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CURRENCYBY RAJINWHAT IS CURRENCY.?A generally accepted form of money, including coins and paper notes, which is issued by a government and circulated within an economy. Used as a medium of exchange for goods and services, currency is the basis for trade.Eg. Indian Rupee is a currency circulated by RBI(Central Bank in India).USD is a currency we use for International TransactionsCURRENCY TRADINGWhile trade is international, currencies are national. As international transactions are settled in global currencies, usually they are brought/sold for one another and this constitutes 'currency trading'."

FACTORS AFFECTING EXCHANGE RATE OF CURRENCYECONOMICALSUPPLY & DEMANDGDP,IIPWPIFiscal DeficitCurrent Account DeficitMonetary Policy - Domestic InternationalGovernment policiesCrude Oil PricesTrade DataFACTORS AFFECTING - OTHERPOLITICAL - Geo political SPECULATIONHOW AND WHY DOES THE DEMAND AND SUPPLY OF A CURRENCY INCREASE AND DECREASE?A rise in export earnings of a country increases foreign exchange supply. A rise in imports increases demand. These are the objective reasons, but there are many subjective reasons too. Some of the subjective reasons are: Directional viewpoints of market participants Expectations of national economic performance, Confidence in a countrys economy and so on.WHAT IS CURRENCY DERIVATIVES..?The term 'Derivatives' indicates it derives its value from some underlying i.e. it has no independent value. Underlying can be securities, stock market index, commodities, bullion, currency or anything else. From Currency Derivatives market point of view, underlying would be the Currency Exchange rate. To put it simply an example of Derivatives is curd which is derived from Milk. Derivatives are unique product, which helps in hedging the portfolio against the future risk. At the same time, derivatives are used constructively for arbitrage and speculation too.BASIC INSTRUMENTS USED & PARTICIPANTS IN CURRENCY DERIVATIVESFUTURES OPTIONS

PARTICIPANTS

Hedgers Importers, Exporters, Banks.SpeculatorsArbitragersCURRENCY - FUTURESA currency futures contract is a standardized version of a forward contract that is traded on a regulated exchange. It is an agreement to buy or sell a specified quantity of an underlying currency on a specified date in future at a specified rate (e.g., USD 1 = INR 46.00). (Note: USD is abbreviation for the US Dollar, and INR for the Indian Rupee)."CURRENCY - FUTURESPermitted on USD - INR EUR - INR GBP - INR JPY - INR Currency Futures can be traded through MCX- SX, NSE and USE

CURRENCY - OPTIONSContract that allows the buyer the right but not the obligation to buy or sell the underlying at a stated date and at a stated priceA call option gives the right to buy and put option gives the right to sellIn every currency transaction, one currency is bought and another sold. Option to buy USD for INR = USD CALL & INR PUT Option to sell USD for INR = USD PUT & INR CALL

FEATURES OF CURRENCY OPTION CONTRACTS

Standardized exchange traded currency options have the following features:The underlying for the currency option shall be US Dollar Indian Rupee (USD-INR) spot rate.The options shall be premium styled European call and put options.The size of each contract shall be USD 1000. The premium shall be quoted in Rupee terms. The outstanding position shall be in USDThe maturity of the contracts shall not exceed twelve months.The contracts shall be settled in cash in Indian Rupees.The settlement price shall be the Reserve Bank's Reference Rate on the date of expiry of the contracts.

EXCHANGE TRADED CURRENCY OPTIONStandardized with predefined maturityEasily accessible in OTC Helps during UP & DownsRisk management & Cost control

PRODUCT SPECIFICATIONS

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