSINESS RETAIL BUSINESS
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Future Capital Branch Network (By Feb 29, 2012)

Through the Extensive Branch Network, FCH has been able to reach to the Customers across most of the states and major cities (Tier -1, Tier -2) in India. There are total 185 branches of future capital across the country. Branch City Delhi & NCR Bhopal Chandigarh: Dehradun Jaipur Jalandhar: Jodhpur Lucknow Ludhiana Udaipur Ahmadabad Ajmer Amritsar: Kotta Branch City Mumbai& Thane Pune Bangalore Hyderabad Baroda Kolkata Bhubaneswar Coimbatore Indore Nasik Nagpur Raipur Rajkot Surat: Salem Vellore Chennai Vizag
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Growth of branches over the quarters
200 180 160 140 120 100 80 61 60 40 20 0 Q3 FY 11 Q4 FY 11 Q1 FY 12 Q2 FY 12 Q3 FY 12 27 89 134 173
185
Q4 FY 12
The Company intends to expand the branch network up to ~350 branches by FY12-13 The branch network will continue to be dominated by the Gold Loan branches The expansion focus will be concentrated around tier-1 and tier-2 cities
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Manpower:
Growth of Manpower
1200 1043 1000 843 800 600 435 400 200 0 299 455 579 497 510 636 748 970 895
Business Function Wise Employee Breakup
120 90 6
827 Retail Business Corporate function Whole sale Business Risk Functin
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Employee growth has been driven by the Business Aspirations of growing the loan book in a steady manner and the Expansion in the Retail Business Reach & Operations
Shareholding
(Shareholding Pattern as of 31 Dec 2011)
0.60% 2.20% 1.90% 0.70%
11.30%
22.20% 61%
Promoters FII Others
Individuals Mutule funds
Bodies Corporates Financial Institutions
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Particulars No of Shares
No of Shareholders
Value 64,798,484
1,47,603
Facevalue of Shares
EPS-H1-FY11-12
10
12.20
EPS-FY10-11
The Individuals include Non Residential Indians (Repatriable) and Non Residential Indians (Non-Repatriable)
4.87
Financial Institutions include Banks, Insurance Companies and other Financial Institutions Others include Clearing Members and Trusts The stock is listed on NSE (stock code: FCH) and BSE (stock code: 532938)
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LIST OF COMPETITORS
There is the list of competitors is given below which is made on the basis of market capital, sales turn over, net profit and total assets and current share price of the company.
(As on 22nd June 2012)

Name Indiabulls Last price 224.95 Market cap. (Rs. In Cr.) 7,08.19 2,557.98 1,840.01 1,467.19 1,423.00 1,161.80 994.66 Sales Turnover 2,929.26 206.95 603.23 46.43 1.17 47.49 238.54 Net Profit 723.79 68.64 63.30 56.30 -0.71 42.76 55.26 Total Assets 17,797.15 4,919.13 1,554.51 512.58 660.09 651.91 3,303.65
Edelweiss 33.75 Cap India Infoline 63.65 Motilal Oswal Delta Corp Pilani Invest Future Capital 101.10 63.55 1,469.00 153.50
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INDUSTRY PROFILE INTRODUCTION OF FOREIGN EXCHANGE MARKET

The foreign exchange market (fx or forex) as we know it today originated in 1973. However, money has been around in one form or another since the time of Pharaohs. The Babylonians are credited with the first use of paper bills and receipts, but Middle Eastern moneychangers were the first currency traders who exchanged coins from one culture to another. During the middle ages, the need for another form of currency besides coins emerged as the method of choice. These paper bills represented transferable third-party payments of funds, making foreign currency exchange trading much easier for merchants and traders and causing these regional economies to flourish. From the infantile stages of forex during the Middle Ages to WWI, the forex markets were relatively stable and without much speculative activity. After WWI, the forex markets became very volatile and speculative activity increased tenfold. Speculation in the forex market was not looked on as favorable by most institutions and the public in general. The Great Depression and the removal of the gold standard in 1931 created a serious lull in forex market activity. From 1931 until 1973, the forex market went through a series of changes. These changes greatly affected the global economies at the time and speculation in the forex markets during these times was little, if any. Timeline of Foreign Exchange 1944 Bretton Woods Accord is established to help stabilize the global economy after World War II. 1971 Smithsonian Agreement established to allow for greater fluctuation band for currencies. 1972 European Joint Float established as the European community tried to move away from its dependency on the U.S. dollar.
1973 Smithsonian Agreement and European Joint Float failed and signified the official switch to a free-floating system. 1978 The European Monetary System was introduced so other countries could try to gain independence from the U.S. dollar. 1978 Free-floating system officially mandated by the IMF. 1993 European Monetary System fails making way for a world-wide free-floating system
Major currency pairs

The most traded currency pairs in the world are called the Majors. The list includes following currencies: Euro (EUR), US Dollar (USD), Japanese Yen (JPY), Pound Sterling (GBP), Australian Dollar (AUD), Canadian Dollar (CAD), and the Swiss Franc (CHF). These currencies follow free floating method of valuation. Amongst these currencies the most active currency pairs are: EURUSD, USDJPY, GBPUSD, AUDUSD, CADUSD and USDCHF. According to Bank for International Settlement (BIS) survey of April 2010, the share of different currency pairs in daily trading volume is as given below: CURRENCY EURUSD USDJYP GBPUSD AUD/USD USD/CHF USD/CAD SHARE(%) 28 14 9 6 4 5
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USD/OTHERS OTHERS/OTHERS TOTAL
18 16 100
Top Foreign Exchange Trading Center in the World

