Currency Derivatives

Company
LOGO
CURRNC DERIVATIVE$
The Future lies here.
Agenda
1. Introduction
2. Currency Derivative Markets

3. Factors affecting Currency Markets
4. Some Interesting Facts
5. Potential Market Participants

6. Trading Process
7. Contract Specifications
8. Risk Management
9. Why SMC ?
10. How to get Started ?
Introduction
Definition:
A currency forward contract that is standardized,
exchange-traded and guaranteed by the clearing
corporation is called a currency futures. A large currency
forward market already exists
Need:
To enable concern to manage high volatility of Foreign
Exchange Market
High Transparency, efficiency and accessibility in
determining the Future Currency Exchange Rate.
MTM Obligations are to be settled on Daily Basis.
Back
Currency Derivative Markets

Global Foreign Exchange Markets:
Currency futures were first traded in Chicago Mercantile Exchange
(CME) in 1972
Average Daily Turnover in worlds main financial markets accounts
for $ 3.21 trillion. Break up of which is as follows:
Spot Transactions: $ 1.005 trillion

Outright Forwards: $ 362 billion
Forex Swaps: $ 1.714 trillion
Others: $ 129 billion
Global Forex derivative markets are active 24 hours a day

Some of the major currency future exchanges are:
Chicago Mercantile Exchange (CME)
Euronext Liffe
Tokyo Financial Exchange
Back

Main Trading Center
London
34.1%
Singapore
New York
16.6%
Global
Trading
Centers
(3.98 tn)
Hong
Kong
Tokyo
6%
Back

Indian Foreign Exchange Markets:
INR trades in a managed floating exchange rate regime
Daily average turnover of forward contracts in OTC
market is USD 34 BN and 334 MN contracts in a Year
INR is fully convertible on Indias Current Account, but
not on the Capital Account
FII can fully repatriate the investments
Resident Indians can invest offshore
All foreign currency spot & forward transactions need to
be routed through scheduled commercial banks /
Authorized Dealers
Volumes & tenor is restricted to underlying exposure
Only banks have open position limits
Back

Indian Foreign Exchange Markets:
Flows driving the USDINR rate include:
Trade & Capital Flows & its hedging by corporate & institutional
clients
Remittances by NRIs
Investments by offshore institutions in India & by Indians
companies offshore
Directional views of market participants
Indias Total Imports USD 250 BN, Total Exports

USD 160BN (FY06-07)
Capital Flows - FIIs - USD 31 BN, FDI - USD 15 BN, Bank
Capital USD 11 BN
Back
OTC v/s Currency Derivatives

OTC Market
Exchange Traded
Futures
Accessibility
Low
High
Price Transparency
Low
High
Liquidity
Subject to credit
limits
High
Agreements
Customized
Standard
Credit Exposure
Yes
Mitigated through the

clearing corporation
Settlement
Physical Delivery
Net settled in INR
Underlying
Required
Not Required
Compliance
High
Low
Basis
Back
Equity v/s Currency Futures

Basis
Equity Futures
Currency Futures
Product Traded
Equity
Foreign Currency
Lot Size
Varies from company to

company
At present Lot Size is

$1000.
Regulatory Authority
SEBI
RBI & SEBI both
Market Timings
5 Days a week from 9.55

am to 4 pm.
5 days a week from 9 am

to 5 pm.
Market Volatility
More
Low as regulated by RBI
Deriving Force
Market value of the

company whose share is
being traded
Economy of country whose

currency is being traded &
International Economy
Contract Period
Maturity of 3 months
Maximum maturity of 12
months
Back
Factors affecting markets
Macro economic views

Monetary Policy
RBI intervention
Flow information
Performance of other Asian currencies
Performance of equity markets
USD Sentiments
Performance of key commodities affecting trade
Policy announcements affecting flows trade or capital
REER Real Effective Exchange Rate
Data Announcements
Back
Some Interesting Facts

Forex Markets is the biggest financial market in the world
USD is the most traded currency in the world (Table
Attached)
Indian Rupee currency future was first launched in DGCX
i.e. Dubai Gold & Commodity Exchange
The 10 most active traders account for almost 73% of
total trading volume (Table Attached)
Currency Derivative (Rupee v/s Dollar) is a low volatility
product. Overall annualized volatility from 9 April 93 till 4
July 08 was 4.36% per year (Table Attached)
Back
Some Interesting Facts
Share of India in Global Foreign Exchange Market has

increased from 0.3% to 0.9% in 2007
Foreign Exchange Trading increased by 38% between
April 05 & April 06 & has more than doubled since 2001
NSE is the 1st to trade in currency futures in India
BSE & MCX also applied for the same
1st trading date in NSE is 29th Aug 08
Only USDINR would be available for trading initially
Back
Top 10 Currency Traders

% of overall volume, May 2008
Rank
Name
Volume
Deutsche Bank
21.70%
UBS AG
15.80%
Barclays Capital
9.12%
CITI
7.49%
Royal Bank of Scotland
7.30%
JPMorgan
4.19%
HSBC
4.10%
Lehman Brothers
3.58%
Goldman Sachs
3.47%
10
Morgan Stanley
2.86%
Back
Most Traded Currencies

Rank
Name
Volume
USD
43.15%
Euro
18.50%
Japanese Yen
8.25%
Pound
7.50%
Swiss Franc
3.40%
Australian Dollar
3.35%
Canadian Dollar
2.10%
Swedish Krona
1.40%
Hong Kong Dollar
1.40%
10
Norwegian Krone
1.10%
11
New Zealand Dollar
0.95%
12
Mexican Peso
0.65%
Back
Currency Volatility Matrix

