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DEFINITION OF "DERIVATIVE"
A security whose price is dependent upon or derived from one or
more underlying assets. The derivative itself is merely a contract
between two or more parties. Its value is determined by
fluctuations in the underlying asset. The most common
underlying assets include stocks, bonds, commodities,
currencies, interest rates and market indexes. Most derivatives
are characterized by high leverage.
CURRENCY DERIVATIVE
An Exchange Traded Derivative or Over the counter Derivative
with an Underlying reference based on FOREIGN EXCHANGE
rates and flows. A Currency Derivative can be structured as a
Currency Option, Currency Forward, Currency Future,
Currency Swap or Currency Warrant
It is important to
understand that the
importer buys tea at 10
dollars a quintal, no matter
what the exchange rate is.
Classification of Derivatives
OTC
Exchange Traded
Foreign Currency
Derivatives
Equity Derivatives
Derivatives
Presently, all Futures contracts on Exchanges are settled in cash. There are no physical
contracts. All trades on Currency Exchanges take place on their respective nationwide
electronic trading platforms. These can be accessed from dedicated member terminals at
various locations across India.
All participants on the Currency Exchange trading platform can participate only through
trading members of the Exchange. Participants have to open a trading account and deposit
stipulated cash and/or collaterals with the trading member.
Exchanges stand in as the counter-party for each transaction. Therefore, participants do
not need to worry about defaults . In the event of a default, Exchanges will step in and fulfill
the obligations of the defaulting party, and then proceed to recover dues and penalties from
them.
Those who enter the market either by buying (long) or selling (short) a Futures contract
can close their contract obligations by squaring-off their positions at any time during the
life of that contract by taking an opposite position in the same contract.
A long (buy) position holder has to short (sell) the contract to square-off their position
and vice versa.
Participants will be relieved of their contract obligations to the extent they square-off their
positions.
All contracts that remain open at expiry are settled in INR in cash at the reference rate
specified by the Reserve Bank of India
TRADER
( SELLER )
Sales order
Purchase order
MEMBER
( BROKER )
Informs
CLEARING
HOUSE
MEMBER
( BROKER )
NSE.
October 2008 Currency futures trading launched at MCX
and BSE.
January, 2010 SEBI and RBI permitting the trade of
INRGBP, INREUR, INRYEN.
29th October, 2010 - NSE started currency option trading.
Trades guaranteed by guaranteed by the National
Securities Clearing Corporation Limited (NSCCL)
MCX-SX Average daily turnover increased from Rs. 356 cr
to Rs. 11,650 cr in August 2013 and Average daily turnover
for the year 2014-2015 to Rs. 11,475.08
Thanks