Forex market trading is truly a global phenomenon as well as the largest financial market in the world with over $4 trillion changing hands on a daily basis. Looking at the most recent Bank of International Settlements foreign-exchange report, published every three years, we get a clear view of where most of the daily forex trading volume takes place. Many of the usual suspects like the UK and USA are found at the top of the list for the largest fx trading centers while others such as Singapore may be more surprising to many. Below is a list of the 8 largest forex trading centers in the world. (Data from Bank of International Settlements (BIS) foreign-exchange report as of April 2010, All totals in US dollars) S.N. Country Currency (symbol) Average daily Trading volume ($ in billions) 1 2 3 4 5 6 7 8 9 United Kingdom United States Japan Singapore Switzerland Hong Kong Australia France India GBP Pound USD- US Dollar JPY- Japanese Yen SGD- Dollar CHF- Swiss franc HKD- Dollar AUD- Dollar EUR- Euro INR- India Rupee 1854 904 312 266 263 238 192 150 Percentage of daily Global Forex volume (%) 37 18 6 5 5 5 4 3 0.9
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INTRODUCTION TO INDIAN FOREIGN EXCHANGE MARKET The foreign exchange market in India started in earnest less than three decades ago when in 1978 the government allowed banks to trade foreign exchange with one another. Today over 70% of the trading in foreign exchange continues to take place in the inter-bank market. The market consists of over 90 Authorized Dealers (mostly banks) who transact currency among themselves and come out square or without exposure at the end of the trading day. Trading is regulated by the Foreign Exchange Dealers Association of India (FEDAI), a self regulatory association of dealers. Since 2001, clearing and settlement functions in the foreign exchange market are largely carried out by the Clearing Corporation of India Limited (CCIL) that handles transactions of approximately 3.5 billion US dollars a day, about 80% of the total transactions. The liberalization process has significantly boosted the foreign exchange market in the country by allowing both banks and corporations greater flexibility in holding and trading foreign currencies. The Sodhani Committee set up in 1994 recommended greater freedom to participating banks, allowing them to fix their own trading limits, interest rates on FCNR deposits and the use of derivative products. The growth of the foreign exchange market in the last few years has been nothing less than momentous. In the last 5 years, from 2000-01 to 2005-06, trading volume in the foreign exchange market (including swaps, forwards and forward cancellations) has more than tripled, growing at a compounded annual rate exceeding 25%. The growth of foreign exchange trading in India between 1999 and 2006. The inter-bank forex trading volume has continued to account for the dominant share (over 77%) of total trading over this period, though there is an unmistakable downward trend in that proportion. (Part of this dominance, though, result s from double-counting since purchase and sales are added separately, and a single inter-bank transaction leads to a purchase as well as a sales entry.) This is in keeping with global patterns.
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LITERATURE REVIEW
So far researchers have carried out a little work on the prospectus and problems of currency future in India, but the suggestions based on the material published so far are mentioned hereunder: V D M V Lakshmi (2008) have quoted the decision taken by RBI to allow exchange traded currency future in India as a gift to traders and investors as well since it is a standardize and transparent instrument to hedge their exposure to the currency risk. He also described how the currency future can be used by market participant to cover the risk due to fluctuation in exchange rates in currency market besides the legal framework and sanction approval procedure from authorized agencies. Nirvikar Singh (2008) stated that off-shore non-deliverable forward markets have existed in India and Reserve Bank of India also oversees domestic currency forward trading but exchange traded currency future were simply banned. However, in June 2007, trading of rupee future started on Dubai Gold and Commodities Exchange prompting the RBI to set up a Committee to look into this possibility for India. The paper described that during 2007 rupee future trading on DGEX and despite the fact that it was not controlled by the RBI, so there were no restriction on trading and participation beyond those that would be normal for an exchange and it clearly seemed that the new market was being used for short-term hedging, probably by parties engaged in international trade. He concluded with stated the RBI role should be of macroeconomic management not microeconomic details if India is serious about financial sector development. S. B. Kamashetty (2008) threw a light on trading mechanism of currency future with the average daily traded volume in the global forex market and in India as well. He also mentioned the guidelines for the currency future trading with its flip slide and shortcomings. The author also suggested granting the permission in dealing with threefour major currencies besides USD, in which India has strong underlying traded.
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Krishnan Sitaraman and Satish Prabhu (2010) described the currency future with mitigating exchange Rate risk with illustrative support. They have also showed the progress, operational aspect and new developments of currency future in India. The paper also suggested introducing the currency option in the market. Padmalatha Suresh (2010) has admitted that currency future helped the
undernourished Indian financial markets in a big way and described how exchange traded futures are the answer to preventing systematic risks in the future. He also thanked to the RBI decision to extend the currency futures market to include three more currency pairs as earlier stated financial advisors were saying and appears that currency options, as natural extension at the currency future market, are also on the anvil. He also reviewed the performance of currency futures in December, 2009 since the inception of trading, and presents some interesting insights i.e. both OTC markets ( INR and other currencies ) and currency futures ( only INR/USD ) traded on NSE and MCX showed a remarkable increase in the turnover of derivatives as a percentage of OTC forward turnover. The paper also quoted some reasons for inefficient and illiquid market in India such as inadequacy of financial firms, Regulators and structured barriers, Frictions caused by taxes and suggested that currency futures are not an end in themselves but more positive actions from the regulators and government are expected to nourish the market without being overprotective.
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CURRENCY FUTURE IN INDIA

In India the Forex future currency trade can be carried out through recognized stock markets Bombay Stock Exchange, National Stock Exchange and Multi Commodity Exchange. National Stock Exchange has started Forex future currency trading from August 29, 2008. NSE is the first exchange in India to have obtained an in principle approval from Security and Exchange Board of India to set up currency derivatives segment. BSE is the third exchange in India to have obtained an in principle approval from Security and Exchange Board of India after NSE and MCX. In brief the history of Trading in Currency Future contracts in India can be traced back to the year 2008 when various stock exchanges started trading in currency futures on the following dates: National Stock Exchange started its operation on August 29, 2008 Bombay Stock Exchange started its operation on October 1, 2008 Multi Commodity Exchange started its operation on October 7, 2008 United Stock Exchange launched its operations on September 20, 2010. (MCX got the approval from SEBI before BSE but it could start trading in Currency future after BSE) This shows that trading in currency futures in India is not very old rather it is at the stage of infancy.
About Indian forex market:

In terms of daily turnover in 2010, India is the 16th largest market in the world. Indias market share in World FX Market increased from 0.1 % in 1998 to 0.9% in 2010. As per Latest RBI Data, Daily FX Indian Market volumes are $50 Billion in 2009. Indian Currency Futures Market The Reserve Bank of India permitted Exchange Traded Currency Futures in 2008. The National Stock Exchange of India (NSE) was the first to launch Currency Futures on 29 August 2008. The Bombay Stock Exchange (BSE) and MCX Stock Exchange (MCX-SX) started offering Currency Futures trading in September and October 2008 respectively.
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United Stock Exchange of India is the upcoming exchange promoted by Bank of India, Federal Bank, MMTC & Jaypee Capital along with 9 other banks. The FX market in India is regulated by The Foreign Exchange Management Act, 1999 or FEMA, Presently Daily Turnover on both exchanges averages Rs. 35000 crores. Banks are active participants on the exchanges. NRIs & FIIs are not permitted to trade as of now. Currency markets offer investors a step into the world of Forex. The global increase in trade and foreign investments has led to inter-connection of many national economies. This and the resulting fluctuations in exchange rates, has created a huge international market for Forex rendering investors another exciting avenue for trading. The Forex market offers unmatched potential for profitable trading in any market condition or any stage of the business cycle. Policy-makers in India are keeping a close eye on Currency Futures. The obvious reasons are to keep a tab on the speculative activities by traders and arbitragers who do not have any underlying physical exposure in this market and trade purely for speculation. With speculation increasing, there are concerns that excessive speculation may adversely affect both Futures and the underlying Spot markets. Considering these developments, attempts need to be made to study the pattern of trade and the impact of Futures on Forwards and Spot.
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INTRODUCTION TO FINANCIAL DERIVATIVES

The term Derivative stands for a contract whose price is derived from or is dependent upon an underlying asset. The underlying asset could be a financial asset such as currency, stock and market index, an interest bearing security or a physical commodity. Today, around the world, derivative contracts are traded on electricity, weather, temperature and even volatility. According to the Securities Contract Regulation Act, (1956) the term derivative includes: (i) 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; (ii) A contract which derives its value from the prices, or index of prices, of underlying Securities. By far the most significant event in finance during the past decade has been the extraordinary development and expansion of financial derivativesThese instruments
enhances the ability to differentiate risk and allocate it to those investors most able and willing to take it- a process that has undoubtedly improved national productivity growth and standards of livings.
Alan Greenspan, Former Chairman. US Federal Reserve Bank
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The past decades has witnessed the multiple growths in the volume of international trade and business due to the wave of globalization and liberalization all over the world. As a result, the demand for the international money and financial instruments increased significantly at the global level. In this respect, changes in the interest rates, exchange rate and stock market prices at the different financial market have increased the financial risks to the corporate world. It is therefore, to manage such risks; the new financial instruments have been developed in the financial markets, which are also popularly known as financial derivatives. DEFINITION OF FINANCIAL DERIVATIVES A word formed by derivation. It means, this word has been arisen by derivation. Something derived; it means that some things have to be derived or arisen out of the underlying variables. market. Derivatives are financial contracts whose value/price is independent on the behavior of the price of one or more basic underlying assets. These contracts are legally binding agreements, made on the trading screen of stock exchanges, to buy or sell an asset in future. These assets can be a share, index, interest rate, bond, rupee dollar exchange rate, sugar, crude oil, soybeans, cotton, coffee and what you have. A very simple example of derivatives is curd, which is derivative of milk. The price of curd depends upon the price of milk which in turn depends upon the demand and supply of milk. The Underlying Securities for Derivatives are: Commodities: Castor seed, Grain, Pepper, Potatoes, etc. Precious Metal : Gold, Silver Short Term Debt Securities : Treasury Bills Interest Rates
A financial derivative is an indeed derived from the financial
Common shares/stock Stock Index Value : NSE Nifty Currency : Exchange Rate
TYPES OF FINANCIAL DERIVATIVES

