CURRENCY

BY RAJIN

WHAT 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
Transactions

CURRENCY TRADING
While 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

CURRENCY
ECONOMICAL

SUPPLY & DEMAND

GDP,IIP

WPI

Fiscal Deficit

Current Account Deficit

Monetary Policy Domestic

International

Government policies

Crude Oil Prices

Trade Data

FACTORS AFFECTING - OTHER

POLITICAL Geo political

SPECULATION

HOW 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 DERIVATIVES

FUTURES
OPTIONS
PARTICIPANTS
Hedgers Importers, Exporters, Banks.
Speculators
Arbitragers

CURRENCY - FUTURES
A 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 - FUTURES
Permitted on
USD - INR
EUR - INR
GBP - INR
JPY - INR
Currency Futures can be traded through MCXSX, NSE and USE

CURRENCY - OPTIONS
Contract that allows the buyer the right but not the
obligation to buy or sell the underlying at a stated date
and at a stated price
A call option gives the right to buy and put option
gives the right to sell
In 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 USD
The 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 OPTION

Standardized with predefined maturity

Easily accessible in OTC
Helps during UP & Downs
Risk management & Cost control

PRODUCT SPECIFICATIONS

Thank You