Currency Futures & Option An Exchange Traded Derivative

OTC V/S CF OTC Market (Forward) Currency Futures Product Traded on the Exchange OTC Product Agreements Customized Standard Price Transparency Low High Underlying exposure Required Not required Accessibility Credit dependent Liquidity Subject to credit limits Credit Exposure Yes Mitigated through the clearing corporation Margins (Collateral) Subject to banks relation & market condition Daily MTM No

Currency Futures: Product Design Category Description Exchange NSE & MCX – SX Underlying USD/INR currency pair Contract Size USD 1000 Min Price fluctuation 0.25 paisa or INR 0.0025 Category Description Settlement Cash settled in INR on relevant RBI reference rate Expiry Date Two working days prior to last business day of the month Margin Dictated by exchange (currently at 2.09%) Contract Months All months with max maturity of 12 months

Margin Calculation USDINR: 1389.58 per lot or 2.09% = 1389.58/66500 = 2.09% EURINR: 1777.87 per lot or 2.34% GBPINR: 2739.28 per lot or 2.88% JPYINR: 2308.05 per lot or 3.76%

PROBLEM USD/INR spot rate on 11th April was 66.42/66.43 On 11th April future contract was trading at 66.58/66.5825 Contract expiry date 27April On expiry date, contract settled at 66.7225 One of the investor has bought 15 lot of 27th April contract as on 11th April & exited at settlement rate on expiry date. So, what will be his total profit ????

ANSWER He buy at 66.5825 & sell at 66.7225. Thus Net profit is, = ((66.7225-66.5825)-.02)*1000*15 = Rs.1,800 We assume brokerage of two paise on round trip.

CF as hedging tool Why corporate use CF to hedge their exposure ? Execution Great Prices with transparency Accessibility No need for proof of Underlying exposure Online trading terminal for immediate access Hedging Timing Benefit No need to pay bid-offer spreads in spot and forwards OTC Lower transaction Cost Lower margin

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