Financial derivatives are those assets whose values are determined by the value of some other assets, called as the underlying. Presently there are Complex varieties of derivatives already in existence and the markets are innovating newer and newer ones continuously. For example, various types of financial derivatives based on their different properties like, plain, simple or straightforward, composite, joint or hybrid, synthetic, leveraged, mildly leveraged, OTC traded, standardized or organized exchange traded, etc. are available in the market. Due to complexity in nature, it is very difficult to classify the financial derivatives, so in the present context, the basic financial derivatives which are popularly in the market have been described. In the simple form, the derivatives can be classified into different categories which are shown below:
DERIVATIVES
Financials
Commodities
Basics 1. Forwards 2. Futures 3. Options
Complex 1. Swaps 2.Exotics (Non STD)
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4. Warrants and Convertibles 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 or 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 and so on. In financial derivative, the underlying instrument may be treasury bills, stocks, bonds, foreign exchange, stock index, cost of living 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. Another way of classifying the financial derivatives is into basic and complex. In this, forward contracts, futures contracts and option contracts have been included in the basic derivatives whereas swaps and other complex derivatives are taken into complex category because they are built up from either forwards/futures or options contracts, or both. In fact, such derivatives are effectively derivatives of derivatives.
Derivatives are traded at organized exchanges and in the Over The Counter ( OTC ) market :
Derivatives Trading Forum
Organized Exchanges
Over The Counter
Commodity Futures Financial Futures Options (stock and index) Stock Index Future
Forward Contracts Swaps
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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 riskthe 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 vulnerability. DERIVATIVES INTRODUCTION IN INDIA The first step towards introduction of derivatives trading in India was the promulgation of the Securities Laws (Amendment) Ordinance, 1995, which withdrew the prohibition on options in 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, submitted its report on March 17, 1998. 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. To begin with, SEBI approved trading in index futures contracts based on S&P CNX Nifty and BSE-30 (Sensex) index. 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.
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INTRODUCTION TO CURRENCY FUTURE

Currency futures are contracts just like any other derivatives, stock, index etc. Unlike the stock, the underlying asset is currency. The value of the currencies determines the value of currency derivatives. It is a futures contract to exchange one currency for another at a specified date in the future at a price (exchange rate) that is fixed on the date of purchase. It is also known as foreign exchange future or FX future. It is a forex derivative. As per the guidelines of RBI, currency future means a standardized foreign exchange derivative contract traded on are cognized stock exchange to buy or sell one currency against another on a specified future date, at a price specified on the date of contract, but does not include a forward. contract. Currency Futures market means the market in which currency futures are traded. Because currency futures contracts are marked-to-market daily, investors can exit their obligation to buy or sell the currency prior to the contract's delivery date. This is done by closing out the position. With currency futures, the price is determined when the contract is signed, just as it is in the forex market, only and the currency pair is exchanged on the delivery date, which is usually sometime in the distant future. However, most participants in the futures markets are speculators who usually close out their positions before the date of settlement, so most contracts do not tend to last until the date of delivery. Currency futures are traded according to the rules and regulations that are drawn by the futures exchanges. The trading can be done either on the floors of these futures exchanges or these exchanges can facilitate electronic trading for its members. The Chicago Mercantile Exchange is the world's largest and most successful exchange for trading in currency futures, with offices in Chicago, New York, Washington, London and Tokyo. Like all futures contracts, currency futures are standardized contracts too. The futures exchange sets the contract specifications. However, only the exchange rate can be negotiated by the buyers and sellers. The remaining specifications, such as defining the underlying currency, trading unit and delivery month, are set by the futures exchange.
The following are the obvious benefits of currency trading in India: - Easy Accessibility Small Investors would get an easy access to currency futures trading on the popular exchanges - Easy Affordability Margins are very low and the contract size is very small - Low Transaction Cost As opposed to the high pay-out of commissions in overseas forex trading, currency futures carries low costs for investors - Transparency - It is possible for you to verify trade details on NSE if you have a doubt that the broker has tried to cheat you - Counter-party default risk - All the trades done on the recognized exchanges are guaranteed by the clearing corporations and hence it eliminates the risks associated with counter party default. NSCCL (National Securities Clearing Corporation Limited) carries out all the notation, clearing and settlement process of currency futures trading - Standardized Contracts - Exchange Traded currency futures are standardized in respect of lot size ($1000) and maturity (12 monthly contracts). Retail investors with their limited resources would find it tremendously beneficial to take positions in standardized USD INR futures contracts. Moreover, the currency futures market is used by some companies for hedging. These companies either purchase currency futures for their future payables, or sell the futures on currencies for their future receipts. Speculators may also buy or sell futures on a foreign currency as a protection against the strengthening or weakening of the US dollar. So, speculators may be able to earn profit from the rise or fall of these exchange rates.
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Features
Standardized foreign exchange derivative contract. Traded on a recognized stock exchange. Price and date of delivery are predetermined. Margin Requirements. Eliminate counter party risk. Transparency in pricing Settlement through clearing house. Underlying is the exchange rates. Traded in a limited number of currencies. Contracts are quoted and settled in Indian Rupees. The maturity of the contracts shall not exceed 12 months. Settled on a specific future date known as settlement date. Only resident Indians are allowed to trade in currency futures. Future price = spot price + cost of carry. The Final settlement price (FSP) would be the RBI reference rate on the last trading day. No person other than a person resident in India' as defined in section 2(v) of the Foreign Exchange Management Act, 1999 (Act 42 of 1999) shall participate in the currency futures market. All non-deposit taking NBFCs with asset size of Rs. 100 crore and above may participate in the designated
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Futures terminology
Some of the common terms used in the context of currency futures market are given below: Spot price: The price at which the underlying asset trades in the spot market. The transaction in which securities and foreign exchange get traded for immediate delivery. Since the exchange of securities and cash is virtually
immediate, the term, cash market, has also been used to refer to spot dealing. In the case of USDINR, spot value is T + 2. Futures price: The current price of the specified futures contract. 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 as the Value date / Final Settlement date of each contract. The last business day would be taken to be 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: Also called Last Trading Day, it is the day on which trading ceases in the contract; and is two working days prior to the final settlement date. Contract size: The amount of asset that has to be delivered under one contract. Also called as lot size. In the case of USDINR it is USD 1000; EURINR it is EUR 1000; GBPINR it is GBP 1000 and in case of JPYINR 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 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. Maintenance Margin: Members account are debited or credited on a daily basis. In turn customers account are also required to be maintained at a certain level, usually about 75 percent of the initial margin, is called the maintenance margin. This is somewhat lower than the initial margin. This is set to ensure that the balance in the margin account never becomes negative. If the balance in the margin account falls below the maintenance margin, the investor receives a margin call and is expected to top up the margin account to the initial margin level before trading commences on the next day.
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NEED FOR EXCHANGE TRADED CURRENCY FUTURES With a view to enable entities to manage volatility in the currency market, RBI on April 20, 2007 issued comprehensive guidelines on the usage of foreign currency forwards, swaps and options in the OTC market. At the same time, RBI also set up an Internal Working Group to explore the advantages of introducing currency futures. The Report of the Internal Working Group of RBI submitted in April 2008, recommended the introduction of exchange traded currency futures. 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 transact at a forward price on a future date. On the maturity date, the obligation of the individual equals the forward price at which the contract was executed. Except on the maturity date, no money changes hands. On the other hand, in the case of an exchange traded futures contract, mark to market obligations is settled on a daily basis. Since the profits or losses in the futures market are collected / paid on a daily basis, the scope for building up of mark to market losses in the books of various participants gets limited. The counterparty risk in a futures 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 classes of investors whether large or small to participate in the futures market. The transactions on an Exchange are executed on a price time priority ensuring that the best price is available to all categories of market participants irrespective of their size. Other advantages of an Exchange traded market would be greater transparency, efficiency and accessibility.
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RATIONALE FOR INTRODUCING CURRENCY FUTURE Futures 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 the 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 by entering into an equal and opposite transaction. The standardized items in a futures contract are: Quantity of the underlying Quality of the underlying The date and the month of delivery The units of price quotation and minimum price change Location of settlement
The rationale for introducing currency futures in the Indian context has been outlined in the Report of the Internal Working Group on Currency Futures (Reserve Bank of India, April 2008) as follows; The rationale for establishing the currency futures market is manifold. Both residents and non-residents purchase domestic currency assets. If the exchange rate remains unchanged from the time of purchase of the asset to its sale, no gains and losses are made out of currency exposures. But if domestic currency depreciates (appreciates) against the foreign currency, the exposure would result in gain (loss) for residents
Purchasing foreign assets and loss (gain) for non residents purchasing domestic assets. In this backdrop, unpredicted movements in exchange rates expose investors to currency risks. Currency futures enable them to hedge these risks. Nominal exchange rates are often random walks with or without drift, while real exchange rates over long run are mean reverting. As such, it is possible that over a long run, the incentive to hedge currency risk may not be large. However, financial planning horizon is much smaller than the long-run, which is typically inter-generational in the context of exchange rates. As such, there is a strong need to hedge currency risk and this need has grown manifold with fast growth in cross-border trade and investments flows. The argument for hedging currency risks appear to be natural in case of assets, and applies equally to trade in goods and services, which results in income flows with leads and lags and get converted into different currencies at the market rates. Empirically, changes in exchange rate are found to have very low correlations with foreign equity and bond returns. This in theory should lower portfolio risk. Therefore, sometimes argument is advanced against the need for hedging currency risks. But there is strong empirical evidence to suggest that hedging reduces the volatility of returns and indeed considering the episodic nature of currency returns, there are strong arguments to use instruments to hedge currency risks.
Uses of Currency Futures Hedging:

Presume Entity A is expecting a remittance of USD 1000 on 27 August 09. It wants to lock in the foreign exchange rate today so that the value of inflow in Indian rupee terms is safeguarded. The entity can do so by selling one contract of USD-INR futures at NSE since one contract is for USD 1000. Presume that the current spot rate is Rs. 43 and USDINR 27 Aug 09 contract is trading at Rs. 44.2500. Entity A shall do the following: Sell one August contract today. The value of the contract is Rs. 44,250. Let us assume the RBI reference rate on August 27, 2009 is Rs.44.0000. The entity shall sell on August 27, 2009, USD 1000 in the spot market and get Rs. 44,000. The futures contract will settle at Rs. 44.0000 (final settlement price = RBI reference rate).
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The return from the futures transaction would be Rs. 250, i.e. (Rs. 44,250 Rs. 44,000). As may be observed, the effective rate for the remittance received by the entity A is Rs. 44.2500 (Rs. 44,000 + Rs. 250)/1000, while spot rate on that date was Rs. 44.0000. The entity was able to hedge its exposure.
Speculation: Bullish, buy futures

Take the case of a speculator who has a view on the direction of the market. He would like to trade based on this view. He expects that the USD-INR rate presently at Rs.42, is to go up in the next two-three months. How can he trade based on this belief? In case he can buy dollars and hold it, by investing the necessary capital, he can profit if say the Rupee depreciates to Rs.42.50. Assuming he buys USD 10000, it would require an investment of Rs.4, 20,000. If the exchange rate moves as he expected in the next three months, then he shall make a profit of around Rs.10000. This works out to an annual return of around 4.76%. It may please be noted that the cost of funds invested is not considered in computing this return. A speculator can take exactly the same position on the exchange rate by using futures contracts. Let us see how this works. If the INR- USD is Rs.42 and the three month futures trade at Rs.42.40. The minimum contract size is USD 1000. Therefore the speculator may buy 10 contracts. The exposure shall be the same as above USD 10000. Presumably, the margin may be around Rs.21, 000. Three months later if the Rupee depreciates to Rs. 42.50 against USD, (on the day of expiration of the contract), the futures price shall converge to the spot price (Rs. 42.50) and he makes a profit of Rs.1000 on an investment of Rs.21, 000. This works out to an annual return of 19 percent. Because of the leverage they provide, futures form an attractive option for speculators.
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Speculation: Bearish, sell futures

Futures can be used by a speculator who believes that an underlying is over-valued and is likely to see a fall in price. How can he trade based on his opinion? In the absence of a deferral product, there wasn't much he could do to profit from his opinion. Today all he needs to do is sell the futures. Let us understand how this works. Typically futures move correspondingly with the underlying, as long as there is sufficient liquidity in the market. If the underlying price rises, so will the futures price. If the underlying price falls, so will the futures price. Now take the case of the trader who expects to see a fall in the price of USD-INR. He sells one two-month contract of futures on USD say at Rs. 42.20 (each contact for USD 1000). He pays a small margin on the same. Two months later, when the futures contract expires, USD-INR rate let us say is Rs.42. On the day of expiration, the spot and the futures price converges. He has made a clean profit of 20 paise per dollar. For the one contract that he sold, this works out to be Rs.2000.
Arbitrage:
Arbitrage is the strategy of taking advantage of difference in price of the same or similar product between two or more markets. That is, arbitrage is striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices. If the same or similar product is traded in say two different markets, any entity which has access to both the markets will be able to identify price differentials, if any. If in one of the markets the product is trading at higher price, then the entity shall buy the product in the cheaper market and sell in the costlier market and thus benefit from the price differential without any additional risk. One of the methods of arbitrage with regard to USD-INR could be a trading strategy between forwards and futures market. As we discussed earlier, the futures price and forward prices are arrived at using the principle of cost of carry. Such of those entities who can trade both forwards and futures shall be able to identify any mis-pricing
between forwards and futures. If one of them is priced higher, the same shall be sold while simultaneously buying the other which is priced lower. If the tenor of both the contracts is same, since both forwards and futures shall be settled at the same RBI reference rate, the transaction shall result in a risk less profit.
TRADING PROCESS AND SETTLEMENT PROCESS

Like other future trading, the future currencies are also traded at organized exchanges. The following diagram shows how operation take place on currency future market:
TRADER (BUYER) TRADER (SELLER)
PURCHASE ORDER
SALES ORDER
MEMBER (BROKER)
TRANSACTION ON THE FLOOR (EXCHANGE)
MEMBER (BROKER)
INFORMS
CLEARING HOUSING
It has been observed that in most futures markets, actual physical delivery of the underlying assets is very rare and it hardly ranges from 1 percent to 5 percent. Most often buyers and sellers offset their original position prior to delivery date by taking an opposite positions. This is because most of futures contracts in different products are
predominantly speculative instruments. For example, X purchases American Dollar Futures and Y sells it. It leads to two contracts, first, X party and clearing house and second Y party and clearing house. Assume next day X sells same contract to Z, then X is out of the picture and the clearing house is seller to Z and buyer from Y, and hence, this process is goes on.
REGULATORY FRAMEWORK FOR CURRENCY FUTURES

