THE STUDY OF CURRENCY DERIVATIVES / FOREX

MARKET

A Project Submitted To
University Of Mumbai for Completion of the Degree of
Master in Commerce
Under The Faculty of Commerce

By
SANJANA SINGH

Under the Guidance of

MR. GIRISH KARNAD

Dr. Koel Roy Choudhary

S.I.E.S College of Arts, Science and Commerce
Plot – 1-C, Sector –V, Nerul (East), Navi Mumbai-
400706

DECEMBER - 2022
 CERTIFICATE
This is to certify that Miss. SANJANA SINGH has worked and
duly completed her Project Work for the degree of Master in
Commerce under the Faculty of Commerce, her project is
entitled, “THE STUDY OF CURRENCY DERIVATIVES /
FOREX MARKET” under my supervision.

I further certify that the entire work has been done by the learner
under my guidance and that no part of it has been submitted
previously for any Degree or Diploma of any University. It is
her own work and facts reported by her personal findings and
Investigations.

Mr. Girish Karnad

Name and Signature

of Guiding Teacher
Seal of the College

Date of Submission:

Name and signature of External Examiner

 DECLARATION

I the undersigned Miss. SANJANA SANTOSH SINGH here

by, declare that the work embodied in this project work titled
“The study of Currency Derivatives / forex market”, forms my
own contribution to the research work carried out under the
guidance of Mr.Girish Karnad is a result of my own research
work and has not been previously submitted to any other
University for any other Degree or Diploma to this or any other
University. Wherever reference has been made to previous
works of others, it has been clearly indicated as such and
included in the bibliography. I hereby further declare that all
information of this document has been obtained and presented in
accordance with academic rules and ethical conduct.

SANJANA S.SINGH

Name and Signature of the

Learner

Certified By
MR. GIRISH KARNAD

Name and Signature of the Guiding Lecturer

 ACKNOWLEDGMENT

To list who all have helped me is difficult because they are so

numerous and the depth is so enormous.

 I would like to acknowledge the following as being idealistic

channels and fresh dimensions in the completion of this
project.

 I take this opportunity to thank the University of Mumbai for

giving me a chance to do this project.

 I would like to thank my Principal, Dr. Koel Roy

Choudhary for providing the necessary facilities required
for completion of this project.

 I take this opportunity to thank our coordinator Ms. Sugadha

Jha, for her moral support and guidance.

 I would like to express my sincere gratitude towards my

project guide Mr. Girish Karnad whose guidance and care
made the project successful.

 I would like to thank my college library, for having provided

various reference books and magazines related to my project.

 Lastly, I would like to thank each and every person who

directly or indirectly helped me in the completion of the
project especially my parents and peers who supported me
throughout my project.
 INDEX

Chap Topics Page no.

ters

1. Introduction
1.1 Executive summary

2. Research Methodology
2.1 Objectives of study
2.2 Scope of study
2.3 Limitations of study
2.4 Significance of study
2.5 Types of study
2.6 Research Methodology
2.7 Types of Data
2.8 Hypothesis

2.9 Sample size

2.10 Sample Method
2.11 Data Collection Method

3. Literature Review
3.1 Literature review
3.2 History
 3.3 Working of Forex Market
3.4 Benefits
3.5 Risks
3.6 Trading Strategies

4. Data Analysis, Interpretation & Presentation

5. Conclusion and Suggestions

5.1 Conclusion
5.2 Findings
5.3 Suggestions

6. Bibliography

7. Appendix
CHAPTER NO. -1
INTRODUCTION
 1.1 EXECUTIVE SUMMARY

1.1.1 What Are Derivatives?

Figure 1:- what is Derivative ?

https://www.educba.com/what-is-derivatives/
(A derivative is a financial instrument that derives its value from something else)

Derivatives are complex financial contracts based on the value

of an underlying asset, group of assets or benchmark. These
underlying assets can include stocks, bonds, commodities,
currencies, interest rates, market indexes or even
cryptocurrencies.

Investors enter into derivative contracts that clearly state terms

for how they and another party will respond to future changes in
value of the underlying asset.

Derivatives may be traded over-the-counter (OTC), meaning an

investor purchases them through a brokerage-dealer network, or
on exchanges like the Chicago Mercantile Exchange, one of the
largest derivatives markets in the world.

