Currencies FAQ
The Currency Futures Trading System of Bombay Stock Exchange Ltd. is called BSE-CDX (BSE Currency Derivatives Exchange).
Currency Futures traded on BSE-CDX
- are standard contracts of a specified quantity
- to exchange one currency for another
- at a specified date in the future called settlement date
- at a price that is fixed on the purchase date called futures price.
Currency Futures allows investors to take a view on the movement of the Indian Rupee (INR) against other currencies.
Currently, only Currency Futures are allowed to be traded by SEBI.
A currency forward contract is traded in the over-the-counter market usually between two financial institutions or between a financial institution and its client.
The Foreign Exchange Management Act is the law which regulates the Forex market. The regulatory authority for the Indian Forex market is the Reserve Bank of India (RBI). However, the Exchange Traded Currency Futures market is regulated by SEBI through the recognized stock exchanges.
The period beginning 1993, when the Indian Rupee moved away from an administered exchange rate, was a period of low currency volatility. This was followed by a period of high volatility during the Asian crisis after which the period again witnessed low volatility, followed yet again by a high volatility period.
The ICCL (the Clearing Corporation of Bombay Stock Exchange Ltd.) gives an unconditional guarantee for the net settlement obligations of all clearing members in the currency derivative segment. As such, in case of default of a clearing member, ICCL becomes counter-party for his net settlement obligations and thus other market participants remain unaffected.
Except FIIs and NRIs, every individual/corporate/institution/bank etc. is allowed to trade in the Currency Futures market.
To begin with, only US Dollar ($) futures is being traded against the Indian Rupee (INR). The contract for say the month of September will be called USDSEP2008.
There are 12 near calendar months contract available for trading along with spread contracts for every combination.
You do not need to own the underlying currency when you enter into a futures contract. The contract simply represents a commitment to either sell or buy the asset on the set expiry date.
The Currency Futures contract would expire on the last working day (excluding Saturdays and FEDAI holidays) of the month.
