Currency Derivatives

1372 Words Jan 24th, 2011 6 Pages
Currency derivatives

Introduction

Currency derivatives come in to existences as a hedging tool. As against unfavourable appreciation and depreciation of a single currency. Exporter, importer and financial investor have developed a vast range of currency derivative instruments are also used by speculators willing to arrange future currency selling or buying contracts while hoping hoping to buy or sell the currency at favourable anticipated exchange rates in the future. This act of speculator exposed them to the risk of financial fluctuation.

Currency based derivatives are complex financial instruments that are “derived” from the underlying currency exchange rate. They includes currency forward “buying” or “selling” contract,
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Around the same period, national electronic commodity exchanges were also set up. Derivatives trading commenced in India in June 2000 after SEBI granted the final approval to this effect in May 2001 on the recommendation of L. C Gupta committee. Securities and Exchange Board of India (SEBI) permitted the derivative segments of two stock exchanges, NSE and BSE, and their clearing house/corporation to commence trading and settlement in approved derivatives contracts. Initially, SEBI approved trading in index futures contracts based on various stock market indices such as, S&P CNX, Nifty and Sensex. Subsequently, index-based trading was permitted in options as well as individual securities. The trading in BSE Sensex options commenced on June 4, 2001 and the trading in options on individual securities commenced in July 2001. Futures contracts on individual stocks were launched in November 2001. The derivatives trading on NSE commenced with S&P CNX Nifty Index futures on June 12, 2000. The trading in index options commenced on June 4, 2001 and trading in options on individual securities commenced on July 2, 2001. Single stock futures were launched on November 9, 2001. The index futures and options contract on NSE are based on S&P CNX. In June 2003, NSE introduced Interest Rate Futures which were subsequently banned due to pricing issue.

Derivatives in India: A Chronology
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