While exchange-traded derivatives are regulated and

standardized, OTC derivatives are not. This means that you may
be able to profit more from an OTC derivative, but you’ll also
face more danger from counter-party risk, the chance that one
party will default on the derivative contract.

In very simple words for a better understanding, with a small

example,
Derivatives means something that comes from or is based on
something else and that something else is called underlying
asset or simple underlying of the derivative.
For example
Chair and Wood

Figure 2 :- Example of derivative with chair and wood

https://www.youtube.com/watch?v=4vns9LEbEj0&ab_channel=TrueInvesting

In the above figure we can see the chair is a derivative and the
wood that the chair is made of /based on is called the underlying
asset.
When investing in derivatives one must know that:
 When the price of the underlying assets increase, the price of
the derivative also increases.
 When the price of the underlying assets decrease, the price of
the derivative also decreases.
 Figure 3:- Example of derivative with chair and wood
https://www.youtube.com/watch?v=4vns9LEbEj0&ab_channel=TrueInvesting

Figure 4:- Example of derivative with sugar and sugarcane

https://www.youtube.com/watch?v=4vns9LEbEj0&ab_channel=TrueInvesting

Another such example is:

Sugar and Sugarcane
We all know that sugar is produced after processing the
sugarcane, so sugar is the derivative and sugarcane is the
underlying asset
Now if :
 The price of sugarcane is increased then the price of sugar
also increases in the market.
 The price of sugarcane is decreased then the price of sugar
also decreases in the market.

Similarly there are financial derivatives in stock market.In stock

market we deal with the financial derivatives, which can be
divided into 4 types:-
1. Stocks
2. Index
3. Currency
4. Commodity

When the prices of the underlying assets of these different

financial derivatives changes, the derivatives based on those
underlying assets also changes.

We will be further delving in the topic of Currency

Derivatives.

But before we move on to Currency derivatives lets look at the

types of derivatives.

1.1.2 TYPES OF DERIVATIVES

There are mainly 4 types of derivatives, we will be covering
those types as follow:
1. Forward contracts
2. Future contracts
3. Option contracts
4. Swap contracts

1) What is Forward Contract ?

A forward contract is a type of derivative. A derivative is an
investment contract between two or more parties whose value is
tied to an underlying asset or set of assets. For example,
commodities, foreign currencies, market indexes and individual
stocks can all be underlying assets for derivatives.
In a forward contract, the buyer and seller agree to buy or sell an
underlying asset at a price they both agree on at an established
future date. This price is called the forward price. This price is
calculated using the spot price and the risk-free rate. The former
refers to an asset’s current market price. The risk-free rate is the
hypothetical rate of return on an investment, assuming there’s
zero risk.

In a forward contract, the buyer takes a long position while the

seller takes a short position. The idea behind forward contracts
is that the parties involved can use them to manage volatility by
locking in pricing for the underlying assets. In that sense, a
forward contract is a way to hedge against market uncertainty.

Forward contracts are negotiated between two parties. There is

flexibility over the definition and content, but they should
always include:

 The asset involved. This could include any traded goods or a

currency.
 Quantity. It is usual to fix the amount of the asset involved.
 Price. The future price that will be paid. This should also
include the currency.
 Trading date. The end date of the contract, when payment is
due for the asset. Some types of forward contract offer
flexibility in this.

Lets understand it with a simple example

As we all know, in today's unpredictable market, the prices of

the commodities rise and fall suddenly and very often due to the
factors affecting the market or factors affecting the
commodities, thus people trading in these markets have to bear a
huge risk and loss.
For instance,
Rahul is a farmer who incurs a cost of 2500 per quintal and a
corporation named AB ltd. purchases the rice from the farmer at
4000 per quintal.
Now as we know the price of rice may increase or may decrease
and this change in the price of the rice affects the farmer as well
as the corporation purchasing from the farmer.

Say if the price of rice drops in the market and the price falls
below 2500 per quintal which is the cost incurred by Rahul then
it’s a loss for Rahul.
And say if the prices were to rise in the market and the price
increases above 4000 per quintal which is the price at which AB
ltd. buys the rice from the farmer, thus the cost incurred by the
corporation will increase and cut off the profits or may even
lead to loss.