Volatilities (annualized) of various currency pairs (%)
INR
USD
GBP
EUR
USD
GBP
EUR
JPY
4.356
8.690
10.173
11.929
7.949
9.530
11.527
7.215
12.260
11.524
Calculated from 9th April 1993 till 4th July 2008

Back
Currencies of Indian Interest
Euro
Yen
USD $
Rupee Rs.
Pound
Yuan
Back
Potential Market Participants

At present, NRI & FII
participation is prohibited
Mutual
Funds
Institutions
Retails
Currency
Derivative
Banks
Corporate
Back
Scope of Currency Futures
Directional
Views
Positioning
for
Appreciation/
Depreciation
for traded
currency
Hedging
Hedging
of
Payables
Receivables
FCY loans
Investment
Trade &
Capital
Flows
Remittance
for
Trade or
Services &
Capital
Transactions
Arbitrage
Entities
accessing
On Shore &
NonDeliverable
Markets
Back
Trading Process
Client
ClientOrder
places
order
through SMC
trading
platform
Order gets
routed
Client
to
Registration Exchange
All
mechanisms of
order would
be
same as in
F&O
Trade
Exchange
Execution
acts
as
platform b/w
buyers &
sellers
Orders
will be
compared by
price-time
priority
Trade will
Exchange
Confirmation
provide
confirmation
of
trades which
are
executed
by
various
participants
be
SMC in
turn will
provide
executed
once bid &
confirmations to
Trade will
Back
Contract Specifications
Category
Description
Underlying
Rate of exchange between 1 USD & INR.
Contract Size
USD 1000
Contract Months
12 Near Calendar Months
Expiration Date & Time
Last Business Day of the month
Min Price Fluctuation
0.25 paisa or INR 0.0025
Position Limits
6 % of total open interest or USD 5 million

whichever is higher
Settlement
Cash Settled in INR on relevant RBI

Reference Rate on contract expiry date.
Contract Fixing
2 Days prior to contract expiration date
Market Timings
From morning 9 am to evening 5 pm.

Back
Risk Management
Real time upfront portfolio based margins

Based on 99% VaR
Client level monitoring of risk
Initial Margin
Margin calculated using SPAN
Min initial margin 1.75% on day 1, 1% thereafter
Calendar spread margins defined at Rs. 250
Extreme Loss Margin
1% on value of gross open positions
Mark to market settlement
Back
Why SMC ?
Presence in more than 1350 locations across India
Trade in Equity & Derivatives at NSE , BSE , NSE F&O , BSE F&O
Online IPO & Mutual Funds*
Online Commodities both at NCDEX & MCX
Currency Futures Available
Live Quotes
Multiple Payment Gateways / Banks
Excellent Research Support
Competitive Brokerages & Charges
SMS Facility available
Dedicated Relationship Manager
User Friendly site
Online Back Office Reports
Dedicated Customer Care & Support

Back
About SMC
Broking Services
Equity
Equity
Derivative
Commodity
Currency
Derivative
Back
How to get started ?

Documents Required:
Completed Client Registration Form

Copy of PAN Card
Copy of Address proof
Bank Statement / Cancelled cheque
For Corporate Clients
Memorandum of Association
Articles of Association
Details of all Directors
Back
Contact Us
Visit Your Nearest SMC Branch / Sub broker
Or
Call us @ +91 11 30111333
Trading Members
Sub brokers
Branches
Mr. Rakesh Gupta (DirectorOperations)

Mr. Mohit Shyngle
+91 9810755567
Mr. Sunil Goyal
+91 9350504757
Mr. Rajesh Sharma
+91 9810910144
Mr. Ashish Gupta
+91 9958696933
Mr. Kapil Suri
+91 9958992020
Mr. Ankush Goel
+91 9891503703
Back

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Company

The Future lies here.

2. Currency Derivative Markets

5. Potential Market Participants

Currency Derivative Markets

Spot Transactions: $ 1.005 trillion

Global Forex derivative markets are active 24 hours a day

Currency Derivative Markets

Currency Derivative Markets

Currency Derivative Markets

Indias Total Imports USD 250 BN, Total Exports

OTC v/s Currency Derivatives

Mitigated through the

Net settled in INR

Equity v/s Currency Futures

Varies from company to

At present Lot Size is

RBI & SEBI both

5 Days a week from 9.55

5 days a week from 9 am

Low as regulated by RBI

Market value of the

Economy of country whose

Factors affecting markets

Macro economic views

Some Interesting Facts

Some Interesting Facts

Share of India in Global Foreign Exchange Market has

Top 10 Currency Traders

Royal Bank of Scotland

Most Traded Currencies

Hong Kong Dollar

New Zealand Dollar

Currency Volatility Matrix

Calculated from 9th April 1993 till 4th July 2008

Currencies of Indian Interest

Potential Market Participants

Scope of Currency Futures

Rate of exchange between 1 USD & INR.

12 Near Calendar Months

Expiration Date & Time

Last Business Day of the month

Min Price Fluctuation

0.25 paisa or INR 0.0025

6 % of total open interest or USD 5 million

Cash Settled in INR on relevant RBI

2 Days prior to contract expiration date

From morning 9 am to evening 5 pm.

Real time upfront portfolio based margins

Presence in more than 1350 locations across India

Online IPO & Mutual Funds*

Online Commodities both at NCDEX & MCX

Currency Futures Available

Multiple Payment Gateways / Banks

Excellent Research Support

Competitive Brokerages & Charges

SMS Facility available

Dedicated Relationship Manager

User Friendly site