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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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Foreign Exchange Market
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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Foreign Exchange Market
Participants
Central Banks
Commercial Banks
Hedge Funds Commercial companies
Investment management firms
Retail FX brokers
INDIVIDUALS
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Foreign Exchange Market
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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you
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