To avoid such fluctuations in the markets price and loss incurred

by both they sign a Forward contract in which:-
AB ltd. will buy a fixed quantity of rice at a fixed rate (The
fixed price at which they trade is called the forward price) on a
fixed date in the future from the farmer regardless of the current
price of rice in the market.
This way it wouldn’t matter what the price of rice at a given
period of time is, as the price for it is already fixed in the
contract made between AB ltd and Rahul. Thus none of them
incur a loss either way even if the price rises or falls.

Moving on to the further detailed explanation of the example,

Rahul and AB ltd make a forward contract in which they decide
to purchase and sell the 10 quintal of rice at 3000 per quintal on
a date 2 months from now.
This way if the price of rice falls below 2500 per quintal it wont
make a loss for the Rahul as he is gonna sell his rice at 3000 per
quintal price, similarly it won’t make a loss for the AB ltd even
if the prices of rice rises above 4000 per quintal as the
corporation will be purchasing it at 3000 per quintal.
This way for Rahul the farmer
Seling price > 2500/quintal (cost incurred by farmer for growing
rice)
And for AB ltd.
Buying price/Purchasing price < 4000/quintal (selling price in
market)

After 2 months say, if the price of rice in the market is

2000/quintal, cause of the contract Rahul won’t suffer any loss
as he would sell the rice at 3000/quintal to AB ltd,
And if the price of the rice in the market is 4500/quintal, Ab ltd
won’t suffer any loss as it has a contract with Rahul to purchase
the rice at 3000/quintal.

This way, due to forward contract buyers and sellers can save
themselves from any loss they could have incurred due to
change in the price of the commodity in the market.

1.1. Types of Forward contracts

Not all forward contracts are the same. There are different types
used – usually with different rules for the date or dates the
contract can be settled.

 Closed Outright Forward

This is the simplest type of a forward contract, where both
parties agree to exchange currencies at a future date by locking
in an exchange price. These are also known as European
contracts or Standard Forward Contracts.

 Flexible Forward
With flexible forwards, the parties can exchange the funds
before the settlement date, often in parts, as long as the entire
amount is settled by the due date.
 Long-Dated Forward
These have the same functionality as any forward contract,
except that the settlement period often extends over more than a
year. Generally, most forward contracts are short term contracts,
which is what differentiates the long date forward contracts
from the rest of them,

 Non-Deliverable Forward
Usually, parties enter into forward contracts over a physical
exchange of a commodity, an asset, or currency. However, with
non-deliverable forwards, the parties only exchange the
difference between the contract rate and the spot rate at the time
of maturity.

 Window forwards. A window forward contract specifies a

range of settlement dates. This provides a period of time
(such as one month) over which the contract can be settled.
This can help to manage exchange rate risk.

1.2. Pros and Cons of using a Forward Contract

 Forward Contract Pros:

1. Guarantees a future price and allows the company to control

supply and risk.
2. Can be used to hedge currency and interest rate risks.
3. Contracts are flexible and can be defined for a specific
situation.
4. Can help in predicting cash flow
5. Can be useful to plan investments where companies can
decide to lock in funds (in any currency) and earn income
before the funds are due for the contract

 Forward Contract Cons:

1. Of course, prices could move in either direction. The price or

exchange rate could move against you, and you end up
paying more than the standard price in the future.
2. A forward contract is more complicated than a standard
contract.
3. With a longer time frame, it carries an increased risk of non-
payment or default.

2.) What Is A Future Contract?

A futures contract is a legal agreement to buy or sell a particular
commodity asset, or security at a predetermined price at a
specified time in the future. Futures contracts are standardized
for quality and quantity to facilitate trading on a futures
exchange.

The buyer of a futures contract is taking on the obligation to buy

and receive the underlying asset when the futures contract
expires. The seller of the futures contract is taking on the
obligation to provide and deliver the underlying asset at the
expiration date. In simpler words, future contracts are forwards
that can be traded on the trading platform. Any forward that is
being traded on the exchange platform is thereafter called Future
contracts or Futures. Futures can be bought and sold easily and
has no default risk involved.
2.1. Types of Futures Contracts

Futures contracts can be used to set prices on any type of

commodity or asset, so long as there is a sufficiently large
market for it. Some of the most frequently traded types of
futures are outlined below:

 Agricultural Futures: These were the original futures

contracts available at markets like the Chicago Mercantile
Exchange. In addition to grain futures, there are also tradable
futures contracts in fibers (such as cotton), lumber, milk,
coffee, sugar, and even livestock.

