CurrencCurrencyy Futures PPT- Branches (1).ppt

7/28/2019 CurrencCurrencyy Futures PPT- Branches (1).ppt

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CURRENCY

FUTURES


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Foreign Exchange Market

Largest Financialmarket

24-hr market

Average daily trade

over US $ 3.5 trillion


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Most widely traded currency Dollar Investment currency in capital markets

Reserve currency of Central BanksTransaction currency in many commodity

markets

Invoice currency for many contracts


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Participants

Central Banks

Commercial Banks

Hedge Funds Commercial companies

Investment management firms

Retail FX brokers

INDIVIDUALS


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Main Instruments

Spot

Outright forwards

Swaps Interest Rate Swaps

Currency Swaps

OTC Currency Options

Exchange Traded Currency Futures


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Factors affecting USD/INR Rates

Supply and Demand Forces

Dollar against major currencies like Euro, Pound, Yen

Global Asian Stock markets

Indian Stock markets

Economic factors

Government budget deficits

Interest rates

Inflation

Fiscal and Monetary Policy


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Market activity

Hedging

Banks

Importers & Exporters

Corporate

Trading/ Speculation

View on appreciation or depreciation of USD/INR

Arbitrage

Inter market (OTC forwards and NSE - futures) Inter exchange ( NSE and MCX-SX, NSE and DGCX)


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OTC Market

Interbank Market - Average daily turnover in GlobalFX market- over $3.5trillion

Forward Contracts Customized Contracts

High Spreads

Access restricted to participants with underlying positions

Physical Settlement

Low Accessibility

Counterparty Risk


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A new and better alternative fortrading FX

USD/ INR cash settled futures market at NSE Access to all Indians

Transparent online trading platform

No requirement for underlying position

Low Margins

Anonymous order matching facility

Robust settlement systems with counterparty guarantee

Low Bid

Offer Spreads

Euro, Yen and Sterling v/s Rupee futures to be added soon tothe Currency Derivatives Segment (RBI has already given permission)


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Exchange based trading volumes

Average Daily Volumes

Oct'09 $ 1613.40 Million

Sept'09 $1171.15 Million

Jun'09 $ 714.75 Million

Apr'09 $ 490.72 Million


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Contract Specifications


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FX Volatility Is The Reality


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Trading / Speculation

Expectation that dollar will strengthen against the rupee

Buy 10 November futures @ 46.60

Cash outflow of margin @ 5 % - Rs 23,300

Book Potential Profit / Loss

Sell November futures @ 46.75 to book profit of Rs 1,500 on aninvestment of Rs 23,300

What if my view is completely wrong ?

Sell futures @ 46.30 and book a loss of Rs 3000

Stop Loss Trigger at a movement of 10 paise per $ against the view to prevent excess losses

RETURN of 6.43 % INTRA-DAY


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Protecting Earnings ofUnderlying

Hedge the FX exposure

Exporter : IT, Electronics & Hardware, Jewelery, Auto Ancillaries,Textiles, Chemicals, Food & Beverages

Importer : Oil and Gas , Gems and Jewelery

Investors : Institutions investing abroad

Borrowers : ECB's and FCCB's

Individuals : Students studying abroad


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Hedging Example - Importer

If an Oil Importer wants to import Crude Oil, worth $1 million onJune 3, 2009 with delivery and payment dates being three monthsahead, in Sept 2009.

Spot Rate on 3rd June 09 INR 46.74 per USD

Amt payable as on 3rd June 09 Rs 4,67,40,000 (46.74 * 1000000)

Buy 3 month futures contract

Futures Price = Spot + Cost of Carry USD 47.05 (46.74+0.31)

Futures Price in INR Rs 4,70,50,000

Spot Rate on 3rd September 09 INR 49.20 per USD

If not hedged payment would Rs 4,92,00,000

Saving due to hedging Rs 21,50,000


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Hedging Example Exporter

Exporter earning USD 1,000,000 for DEC 09, expectingremittance on 25 DEC 2009

Spot Rate on 30th OCT 09 INR 47.02 per dollar

Sell 1000 USDINR contracts DEC09Futures Price = Spot+ Cost ofCarry

INR 47.20 per USD (47.02+0.18)

Futures Price in INR Rs 4,72,00,000

Spot Rate on 28 DEC 09 INR 46.50 per USD

If not hedged receipt would be Rs 4,65,00,000

Saving due to hedging Rs 7,00,000


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Costs

Deposit

Upfront Margin 5% of the contract amount

ChargesBrokerage 0.04 % of the contract value

Government Taxes and Duty

Service Tax

10 % of BrokerageSTT (only on sell) Nil ( as of now)

Transaction Tax Nil ( as of now)

Stamp Duty 0.002 %


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Margins

Margins / collaterals

To be deposited pre trade

Released once trade is unwound or the contract matures

Forms of collaterals (*)

Cash

Bank guarantees

Fixed deposits,

GOI bonds

Approved equities / mutual fund units

( * )- Check with Head office


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Margins

Providing collaterals

Cash through CIM (debited from clearing bank account)

FD and BG from approved banks

GOI bonds through National Securities ClearingCorporation Ltd (NSCCL)

Approved securities

Releasing collaterals Cash next day in the bank a/c, FD and BG same day

Approved securities to custodians on same day


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Thank

you

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CurrencCurrencyy Futures PPT- Branches (1).ppt

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