With a view to enable entities to manage volatility in the currency market, RBI on April 20, 2007 issued comprehensive guidelines on the usage of foreign currency forwards, swaps and options in the OTC market. At the same time, RBI also set up an Internal Working Group to explore the advantages of introducing currency futures. The Report of the Internal Working Group of RBI submitted in April 2008, recommended the introduction of exchange traded currency futures. With the expected benefits of exchange traded currency futures, it was decided in a joint meeting of RBI and SEBI on February 28, 2008, that an RBI-SEBI Standing Technical Committee on Exchange Traded Currency and Interest Rate Derivatives would be constituted. To begin with, the Committee would evolve norms and oversee the implementation of Exchange traded currency futures. The Terms of Reference to the Committee was as under: 1. To coordinate the regulatory roles of RBI and SEBI in regard to trading of
Currency and Interest Rate Futures on the Exchanges. 2. To suggest the eligibility norms for existing and new Exchanges for Currency and
Interest Rate Futures trading. 3. 4. To suggest eligibility criteria for the members of such exchanges. To review product design, margin requirements and other risk mitigation
measures on an ongoing basis. 5. To suggest surveillance mechanism and dissemination of market information.
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6.
To consider microstructure issues, in the overall interest of financial stability
COMPARISION OF FORWARD AND FUTURES CURRENCY CONTRACT
BASICS
Size
FORWARD
Structured as per requirement of the parties Tailored on individual needs
FUTURE
Standardized
Standardized
Delivery date Method of transaction Participants Established by the bank or broker through electronic media Banks, brokers, forex dealers, multinational companies, institutional investors, arbitrageurs, traders, etc. None as such, but compensating bank balanced may be required Tailored to needs: from one week to 10 years Actual delivery or offset with cash settlement. No separate clearing house Over the telephone worldwide and computer networks Limited to large customers banks, institutions, etc. More than 90 percent settled by actual delivery Secured Risk is high being less secured . Open auction among buyers and seller on the floor of recognized exchange. Banks, brokers, multinational companies, institutional investors, small traders, speculators, arbitrageurs, etc. Margin deposit required
Margins
Maturity
Standardized
Settlement
Daily settlement to the market and variation margin requirements
Market place
At recognized exchange floor with worldwide communications Open to anyone who is in need of hedging facilities or has risk capital to speculate Actual delivery has very less even below one percent Highly secured through margin deposit
Accessibility
Delivery
Secured
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PRODUCT DEFINITIONS OF CURRENCY FUTURE ON NSE/BSE

Underlying Initially, currency futures contracts on US Dollar Indian Rupee (US$-INR) would be permitted. Trading Hours The trading on currency futures would be available from 9 a.m. to 5 p.m. Size of the contract The minimum contract size of the currency futures contract at the time of introduction would be US$ 1000. The contract size would be periodically aligned to ensure that the size of the contract remains close to the minimum size. Quotation The currency futures contract would be quoted in rupee terms. However, the outstanding positions would be in dollar terms. Tenor of the contract The currency futures contract shall have a maximum maturity of 12 months. Available contracts All monthly maturities from 1 to 12 months would be made available. Settlement mechanism The currency futures contract shall be settled in cash in Indian Rupee Settlement price The settlement price would be the Reserve Bank Reference Rate on the date of expiry. The methodology of computation and dissemination of the Reference Rate may be publicly disclosed by RBI. Final settlement day The currency futures contract would expire on the last working day (excluding Saturdays) of the month. The last working day would be taken to be the same as that for Interbank Settlements in Mumbai. The rules for Interbank Settlements, including
Those for known holidays and subsequently declared holiday would be those as laid down by FEDAI.
Currency futures contract specification

Currently currency future contracts are permitted on four currency pairs i.e., USDINR, EURINR, GBPINR and JPYINR. The detail of contract design for these currency pairs is given in the table below:
Contract specification: USDINR, EURINR, GBPINR and JPYINR Currency Derivatives Underlying Foreign currency as base currency and INR as quoting currency
Market timing
9:00 AM to 5:00 PM
Contract Size
USD 1000 (for USDINR), EUR 1000 (for EURINR), GBP 1000 (for GBPINR) and JPY 100,000 (for JPYINR)
Tick Size
Re. 0.0025
Quotation
The contract would be quoted in Rupee terms. However, outstanding position would be in USD, EUR, GBP and JPY terms for USDINR, EURINR,GBPINR and JPYINR contracts
respectively
Available contracts Maximum of 12 calendar months from current calendar month. New contract will be introduced following the Expiry of current month contract. Settlement date Last working day of the month (subject to holiday calendars) at 12 noon
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Last trading day 12 noon on the day that is two working days prior to the (or Expiry day) settlement date
Settlement Basis
Daily mark to market settlement will be on a T +1 basis and final settlement will be cash settled on T+2 basis.
Daily settlement Price
Daily mark to market settlement price will be announced by the exchange, based on volume-weighted average price in the last half an hour of trading, or a theoretical price if there is no trading in the last half hour.
Settlement
Cash settled in INR
Final Settlement Price
The reference rate fixed by RBI on last trading day or expiry day.
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. The rules for Interbank Settlements, including those for known holidays and subsequently declared holiday would be those as laid down by FEDAI.
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CHAPTER -3 RESEARCH METHODOLOGY

To fulfill the objectives of the study both primary and secondary data has been collected. In this study primary data was collected through interaction with staff of FUTURE CAPITAL SECURITIES LTD. Secondary data is the data collected previously by someone else for some other purpose which can be analyzed and interpreted according to requirements. For
example, sources of secondary data are government publications, newspapers, worldwide web etc. In this study the Secondary data is mainly taken from The companys training material. Reconciliation statements. Other documents generated within the organization
Formulae use in data analysis: 1. F/S = (1+ Rh) / (1+Rf) 2. F = S x e^ (Rh-Rf)T

3. Value of the contract = (Value of currency future per USD*contract size*No of contract).
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CHAPTER 4
DATA ANALYSIS AND INTERPRETATION PRICING OF FUTURES CONTRACT Interest rate parity principle:
According to the interest rate parity theory, the currency margin is dependent mainly on the prevailing interest rate (for investment for the given time period) in the two currencies. The forward rate can be calculated by the following formula: F/S = (1+Rh)/ (1+Rf) Where, F and S are future and spot currency rate. Rh and Rf are simple interest rate in the home and foreign currency respectively. Alternatively, if we consider continuously Compounded interest rate then forward rate can be calculated by using the following formula: F = S x e (rh- rf) x t Where rh and rf are the continuously compounded interest rate for the home currency and foreign currency respectively, T is the time to maturity e = 2.71828 (exponential). If the following relationship between the futures rate and the spot rate does not hold, then there will be an arbitrage opportunity in the market. This will force the futures rate to change so that the relationship holds true. Let us assume that risk free interest rate for one year deposit in India is 7% and in USA it is 3%. You as smart trader/ investor will raise money from USA and deploy it in India and try to capture the arbitrage of 4%. You could continue to do so and make this transaction as a non ending money making machine. Life is not that simple! And such arbitrages do not exist for very long.
We will carry out the above transaction through an example to explain the concept of interest rate parity and derivation of future prices which ensure that arbitrage does not exist. Assumptions: 1. Spot exchange rate of USDINR is 50 (S) 2. One year future rate for USDINR is F 3. Risk free interest rate for one year in USA is 3% (RUSD) 4. Risk free interest rate for one year in India is 7% (R) INR 5. Money can be transferred easily from one country into another without any restriction of amount, without any taxes etc) You decide to borrow one USD from USA for one year, bring it to India, convert it in INR and deposit for one year in India. After one year, you return the money back to USA. On start of this transaction, you borrow 1 USD in US at the rate of 3% and agree to return 1.03 USD after one year (including interest of 3 cents). This 1 USD is converted into INR at the prevailing spot rate of 50. You deposit the resulting INR 50 for one year at interest rate of 7%. At the end of one year, you receive INR 3.5 (7% of 50) as interest on your deposit and also get back your principal of INR 50 i.e., you receive a total of INR 53.5. You need to use these proceeds to repay the loan taken in USA. Two important things to think before we proceed: The loan taken in USA was in USD and currently you have INR. Therefore you need to convert INR into USD What exchange rate do you use to convert INR into USD? At the beginning of the transaction, you would lock the conversion rate of INR into USD using one year future price of USDINR. To ensure that the transaction does not result
into any risk free profit, the money which you receive in India after one year should be equal to the loan amount that you have to pay in USA. We will convert the above argument into a formula: S(1+RINR)= F(1+RUSD) Or, F/ S = (1+RINR) / (1+RUSD) Another way to illustrate the concept is to think that the INR 53.5 received after one year in India should be equal to USD 1.03 when converted using one year future exchange rate. Therefore, F/ 50 = (1+.07) / (1+.03) F= 51.9417 Approximately, F is equal to the interest rate difference between two currencies i.e. F = S + (RINR- RUSD)*S This concept of difference between future exchange rate and spot exchange rate being approximately equal to the difference in domestic and foreign interest rate is called the Interest rate parity. Alternative way to explain, interest rate parity says that the spot price and futures price of a currency pair incorporates any interest rate differentials between the two currencies assuming there are no transaction costs or taxes. A more accurate formula for calculating, the arbitrage - free forward price is as follows. F = S (1 + RQC Period) / (1 + RBC Period) Where F = forward price S = spot price RBC = interest rate on base currency RQC = interest rate on quoting currency
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Period = forward period in years For a quick estimate of forward premium, following formula mentioned above for USDINR currency pair could be used. The formula is generalized for other currency pair and is given below: F = S + (S (RQC RBC) Period) In above example, if USD interest rate were to go up and INR interest rate were to remain at 7%, the one year future price of USDINR would decline as the interest rate difference between the two currencies has narrowed and vice versa. Traders use expectation on change in interest rate to initiate long/ short positions in currency futures. Everything else remaining the same, if USD interest rate is expected to go up (say from 2.5% to 3.0%) and INR interest rate are expected to remain constant say at 7%; a trader would initiate a short position in USDINR futures market. Illustration: Suppose 6 month interest rate in India is 5% (or 10% per annum) and in USA are 1% (2% per annum). The current USDINR spot rate is 50. What is the likely 6 month USDINR futures price? As explained above, as per interest rate parity, future rate is equal to the interest rate differential between two currency pairs. Therefore approximately 6 month future rate would be: Spot + 6 month interest difference = 50 + 4% of 50 = 50 + 2 = 52 The exact rate could be calculated using the formula mentioned above and the answer comes to 51.98 = 50 x (1+0.1/12 x 6) / (1+0.02/12 x 6)
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Interpretation: Future price of USDINR depends upon the interest rate of each country. If USD price is appreciated then borrower has to pay more USD in return but if USD is depreciated then borrower has to pay less USD dollar. Interpretation of Concept of premium and discount: Therefore one year future price of USDINR pair is 51.94 when spot price is 50. It means that INR is at discount to USD and USD is at premium to INR. Intuitively to understand why INR is called at discount to USD, think that to buy same 1 USD you had to pay INR 50 and you have to pay 51.94 after one year i.e., you have to pay more INR to buy same 1 USD. And therefore future value of INR is at discount to USD. Therefore in any currency pair, future value of a currency with high interest rate is at a discount (in relation to spot price) to the currency with low interest rate.
CURRENCY FUTURES PAYOFFS