 Energy Futures: These provide exposure to the most

common fuels and energy products, such as crude oil and
natural gas.

 Metal Futures: These contracts trade in industrial metals,

such as gold, steel, and copper.

 Currency Futures: These contracts provide exposure to

changes in the exchange rates and interest rates of different
national currencies.

 Financial Futures: Contracts that trade in the future value of

a security or index. For example, there are futures for the
S&P 500 and Nasdaq indexes. There are also futures for debt
products, such as Treasury bonds.

There are mainly two kinds of futures traders – hedgers and

speculators.

Hedgers, as the name suggests, seek protection against future

price volatility. They aren’t looking to profit from the deal.
Instead, they want to stabilise the price of their product. Profit or
loss from the sale is somewhat offset by the price of the
underlying commodity in the market.
Speculators, on the other hand, trade against market trends. A
speculator may disagree that price will fall in the future, so he
will buy a futures contract and sell it to make a profit when price
rise. However, this trading needs to take place before the futures
expiration date.

By nature, futures trading is a zero-sum game. Since it locks

price, it isn’t impacted by the prices in the market at the time of
the deal. It offers protection against unpredictable price swings
and stabilizes the market. Further, its price is settled daily. At
the end of a trading day, one’s account is debited, and the
other’s gets credited to offset any price change on that day so
that no one suffers an unexpected loss.

2.1. Pros and Cons of Futures

Pros Cons

Investors can speculate with It involves risks and speculators

futures price in the direction of the can lose even their initial margin
underlying asset price in the (because futures use leverage) if
market price swings the other way
Traders use futures contracts to Investors can lose favourable price
hedge against a price drop in the advantages by entering a contract
future market if price fall is more than
anticipated rate at the time of
settlement
Investors can save paying upfront Using margin also has
by leveraging margin consequences; investors can end
up incurring a huge loss as well

(Table 1)
The commodity futures market is highly volatile, and traders can
end up with unlimited profit or loss. It takes skills, knowledge,
experience, and risk abilities to trade successfully in the futures
market.

3.) What Is an Options Contract?

An options contract is an agreement between two parties to

facilitate a potential transaction on an underlying security at a
preset price, referred to as the strike price, prior to or on the
expiration date.

In derivative trading world most tradings happens in options or

option contracts.
It is a contract which grands us the right buy or sell underlying
asset on a fixed date in the future at a fixed price.

An option trading we get the right to buy a sell the contract but
it is up to us if we want to exercise this right on the fixed date.
We will only exercise the right only if we get profits out of it.
For example
Abhishek is a businessman and wants to buy a 1 acre land from
Rahul at the market price of the land which is 10 lakh rupees
currently.
There are rumour that the government will start a airport project
near by the land in the future. Now Mr Abhishek knows of the
rumor and also knows that if the airport is built then the price of
the land around it will increase.
Seeing this Abhishek wants to buy the land at the current price
of rupees 10 lakh and when the price goes up in the future he
will sell the land for a higher price and gain the profits.
Now the rumour are just rumour, Abhishek doesn't know if the
airport will be built or not, for taking this risk would be a huge
loss for Mr Abhishek if the government stops the plans of
building the airport. Seeing this risk Abhishek instead of giving
the whole amount gives only 50000 Rupees as a token amount
to Rahul and makes the agreement that Abhishek will buy the
same land after 3 months for the same price of 10 lakh rupees.

