A PROJECT SYNOPSIS

ON
CURRENCY DERIVATIVES
AT
ICICI BANK LIMITED
BY
SAMBET PRAFUL KUMAR

H.T. NO: 2170-18-672-113

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR

THE AWARD OF THE

MASTER’S DEGREE IN BUSINESS ADMINISTRATION

(2018-2020)

Department of Business Administration

VISHWA VISHWANI INSTITUTE OF SYSTEMS & MANAGEMENT
THUMKUNTA,HYDERABAD.
 INTRODUCTION OF 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 lender’s currency. Thus, the currency units of a country involve

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, specifically in developed countries, the currency risk has become

substantial for many business firms.

 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 exchange’s CME Globex 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.

Source: - (NCFM-Currency future Module)

 **DEFINITION OF FINANCIALDERIVATIVES**

 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. A financial derivative is an indeed derived from the financial

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

 Common shares/stock

 Stock Index Value : NSE Nifty

 Currency : Exchange Rate

 OVERVIEW OF THE FOREIGN EXCHANGE MARKET IN INDIA

During the early 1990s, India embarked on a series of structural reforms in the foreign

exchange market. The exchange rate regime, that was earlier pegged, was partially floated in

March 1992 and fully floated in March 1993. The unification of the exchange rate was

instrumental in developing a market-determined exchange rate of the rupee and was an

important step in the progress towards total current account convertibility, which was

achieved in August 1994.

Although liberalization helped the Indian foreign market in various ways, it led to extensive

fluctuations of exchange rate. This issue has attracted a great deal of concern from policy-

makers and investors. While some flexibility in foreign exchange markets and exchange rate

determination is desirable, excessive volatility can have an adverse impact on price

discovery, export performance, sustainability of current account balance, and balance sheets.

In the context of upgrading Indian foreign exchange market to international standards, a well-

developed foreign exchange derivative market (both OTC as well as Exchange-traded) is

imperative.

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.

Subsequently, RBI and SEBI jointly constituted a Standing Technical Committee to analyze

the Currency Forward and Future market around the world and lay down the guidelines to
introduce Exchange Traded Currency Futures in the Indian market. The Committee submitted

its report on May 29, 2008. Further RBI and SEBI also issued circulars in this regard on

August 06, 2008.

Currently, India is a USD 34 billion OTC market, where all the major currencies like USD,

EURO, YEN, Pound, Swiss Franc etc. are traded. With the help of electronic trading and

efficient risk management systems, Exchange Traded Currency Futures will bring in more

transparency and efficiency in price discovery, eliminate counterparty credit risk, provide

access to all types of market participants, offer standardized products and provide transparent

trading platform. Banks are also allowed to become members of this segment on the

Exchange, thereby providing them with a new opportunity.

Source :-(Report of the RBI-SEBI standing technical committee on exchange traded

currency futures) 2008.

OBJECTIVES OF THE STUDY

1. The basic idea behind undertaking Currency Derivatives project to gain knowledge

about currency future market.

2. To study the basic concept of currency future.

3. To study the exchange traded currency future.

4. To understand the practical considerations and ways of considering currency future

price.

5. To analyze different currency derivatives products.

 RESEARCH METHODOLOGY

 NEED OF THE STUDY

In this project Descriptive research methodologies were use.

The research methodology adopted for carrying out the study was at the first stage

theoretical study is attempted and at the second stage observed online trading on

NSE/BSE.

 SCOPE OF THE STUDY:

ICICIBANK LTD
Ascent towers ,road no.10
Banjara hills

 SOURCE OF DATA COLLECTION

METHODOLOGY

SAMPLE SIZE

The current sample size of the study was considers to be 100 respondents.

SAMPLE DESIGN

The data was received based on following:

1. Active investment

2. Investment preferred

3. Profit margin

4. Currency derivative as investment option

5. Awareness on currency derivative investment

6. Factors which attract to invest in currency

7. Knowledge on returns in currency derivative

LIMITATION OF THE STUDY

o The limitations of the study were

o The analysis was purely based on the secondary data. So, any error in the

secondary data might also affect the study undertaken.

o The currency future is new concept and topic related book was not available in

library and market.

 CHAPTER PLAN

CHAPTER-1

INTRODUCTION

SCOPE OF THE STUDY

OBJECTIVES OF THE STUDY

METHODOLOGY OF THE STUDY

LIMITATIONS OF THE STUDY

CHAPTER-2

REVIEW OF LITERATURE

CHAPTER-3

INDUSTRY PROFILE

COMPANY PROFILE

CHAPTER-4

DATA ANALYSIS AND INTERPRETATION

CHAPTER-5

SUGGESTION

FINDINGS & CONCLUSION

BIBLIOGRAPHY
 BIBLIOGRAPHY

Reference Books:

1. Financial Derivatives (theory, concepts and problems) By: S.L. Gupta.

2. NCFM: Currency future Module.

3. BCFM: Currency Future Module.

4. Center for social and economic research) Poland

5. Recent Development in International Currency Derivative Market by: Lucjan T.

Orlowski)

6. Report of the RBI-SEBI standing technical committee on exchange traded currency

futures) 2008

7. Report of the Internal Working Group on Currency Futures (Reserve Bank of India,

April 2008)

Websites:

www.sebi.gov.in

www.indiabulls.com

www.rbi.org.in

www.frost.com

www.wikipedia.com

www.economywatch.com

www.bseindia.com

www.nseindia.com

www.icicibank.com