| Symbol |
USDINR |
| Instrument Type |
FUTCUR |
| Unit of trading |
1 (1 unit denotes 1000 USD) |
| Underlying |
USD |
| Quotation/Price Quote |
Rs. per USD |
| Tick size |
0.25 paise or INR 0.0025 |
| Trading hours |
Monday to Friday
9:00 a.m. to 5:00 p.m. |
| Contract trading cycle |
12 month trading cycle. |
| Last trading day |
Two working days prior to the last business day of the expiry month at 12:30 p.m. |
| Final settlement day |
Last working day (excluding Saturdays) of the expiry month.
The last working day will be the same as that for Interbank Settlements in Mumbai. |
| Base price |
Theoretical price on the 1st day of the contract. On all other days, DSP of the contract. |
| Price operating range |
| Tenure upto 6 months |
Tenure greater than 6 months |
| +/-3 % of base price |
+/- 5% of base price |
|
| Position limits |
Position Limit |
| Settlement |
Daily settlement : T + 1
Final settlement : T + 2 |
| Mode of settlement |
Cash settled in Indian Rupees |
| Daily settlement price (DSP) |
DSP shall be calculated on the basis of the last half an hour weighted average price of such contract or such other price as may be decided by the relevant authority from time to time. |
| Final settlement price (FSP) |
RBI reference rate |
|
| |
| Hedging scenarios |
| Exchange-traded currency futures are used to hedge against the risk of rate volatilities
in the foreign exchange markets. Here, we give two examples to illustrate the concept
and mechanism of hedging: |
|
| Example 1: |
| Suppose an edible oil importer wants to import edible oil worth USD 100,000 and
places his import order on July 15, 2008, with the delivery date being 4 months
ahead. At the time when the contract is placed, in the spot market, one USD was
worth say INR 44.50. But, suppose the Indian Rupee depreciates to INR 44.75 per
USD when the payment is due in October 2008, the value of the payment for the importer
goes up to INR 4,475,000 rather than INR 4,450,000. The hedging strategy for the
importer, thus, would be: |
|
Current Spot Rate (15th July '08)
Buy 100 USD - INR Oct '08 Contracts on 15th July '08 |
: 44.5000
(1000 * 44.5500) * 100 (Assuming the Oct '08 contract is trading at 44.5500 on 15th July, '08) |
| Sell 100 USD - INR Oct '08 Contracts in Oct '08 Profit/Loss (futures market) |
: 44.7500
1000 * (44.75 – 44.55) * 100 = 20,000 |
| Purchases in spot market @ 44.75 Total cost of hedged transaction |
: 44.75 * 100,000
100,000 * 44.75 – 20,000 = INR 4,455,000 |
|
| |
| Example 2: |
| A jeweller who is exporting gold jewellery worth USD 50,000, wants protection against
possible Indian Rupee appreciation in Dec ’08, i.e. when he receives his payment.
He wants to lock-in the exchange rate for the above transaction. His strategy would
be: |
|
| One USD - INR contract size |
: USD 1,000 |
Sell 50 USD - INR Dec '08 Contracts
(on 15th Jul '08) |
: 44.6500 |
| Buy 50 USD - INR Dec '08 Contracts in Dec '08 |
: 44.3500 |
| Sell USD 50,000 in spot market @ 44.35 in Dec '08 (Assume that initially Indian
rupee depreciated , but later appreciated to 44.35 per USD as foreseen by the exporter
by end of Dec '08) |
| Profit/Loss from futures (Dec '08 contract) |
: 50 * 1000 *(44.65 – 44.35)
= 0.30 *50 * 1000
= INR 15,000 |
|
| |
| The net receipt in INR for the hedged transaction would be: 50,000 *44.35 + 15,000
= 2,217,500 + 15,000 = 2,232,500. Had he not participated in futures market, he
would have got only INR 2,217,500. Thus, he kept his sales unexposed to foreign
exchange rate risk. |