And if Mr Abhishek doesn't buy the land after 3 months then

Rahul can keep the token amount for himself. This way
Abhishek gives the token amount to Rahul and made a contract
for the right of buying the said land after 3 months for the same
price, this types of contracts are called option contracts. When
we buy options we get the option to buy or sell at the future date
for the fixed price.
Option contacts takes place between 2 people, the person who
buys the contract is called option buyer and the one who sells
the contract is called option seller or option writer.
In the above example Abhishek was the option buyer and Rahul
is the option seller or option writer and the token amount paid
by the option buyer to the option seller is called options
premium or option price.
While buying the option contract the option buyer has option
and not an obligation.
Where as the option seller has an obligation sell the land
according to the contract.
Option sellers, also known as writers, are obligated to transact
their side of the trade if a buyer decides to execute a call option
to buy the underlying security or execute a put option to sell.
Option contracts are financial derivatives which are traded on
the exchange platform but we experience the option contract in
our daily life as well, for example the movie tickets they are
option contract, when we buy the tickets we buy the right to
watch a fixed movie at a fix time and its up to us if we want to
go and watch the movie or not.
Similarly train tickets are also option contract, by buying the
ticket we get the right travel to a fixed destination on fix date
and it's up to us if we want to go or not.

3.1. Types of option contracts

 A call option is a type of options contract which gives the

call owner the right, but not the obligation to buy a security
or any financial instrument at a specified price (or the strike
price of the option) within a specified time frame.

To buy a call option one needs to pay the price in the form of an
option premium. As mentioned, it is upon the discretion of the
owner on whether he wants to exercise this option. He can let
the option expire if he deems it unprofitable. The seller, on the
other hand, is obliged to sell the securities that the buyer desires.
In a call option, the losses are limited to the options premium,
while the profits can be unlimited.

Let us understand a call option with the help of an example. Let

us say an investor buys a call option for a stock of XYZ
company on a specific date at Rs 100 strike price and expiry
date is a month later. If the price of the stock rises anywhere
above Rs 100, say to Rs 120 on the expiration day, the call
option holder can still buy the stock at Rs 100. If the price of a
security is going to rise, a call option allows the holder to buy
the stock at a lower price and sell it at a higher price to make
profits.
Call options are further of 3 types

I. In the money call option: In this case, the strike price is less
than the current market price of the security.

II. At the money call option: When the strike price is lower
than the current price by an amount equal to the premium
paid for the call option then it is said to be at the money.

III.Out of the money call option: When the strike price is more
than the current market price of the security, a call option is
considered as an out of the money call option.

 Put options
Put options give the option holder the right to sell an underlying
security at a specific strike price within the expiration date. This
lets investors lock a minimum price for selling a certain
security. Here too the option holder is under no obligation to
exercise the right. In case the market price is higher than the
strike price, he can sell the security at the market price and not
exercise the option.

Let us take an example to understand what a put option is.

Suppose an investor buys a put option of XYZ company on a
certain date with the term that he can sell the security any time
before the expiration date for Rs 100. If the price of the share
falls to below Rs 100, say to Rs 80, he can still sell the stock at
Rs 100. In case the share price rises to Rs 120, the holder of the
put option is under no obligation to exercise it.
If the price of a security is falling, a put option allows a seller to
sell the underlying securities at the strike price and minimise his
risks.

Like call options, put options can further be divided into ‘in the
money’ put options, ‘at the money’ put options and ‘out of the
money’ put options.
I. In the money put options: A put option is considered in the
money when the strike price is more than the current price of
the security.

II. At the money put option: When the strike price is higher
than the current price by an amount equal to the premium
paid for the put option then it is said to be at the money

III.Out of the money put options: A put option is out of the

money if the strike price is less than the current market price.

Options can also be classified on the exercising style into

American and European options.

IV. American options:

These are options that can be exercised at any time up to the
expiration date. Select security options available at NSE are
American style options.

V. European options:
These options can be exercised only on the expiration date. All
index options traded at NSE are European options.
3.2. Advantages
1. Leverage. Options allow you to employ considerable
leverage. This is an advantage to disciplined traders who
know how to use leverage.

2. Risk/reward ratio. Some strategies, like buying options,

allows you to have unlimited upside with limited downside.

3. Unique Strategies. Options allow you to create unique

strategies to take advantage of different characteristics of the
market - like volatility and time decay.

4. Low capital requirements. Options allow you to take a

position with very low capital requirements. Someone can do
a lot in the options market with $1,000 but not so much with
$1,000 in the stock market.

3.3. Disadvantages
1. Lower liquidity. Many individual stock options don't have
much volume at all. The fact that each optionable stock will
have options trading at different strike prices and expirations
means that the particular option you are trading will be very
low volume unless it is one of the most popular stocks or
stock indexes. This lower liquidity won't matter much to a
small trader that is trading just 10 contracts though.