A payoff is the likely profit/loss that would accrue to a market participant with change in the price of the underlying asset. This is generally depicted in the form of payoff diagrams which show the price of the underlying asset on the X-axis and the profits/losses on the Y-axis. Futures contracts have linear payoffs. In simple words, it means that the losses as well as profits for the buyer and the seller of a futures contract are unlimited. Options do not have linear payoffs. Their pay offs are non-linear. These linear payoffs are fascinating as they can be combined with options and the underlying to generate various complex payoffs. However, currently only payoffs of futures are discussed as exchange traded foreign currency options are not permitted in India.
Payoff for buyer of futures: Long futures

The payoff for a person who buys a futures contract is similar to the payoff for a person who holds an asset. He has a potentially unlimited upside as well as a
Potentially unlimited downside. Take the case of a speculator who buys a two-month currency futures contract when the USD stands at say Rs.57.0000. The underlying asset in this case is the currency, USD. When the value of dollar moves up, i.e. when Rupee depreciates, the long futures position starts making profits, and when the dollar depreciates, i.e. when rupee appreciates, it start making losses.
Payoff for buyer of future:

The figure shows the profits/losses for a long futures position. The investor bought futures when the USD was at Rs.57.0000. If the price goes up, his futures position starts making profit. If the price falls, his futures position starts showing losses.
Payoff for seller of futures: Short futures

The payoff for a person who sells a futures contract is similar to the payoff for a person who shorts an asset. He has a potentially unlimited upside as well as a potentially unlimited downside. Take the case of a speculator who sells a two month currency futures contract when the USD stands at say Rs. 57.0000. The underlying asset in this case is the currency, USD. 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. The Figure below shows the payoff diagram for the seller of a futures contract.
Payoff for seller of future:

The figure shows the profits/losses for a short futures position. The investor sold futures when the USD was at Rs.57.0000. If the price goes down, his futures position starts making profit. If the price rises, his futures position starts showing losses
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1 USD Rs.57.00 00
Interpretation:
From the above figure it is clear that when US dollar goes up then long future buyers make profit and when US dollar price goes down then short future sellers make profit. Here, spot price of 1 USD = Rs. 57.0000
PRICING FUTURES COST OF CARRY MODEL

Pricing of futures contract is very simple. Using the cost-of-carry logic, we calculate the fair value of a futures contract. Every time the observed price deviates from the fair value, arbitragers would enter into trades to capture the arbitrage profit. This in turn would push the futures price back to its fair value. The cost of carry model used for pricing futures is given below:
F=Se^(Rh-Rf) T
Where: Rh = Cost of financing (using continuously compounded interest rate) Rf = one year interest rate in foreign T=Time till expiration in years e = 2.71828 To explain this, let us assume that one year interest rates in US and India are say 7% and 10% respectively and the spot rate of USD in India is Rs. 44. From the equation above the one year forward exchange rate should be F = 44*e (0.10-0.07)*1=45.34 Suppose that the one year rate is less than this, say Rs. 44.50. An arbitrageur can: 1. Borrow 1000 USD at 7% per annum for one year and convert to Rs. 44000 and invest the same at 10% (both rates being continuously compounded) 2. An amount of USD 1072.5082 has to be repaid. Buy a forward contract for USD 1072.5082 for Rs. 47726.61 (i.e. Rs. 44.50*1072.5082) USD 1000 converted to Rs. 44000 and invested at 10% pa grow to Rs.52. Of this Rs. 47726.61 shall be used to buy USD 1072.5082 and repay the loan (US Dollars borrowed earlier). The strategy therefore leaves a risk less profit of Rs. 900.91 Suppose the rate was greater than Rs. 45.34 as given in the equation above, the reverse strategy would work and yield risk less profit. It may be noted from the above equation, if foreign interest rate is greater than the domesticate i.e. rf > rh, then F shall be less than S. The value of F shall decrease further as time T increase. If the foreign interest is lower than the domestic rate, i.e. rf < rh, then value of F shall be greater than S. The value of F shall increase further as time T increases.
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ExampleSuppose, the spot rate is Rs. 48.0000 per USD and the prevailing continuously compounded interest rates in India and US are 7% and 5% respectively. From the equation above, the two years futures contract price should be Rs. 48*exp ^(.07- .05)*2.
F = 48.0000 x e^ (0.07 - .05) x 2 = 49.9589 or 49.9600
If the futures price is less than this, say Rs. 49.50, then an arbitrageur can make a profit by: Borrowing 1000 USD at 5% p.a. for 2 years, and converting it to INR thereby getting Rs. 1000*48 = Rs. 48000. This will create a liability of USD 1000 * e (0.05*2) = 1105.71. He can invest the Rs. 48000 in a bank to earn interest @ 7% p.a.. Also, enter into a 2 years futures contract to buy 1105.71 USD at the rate of Rs. 49.50. So this requires an amount of Rs. 1105.71 * 49.50 = Rs. 54706 at the end of 2nd year. At the end of two years, the investment in the bank will mature and the investor will receive Rs. 48000 * e (0.07*2) = Rs. 55213. The investor can pay Rs. 54706 to obtain USD 1105.71, which will help him in repaying the liability on the USD loan. This will leave the investor with a riskless profit of Rs. 55213 Rs. 54706 = Rs. 507 at the end of 2 nd year. If the futures price is more than this , say Rs. 50.25, then an arbitrageur can make a profit by: Borrowing Rs. 48000 at 7% interest rate for a period of 2 years. This will create a
liability of Rs. 48000 * e (0.07 * 2) = 55213. The investor can get the Rs. 48000 converted to USD at the prevailing spot rate and obtain USD 1000 (48000/48). The investor can invest the USD for 2 years at the rate of 5%. Simultaneously the investor can enter into the futures contract to sell 1105.17 USD and obtain INR at the end of 2 years, the contract exchange rate being Rs.50.2500 per USD.
At the end of 2 years the investor will get USD 1000 * e (0.05*2) = 1105.17.the investor can then convert the USD into INR and obtain 1105.17 * 50.25 = Rs. 55535.
The investor can then repay the liability of Rs. 55213 and make a riskless profit of Rs. 55535 55213 = Rs. 322
HEDGING USING IN CURENCY FUTURES

