ABSTRACT

The introduction of currency derivatives in India is a landmark decision which is likely to be a boon for importers, exporters and companies with foreign exchange exposure. These derivative products have a wide range with their special features suiting to the needs and requirements of the individuals. As currency derivative is new to India, it is time to have a broad understanding of them which are mostly couched in jargons and technical terms. Thus the very subject raises a kind of aversion for the common people. The currency derivatives are contracts just like any other derivatives vi ., !tock, Index etc. "nlike the stock, the underlying in this case is currencies. The value of the currencies determines the values of the currency derivatives. As it is universally accepted that market risks are ones which can not eliminated in absolute terms. #ut their management is perfectly possible. The currency derivatives are efficient tools for management of risks in money and forex markets. The need to protect the exposure against unforeseen and unpredictable movement in currency and interest rates has led to the emergence of these kinds of derivatives. Thus external borrowings or receivables or payments in foreign currencies come within the purview of management under it. As we all know the exporters and importers incur huge obligations in terms of foreign currencies and they can guard their interest by buying appropriate products. The present project attempts to study the basic concepts of $urrency futures, different factors that affect currency price changes, practical considerations and ways of considering currency future price and analy e different currency derivatives products.

Currency Derivatives

INTRODUCTION
%ach country has its own currency through which both national and international transactions are performed. All the international business transactions involve an exchange of one currency for another. &or example, If any Indian firm borrows funds from international financial market in "! dollars for short or long term then at maturity the same would be refunded in particular agreed currency along with accrued interest on borrowed money. It means that the borrowed foreign currency brought in the country will be converted into Indian currency, and when borrowed fund are paid to the lender then the home currency will be converted into foreign lender's currency. currency is known as exchange rate. The foreign exchange markets of a country provide the mechanism of exchanging different currencies with one and another, and thus, facilitating transfer of purchasing power from one country to another. (ith the multiple growths of international trade and finance all over the world, trading in foreign currencies has grown tremendously over the past several decades. !ince the exchange rates are continuously changing, so the firms are exposed to the risk of exchange rate movements. As a result the assets or liability or cash flows of a firm which are denominated in foreign currencies undergo a change in value over a period of time due to variation in exchange rates. This variability in the value of assets or liabilities or cash flows is referred to exchange rate risk. !ince the fixed exchange rate system has been fallen in the early )*+,s, specifically in developed countries, the currency risk has become substantial for many business firms. As a result, these firms are increasingly turning to various risk hedging products like foreign currency futures, foreign currency forwards, foreign currency options, and foreign currency swaps. Thus, the currency units of a country involve an exchange of one currency for another. The price of one currency in terms of other

Currency Derivatives

NEED OF THE STUDY

Indian companies have, in recent times, grabbed headlines for all the wrong reasons !waps, options, exotic derivatives and structured products. The list is endless. As a shareholder, one has seen companies booking losses owing to .currency derivatives/. 0aturally, everybody is petrified at the mention of currency derivatives.

The basic idea behind undertaking currency derivatives project to gain knowledge about currency future market.

OBJECTIVES OF THE STUDY

To study the basic concepts of $urrency future To study the different factors that affect currency price changes To understand the practical considerations and ways of considering currency To analy e different currency derivatives products.

future price.

SCOPE OF THE STUDY

The scope of the study is identified after and during the study is conducted. The study covers only the currency derivatives market in India. The study is with specific reference to 1upee and "! dollar. The study covers the functioning of currency futures market in India. The study is mainly relied on secondary data except for the interaction with guide and few trading members.

Currency Derivatives

RESEARCH METHODOLOGY
Achieving accuracy in any research requires in depth study regarding the subject. As the prime objective of the project is compare various Investment products available in the market with the existing players in the market and the impact of entry of private players in the market, the research methodology adopted was basically based on primary data via which the most recent and accurate piece of first hand information that could be collected from all possible source. !econdary data was used to support primary data wherever needed. &or the purpose of study, both primary and secondary data has been collected. The observational method and survey research method is used to collect the primary data. The necessary data has also been collected from official records and other published sources. The collected data is classified, tabulated, analy ed and interpreted. &inally conclusion is draw based on the study and suggestions are offered for increasing its customer base. Data Collection: There are two types of data collection ). 2rimary data 3. !econdary data Primary Data 2rimary data is personally developed data and it gives latest information and offers much greater accuracy and reliability. There are various sources for obtaining primary data i.e., 4ail survey, personal interview, &ield survey, panel research and observation approach etc.

Currency Derivatives

The study is dependent on secondary data to a maximum extent.

Primary data was collected using the following techniques: 5irect interview method 6bservation method Secondary Data !econdary data is the published data. It is already available for using and its saves time. The mail source of secondary data are published market surveys, government publications advertising research report and internal source such as sales, sales records orders, customers complaints and other business record etc. the study has also depended on secondary data to little extent, which is collected through internal source. Sources of Secondary Data: These source were use to obtain information on, #anks and other institutions history, current issues, policies, procedures etc, wherever required. Internet 4aga ines 0ewspapers 7ournals

Currency Derivatives

LIMITATIONS OF THE STUDY

The analysis was purely based on the secondary data. !o, any error in the

secondary data might also affect the study undertaken. The currency future is new concept and topic related book was not available in

library and market. The study was carried out for a period of 89 days and due to paucity of time an

in-depth study was not possible.

The derivatives market is a dynamic one. Therefore data related to last few

months was only consider and interpreted.

!econdary information may not be authentic.

Currency Derivatives

Currency Derivatives