2. Higher spreads. Options tend to have higher spreads because

of the lack of liquidity. This means it will cost you more in
indirect costs when doing an option trade because you will
be giving up the spread when you trade.

3. Higher commissions. Options trades will cost you more in

commission per dollar invested. These commissions may be
even higher for spreads where you have to pay commissions
for both sides of the spread.
4. Complicated. Options are very complicated to beginners.
Most beginners, and even some advanced investors, think
they understand them when they don't.

5. Time Decay. When buying options you lose the time value
of the options as you hold them. There are no exceptions to
this rule.

6. Less information. Options can be a pain when it is harder to

get quotes or other standard analytical information like the
implied volatility.

7. Options not available for all stocks. Although options are

available on a good number of stocks, this still limits the
number of possibilities available to you.

Swap contracts
A derivatives contract is one of the best diversification and
trading instruments used by both investors and traders. Based on
its structure, it can be broadly divided into the following two
categories; Contingent claims, otherwise known as options and
forward claims, such as exchange-traded futures, swaps, or
forward contracts. From these categories, swap derivatives are
effectively used to exchange liabilities. These are an agreement
between two parties to exchange a sequence of cash flows over
a certain duration

4.) What Is Swap Trading?

A swap Derivative is a contract wherein two parties decide to
exchange liabilities or cash flows from separate financial
instruments. Often, swap trading is based on loans or bonds,
otherwise known as a notional principal amount. However, the
underlying instrument used in Swaps can be anything as long as
it has a legal, financial value. Mostly, in a swap contract, the
principal amount does not change hands and stays with the
original owner. While one cash flow may be fixed, the other
remains variable and is based on a floating currency exchange
rate, benchmark interest rate, or index rate.
Typically, at the time someone initiates the contract, at least one
of these cash flows is determined through an uncertain or
random variable, like foreign exchange rate, interest rate, equity
price, or a commodity price.

4.1. Types Of Swaps

Countless variations exist in exotic swap agreements. Some of

the most common swap contracts are as follows:

I. Interest Rate Swaps: The idea behind an interest rate swap

is to switch the cash flows from a fixed interest rate to a
floating interest rate. In such a swap, Party A agrees to pay a
fixed rate of interest to Party B on a notional principal for a
specified period and on predetermined intervals.

For instance, Argentina and China have used this swap,

allowing China to stabilise its foreign reserves. Another
example is the use of currency swaps by the federal reserve of
the USA engaging in aggressive currency swap agreements with
European central banks. This was done during the 2010
financial crisis in Europe to stabilise the euro that had been
falling as a result of the Greek debt crisis.

II. Currency Swaps: In a currency swap, both parties exchange

principal and interest payments on debt that is denominated
in different currencies agreed by the parties. Unlike an
interest rate swap, the principal is often not a notional but is
exchanged along with interest obligations. Currency swaps
can take place between different countries.

Consequently, Party B agrees to make payments to Party A on a

floating interest rate with the same notional principal, the same
amount of time, and the same intervals. The same currency is
used to pay the two cash flows in a classic interest swap,
otherwise known as a plain vanilla interest swap. The
predetermined payment dates are known as settlement dates, and
the time between them is called the settlement period. As swaps
are customised contracts, payments can be made monthly,
quarterly, annually, or at any interval determined by the parties.

III.Total Returns Swap: In total returns swaps, the total return

from a particular asset is swapped for a fixed interest rate.
The party that pays the fixed rate takes on the exposure
towards the underlying asset, be it a stock or an index. For
instance, an investor can pay a fixed rate to a party in return
for exposure to stocks, realising the capital appreciation and
earning the dividend payments, if any.

IV.Commodity Swaps: Commodity swaps are used to

exchange cash flows that are dependent on a commodity
price. As the price of commodities is floating, one party
exchanges this floating rate for a fixed rate. For example, a
producer can swap the spot price of Brent Crude oil for a
price that is set over an agreed-upon period. It allows
producers to lock in a set price and mitigate losses based on
future price fluctuations.
V. Debt-Equity Swaps: A debt-equity swap involves the
swapping of equity for debt and vice versa. It is a financial
restructuring process where one party exchanges/cancels
another party’s debt in exchange for an equity position. For a
publicly-traded company, this would mean exchanging
bonds for stocks. Debt-equity swaps are a means for a
company to refinance its debt as well as relocate its capital
structure.