Exchange rates are quite volatile and unpredictable, it is possible that anticipated profit in foreign investment may be eliminated, rather even may incur loss. Thus, in order to hedge this foreign currency risk, the traders often use the currency futures. For example, a long hedge (I.e.., buying currency futures contracts) will protect against a rise in a foreign currency value whereas a short hedge (i.e., selling currency futures contracts) will protect against a decline in a foreign currencys value. It is noted that corporate profits are exposed to exchange rate risk in many situation. For example, if a trader is exporting or importing any particular product from other countries then he is exposed to foreign exchange risk. Similarly, if the firm is borrowing or lending or investing for short or long period from foreign countries, in all these situations, the firms profit will be affected by change in
foreign exchange rates. In all these situations, the firm can take long or short position in futures currency market as per requirement. The general rule for determining whether a long or short futures position will hedge a potential foreign exchange loss is: Loss from appreciating in Indian rupee= Short hedge Loss from depreciating in Indian rupee= Long hedge
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Short hedge: A short hedge involves taking a short position in the futures market. In a currency market, short hedge is taken by someone who already owns the base currency or is expecting a future receipt of the base currency. An example where this strategy can be used : An exporter, who is expecting a receipt of USD in the future will try to fix the conversion rate by holding a short position in the USD-INR contract. Short hedge strategy through an example. Exporter XYZ is expecting a payment of USD 1,000,000 after 3 months. Suppose, the spot exchange rate is INR 57.0000: 1 USD. If the spot exchange rate after 3-months remains unchanged, then XYZ will get INR 57,000,000 by converting the USD received from the export contract. If the exchange rate rises to INR 58.0000: 1 USD, then XYZ will get INR 58,000,000 after 3 months. However, if the exchange rate falls to INR 56.0000: 1 USD, then XYZ will get INR 56,000,000 thereby losing INR 1,000,000. Thus, XYZ is exposed to an exchange rate risk, which it can hedge by taking an exposure in the futures market .By taking a short position in the futures market, XYZ can lock-in the exchange rate after 3- months at INR 57.0000 per USD (suppose the 3 month futures price is Rs. 57). Since a USD-INR futures contract size is of 1000 USD, XYZ has to take a short position in 1000 contracts. Whatever may be the exchange rate after 3-months, XYZ will be sure of getting INR 57,000,000. A loss in the spot market will be compensated by the profit in the futures contract and vice versa. This can be explained as under: If USD strengthens and the exchange rate becomes INR 58.0000 : 1 USD Spot Market: XYZ will get INR 58,000,000 by selling 1 Million USD in the spot market. Futures Market: If USD weakens and the exchange rate becomes INR 56.0000 : 1 USD Spot Market: XYZ will get INR 56,000,000 by selling 1 Million USD in the spot market. Futures Market:
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XYZ will lose INR (57 58)* 1000 = INR 1000 per contract. The total loss in 1000 Contracts will be INR 1,000,000. Net Receipts in INR: 58million 1 million = 57 million
XYZ will gain INR (57 56)* 1000 = INR 1000 per contract. The total gain in 1000 Contracts will be INR 1,000,000. Net Receipts in INR: 56 million + 1 million = 57 million
An exporting firm can thus hedge itself from currency risk, by taking a short position in the futures market. Irrespective, of the movement in the exchange rate, the exporter is certain of the cash flow.
Long hedge:
A long hedge involves holding a long position in the futures market. A Long position holder agrees to buy the base currency at the expiry date by paying the agreed exchange rate. This strategy is used by those who will need to acquire base currency in the future to pay any liability in the future. An example where this strategy can be used: An importer who has to make payment for his imports in USD will take a long position in USDINR contracts and fix the rate at which he can buy USD in future by paying INR An Importer, IMP, has ordered certain computer hardware from abroad and has to make a payment of USD 1,000,000 after 3 months. The spot exchange rate as well as the 3months future rate is INR 57.0000: 1 USD. If the spot exchange rate after 3-months remains unchanged then IMP will have to pay INR 57,000,000 to buy USD to pay for the import contract. If the exchange rate rises to INR 58.0000 : 1 USD, then IMP will have to pay more - INR 58,000,000 after 3 months to acquire USD. However, if the exchange rate falls to INR 56.0000: 1 USD, then IMP will have to pay INR 56,000,000 (INR 1,000,000 less). IMP wants to remain immune to the volatile currency markets and wants to lock-in the future payment in terms of INR. IMP is exposed to currency risk,
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which it can hedge by taking a long position in the futures market. By taking long position in 1000 future contracts, IMP can lock-in the exchange rate after 3-months at INR 57.0000 per USD. Whatever may be the exchange rate after 3-months, IMP will be sure of getting the 1 million USD by paying a net amount of INR 57,000,000. A loss in the spot market will be compensated by the profit in the futures contract and vice versa. This can be explained as under: If USD strengthens and the exchange rate becomes INR 58.0000 : 1 USD Spot Market: IMP has to pay more i.e. INR 58,000,000 for buying 1 million USD in The spot market. Futures Market: IMP will gain INR (58 57)* 1000 = INR 1000 per contract. The total profit in 1000 contracts will be INR 1,000,000. Net Payment in INR: 58 million + 1 million = 57 million If USD weakens and the exchange rate becomes INR 56.0000 : 1 USD Spot Market: IMP will have to pay less i.e. INR 56,000,000 for acquiring 1 million USD In the spot market. Futures Market: The importer will lose INR (5756)* 1000 = INR 1000 per contract. The total loss in 1000 contracts will be INR 1,000,000. Net Payment in INR: - 56 million - 1 million = 57 million
An importer can thus hedge itself from currency risk, by taking a long position in the futures market. The importer becomes immune from exchange rate movement.
The choice of underlying currency

The first important decision in this respect is deciding the currency in which futures contracts are to be initiated. For example, an Indian manufacturer wants to purchase some raw materials from Germany then he would like future in German mark since his exposure in straight forward in mark against home currency (Indian rupee). Assume that
there is no such future (between rupee and mark) available in the market then the trader would choose among other currencies for the hedging in futures. Which contract should he choose? Probably he has only one option rupee with dollar. This is called cross hedge.
Choice of the maturity of the contract

The second important decision in hedging through currency futures is selecting the currency which matures nearest to the need of that currency. For example, suppose Indian importer import raw material of 100000 USD on 1st June 2012. And he will have to pay 100000 USD on 1st OCT 2012. And he predicts that the value of USD will increase against Indian rupees nearest to due date of that payment. Importer predicts that the value of USD will increase more than 58.0000. So what he will do to protect against depreciating in Indian rupee? Suppose spots value of 1 USD is 57.0675.
Future Value of the USD on MCX-SX as below:

Currency future price watch (as on 22 June 2012)
Product Buy Qty Buy Price Sell Price Sell Spread Qty LTP Volume OI (in Lots) (in Lots) Value (in Crores)
16839.39
No of Trades
USDINR 270612 USDINR 270712 USDINR 290812 USDINR 260912 USDINR 291012
80 57.0675 57.0700
176
0.0025 57.0700
2967803
646589
101824
43 57.3525 57.3700
132
0.0175 57.3600
391933
546173
2234.68
18533
1 57.6025 57.6275
45
0.0250 57.6100
31650
140011
181.33
1929
100 57.7150 57.8850
0.1700 57.8625
10279
65179
59.05
370
26 57.9000 58.1100
0.2100 58.1500
2503
37888
14.43
124
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USDINR 271112 USDINR 271212 USDINR 290113 USDINR 260213 USDINR 270313 USDINR 260413 USDINR 290513
102 58.0500 58.3500
0.3000 58.3000
1037
10364
6.00
70
15 58.2400 58.7300
0.4900 58.6000
1162
7986
6.77
28
15 58.5150 59.1000
10
0.5850 58.8000
126
2468
0.74
15 58.7550 59.2500
25
0.4950 59.1000
125
6417
0.74
50 59.0950 59.9550
50
0.8600 59.6300
802
13947
4.78
15
1 59.0325 59.8000
10
0.7675 59.5900
871
31299
5.21
24
50 59.6100 59.9450
100
0.3350 60.0600
570
1284
3.41
17
Total: 3408861 1509605 19356.53 122946
No. of contracts- 3408861
ARCHIEVES
AS on 27 June 2012 Underlying USDINR RBI Reference Rate 57.0675
Solution
He buys 100 contract of USDINR 27062012 at the rate of 57.0675. Spot value of the contract = value of currency spot price*contract size*No of contract = 57.0675*1000*100 = 5706750 Value of the contract = (Value of currency future per USD*contract size*No of contract). Value of the currency future of USDINR29102012 is 57.9000
= (57.90*1000*100) = 5790000. For that he has to pay 5% margin on 5790000. Means he will have to pay Rs.299425 at present. And suppose on settlement day the spot price of USD is 58.0000.
On settlement date payoff of importer will be (58.0000-57.0675) = 0.9325per USD. And (0.9325 *100000) = Rs. 93250
Interpretation:
In Spot market importer has to pay 58, 00,000 for buying 100000 USD. And in future market importer will gain Rs.932.5 per contract and the total profit in 100 contracts is Rs. 93250. So, importer has to pay net payment (5800000 - 93250) is 5706750.
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CHAPTER 5 FINDINGS
Interest parity model is useful tool to find out the future price. By applying this I found that the price of any currency future depends upon the interest rate or exchange rate of particular country. Currency future of USD/INR shows that if price of USD goes up it means Indian Rupee depreciates then borrower has to pay the more dollars in return and vice versa. Hedging in currency future helps to lock the standard price that helps to reduce the risk in foreign exchange market that occurs in future trading. New concept of Exchange traded currency future trading is regulated by higher authority and regulatory. The whole function of Exchange traded currency future is regulated by SEBI/RBI, and they established rules and regulation so there is very safe trading is emerged and counter party risk is minimized in currency Future trading. And also time reduced in Clearing and Settlement process up to T+1 days basis. Larger exporter and importer has continued to deal in the OTC counter, even exchange traded currency future is available in markets. There is a limit of USD 100 million on open interest applicable to trading member who are banks. And the USD 25 million limit for other trading members so larger exporter and importer might continue to deal in the OTC market where there is no limit on hedges. In India RBI and SEBI has restricted other currency derivatives except Currency future, at this time if any person wants to use other instrument of currency derivatives in this case he has to use OTC.
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RECOMMENDATION
Currency Future need to change some restrictions it imposed such as cut off limit of 5 million USD, Ban on NRIs and FIIs and Mutual Funds from Participating. The market should be efficient with widespread awareness amongst various market players.
It is most important that the contract size should be kept at such a level that it facilitates price discovery as well as trading, particularly for retail segment of market. If FIIs have to be allowed in currency future trading, there should than be a cap on their open interest position in currency future. The positive aspects of the entry of these securities will be that they will bring in huge volumes and liquidity into the market.
In India the regulatory of Financial and Securities market (SEBI) has Ban on other Currency Derivatives except Currency Futures, so this restriction seem unreasonable to exporters and importers. And according to Indian financial growth now its become necessary to introducing other currency derivatives in Exchange traded currency derivative segment.
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CONCLUSION
By far the most significant event in finance during the past decade has been the extraordinary development and expansion of financial derivatives. These instruments
enhances the ability to differentiate risk and allocate it to those investors most able and willing to take it- a process that has undoubtedly improved national productivity growth and standards of livings. The currency future gives the safe and standardized contract to its investors and individuals who are aware about the forex market or predict the movement of exchange rate so they will get the right platform for the trading in currency future. Because of exchange traded future contract and its standardized nature gives counter party risk minimized. Initially only NSE had the permission but now BSE and MCX has also started currency future. It is shows that how currency future covers ground in the compare of other available derivatives instruments. Not only big businessmen and exporter and
importers use this but individual who are interested and having knowledge about forex market they can also invest in currency future.
Exchange between USD-INR markets in India is very big and these exchange traded contract will give more awareness in market and attract the investors.
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BIBLIOGRAPHY
NCFM: Currency future Module. BCFM: Currency Future Module Report of the RBI-SEBI standing technical committee on exchange traded currency future Websites www.nseindia.com www.bseindia.com www.moneycontrol.com www.useindia.com http://www.mcx-sx.com/sitepages/DayWiseTurnover.aspx http://www.investopedia.com/articles/forex/10/introduction-currencyhttp://www.economywatch.com/options-and-futures/currency-forex-futures.html http://www.merinews.com/article/aiming-to-boost-rupee-and-economy-rbiannounces-steps/15871267.shtml http://www.rbi.org.in/scripts/PublicationsView.aspx?id=13323 http://www.forexpros.com/charts/real-time-futures-charts http://www.mcx-sx.com/SitePages/mkt_data.aspx http://www.smctradeonline.com/nse-currency-futures.aspx http://www.dalalstreetwinners.com/currency-derivatives-outlook-for-next-week30april-to-4-may-2012/ http://bullage.co.in/currency_specifications.php
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A Study On Currency Derivatives

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A Study On Currency Derivatives

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A STUDY ON CURRENCY DERIVATIVES

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Certificate from the organization

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Signature of the student (Name of the student) Date : Place:

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Introduction Company Profile Industry Profile Literature Review About Topic

7-10 11-21 22-25 26-27 28-50

Research Methodology 51 Data Analysis & Interpretation 52-67

Findings Recommendations Conclusions

Books / Articles referred Websites referred

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Thus, the currency units of a country involve

OBJECTIVES OF THE STUDY:

HISTORY OF CURRENCY DERIVATIVES

UTILITY OF CURRENCY DERIVATIVES

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CHAPTER -2 COMPANY PROFILE

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LEADERSHIP IN FUTURE CAPITAL HOLDINGS

Pankaj Sanklecha (Chief Risk Officer)

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PRODUCT, SERVICES AND DISTRIBUTION OF COMPANY

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Future Capital Branch Network (By Feb 29, 2012)

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Growth of branches over the quarters

200 180 160 140 120 100 80 61 60 40 20 0 Q3 FY 11 Q4 FY 11 Q1 FY 12 Q2 FY 12 Q3 FY 12 27 89 134 173

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Business Function Wise Employee Breakup

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0.60% 2.20% 1.90% 0.70%

Promoters FII Others

Individuals Mutule funds

Bodies Corporates Financial Institutions

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(As on 22nd June 2012)

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INDUSTRY PROFILE INTRODUCTION OF FOREIGN EXCHANGE MARKET

Major currency pairs

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USD/OTHERS OTHERS/OTHERS TOTAL

Top Foreign Exchange Trading Center in the World

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CURRENCY FUTURE IN INDIA

About Indian forex market:

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INTRODUCTION TO FINANCIAL DERIVATIVES

Alan Greenspan, Former Chairman. US Federal Reserve Bank

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A financial derivative is an indeed derived from the financial