VI.Credit Default Swap (CDS): CDS or credit default swaps is

an agreement by a party that offers insurance to the second
party if a third party defaults on a loan offered by the second
party. The first party offers to pay the principal amount that
is lost as well as the interest on a loan to the CDS buyer,
provided the borrower defaults on their loan.

4.2. The advantages of swaps are as follows:

1) Swap is generally cheaper. There is no upfront premium and

it reduces transactions costs.

2) Swap can be used to hedge risk, and long time period hedge
is possible.

3) It provides flexible and maintains informational advantages.

4) It has longer term than futures or options. Swaps will run for
years, whereas forwards and futures are for the relatively short
term.

5) Using swaps can give companies a better match between their

liabilities and revenues

4.3. The disadvantages of swaps are:

1) Early termination of swap before maturity may incur a

breakage cost.
2) Lack of liquidity.

3) It is subject to default risk

5.) What are Currency Derivatives?

Currency derivatives are contracts to buy or sell currencies at a

future date. The major types of currency derivatives are forward
contracts, futures contracts, options and swaps.

Despite having an average daily turnover of Rs 44,859 crores,

currency derivatives in India are largely unknown to small retail
investors.
The currency derivatives trading segment in India is dominated
by importers, exporters, central banks, banks and corporations.
While currency derivatives in India are primarily used for
hedging, retail investors can create wealth in the currency
derivatives segment by speculating and arbitraging.

5.1. What is the meaning of Currency

Derivatives?

Currency derivatives are financial contracts (futures, options and

swaps) which have no value of their own. They derive their
value from the value of the underlying asset, in this case,
currencies.
For example, assume that the current USD/INR rate is 73.2450.
A 1 month USD/INR futures contract is trading at Rs 73.3650.
Here, the underlying asset is the USD/INR exchange rate and
the 1 month futures contract being traded is the currency
derivative.
The underlying asset and the derivatives contract have different
values. But the value of the derivative is dependent and derived
from the value of the USD/INR current exchange rate.
5.2. What are Currency Futures?

Currency futures are exchange traded futures contracts which

specify the quantity, the date, and the price at which currencies
will be exchanged in the future. Speculators are the most active
participants in the futures market but close their positions before
expiry.
So, in reality, they do not physically deliver the currencies,
rather they make or lose money based on the price changes of
the futures contract.

5.3. What are Currency Options?

Currency options are contracts that give the buyer the right, but
not the obligation, to buy or sell a certain currency on a future
date at a pre-decided price. There are two types of currency
options: ‘Call’ option and ‘Put’ option.

The below table demonstrates the relationship between options

and currency pairs.

I. Buy a call option - The price of the currency pair is

expected to rise
II. Buy a put option - The price of the currency pair is
expected to fall
III.Sell a call option - The price of the currency pair is expected
to fall
IV.Sell a put option - The price of the currency pair is expected
to rise

5.4. Are Currency Derivatives in India popular?

While currency futures were introduced in India in 2008 and

currency options in 2010, currency derivatives in India are still
mostly dominated by central banks and importers-exporters.
The daily volume of 44,859 Crores is mostly contributed by
banks, corporations, importers and exporters. But speculators
and arbitrageurs have also increased their participation in the
currency markets.

As more retail investors begin to discover the scope of profit

generation in the forex market, the popularity and demand for
currency derivatives in India will witness a substantial growth.

5.5. What are the uses of Currency Derivatives in

India?

Currency derivatives in India are primarily used for:

 Hedging: By importers / exporters and other hedgers

 Speculating: By speculative traders
 Arbitraging: By arbitrage traders

5.6. How hedgers use currency derivatives?

Mr Agarwal imports 10,000 kgs of Washington apples from the

US worth Rs 14,64,900 at the current USD/INR rate of 73.2450.
If he were to make the payment today, then he will have to shell
out Rs 14,64,900. But the payment has to be made after 2
months.
Mr Agarwal is worried. He is expecting the USD/INR rate to go
up from 73.2450 to 75.2450 in the next couple of months. This
means that Mr Agarwal will now end up paying Rs 15,04,900
instead of Rs 14,64,900 i.e. Rs 40,000 more!

Such losses can be disastrous for his business.

But Mr Agarwal can hedge this Rs 40,000 loss by using
currency derivatives. As he expects the USD/INR to increase, he
can buy 22 lots of currency futures of USD/INR at the current
rate of 73.3650.
By buying 22 lots, he has taken a position of Rs 16,14,030
(covering his purchase cost). Let’s say his prediction comes true
and the USD/INR rate appreciates to 75.2450. Then he will end
up making a profit of Rs 41,360 by closing his position. So, his
Rs 40,000 loss is offset by his Rs 41,360 profit.

This is how currency derivatives help importers and exporters

hedge against currency fluctuations.

5.7. How speculators use currency derivatives?

Mr Sharma, a teacher, wants to make some quick profit and

decides to try his luck at currency derivatives trading.
He is bearish about USD/INR and believes that a poor US
unemployment data will result in the USD/INR rate falling from
73.2450 to 72.2450 in the coming weeks.
So, he shorts (sells) 10 lots of USD/INR at Rs 73.2450. He has
now taken a position of Rs 7,32,450. After the data is released,
there is volatility in the USD/INR rate and USD/INR falls to
71.2450 intraday.
Mr Sharma, quickly covers his short position by buying back the
10 lots at 71.2450. He ends up making a profit of Rs 20,000 in
intraday!

Speculators use various indicators and forex trading strategies to

identify profit making opportunities in the forex markets using
currency derivatives.

5.8. How arbitrageurs use currency derivatives?

In India, Currency derivatives are traded on NSE, BSE and

MCX-SX platforms. There is always a small price difference
between the price of the same currency contract between the
three exchanges. Arbitrageurs make money using this small
price difference.
Mr Verma noticed that the USD/INR October futures was
trading at 73.39 on NSE and at 73.35 on BSE.
So, he decided to buy 25 lots from BSE and sell them on the
NSE. By capitalizing on the spread between the two exchanges,
Mr Verma made 7.4% on his investment of Rs 20,000 in a
matter of minutes!
Buy on BSE Rs 73.33/lot
Total position taken Rs 18,33,250
Sell on NSE Rs 73.39/lot
Total Sell Value Rs 18,34,750
Profit Rs 1,500
Less: Brokerage Rs 20
Realized Profit Rs 1,480
Profit % 7.72%
Now that we understand how various market participants use
currency derivatives in India to their advantage, let us look at
how you can trade currency derivatives in India.

5.9. Types of currency derivatives:

Currency derivatives contracts can be of two types. The trader

often combines the two types to manage their portfolio risk
consistently:

i. Futures:
In this type of contract, the traders lock in a specified price for a
particular currency to buy or sell at a future date, regardless of
the price of that currency in the open market at that time.

ii. Options:
Like futures, options allow counter parties to buy or sell the
currency asset at a pre-decided price at a future date. But unlike
futures, the counter parties may choose not to trade by the time
the contract expires. Thus, options give the rights to buy or sell,
but not the obligation.
Options, in turn, are of two types:
i. Call option:
This gives the owner the right to buy the underlying asset at a
future date and a per-decided price, but not obligated.
ii. Put option:
Opposite the call option, the put option gives the owner the right
to sell the underlying asset at a future date and a pre-decided
price, but not the obligation to do so.

5.10. Advantages of currency derivatives:

Currency derivatives are financial instruments that help in

adapting to market fluctuations through:

1. Hedging:
Traders can monitor their risk exposure by combining options
and futures to protect themselves from the price volatility of the
foreign currency’s exchange rates.
2. Speculating:
Traders can monitor the direction of the price movement of the
currency asset in the future and take appropriate positions.
3. Arbitrage:
Traders make money on the price difference between foreign
exchanges for a particular currency by buying on one exchange
and selling through another.
4. Leverage:
Traders usually pay only a small margin (5% - 10%) of the total
contract value to get exposure to a more significant capital that
they otherwise would not have access to.

5.11. Disadvantages of currency derivatives:

Despite being a fundamental instrument in modern finance,

currency derivatives carry inherent risks of:
1. High volatility:
Though derivatives contracts are designed to hedge market risks
(and often profit on the hedge), derivatives are inherently highly
volatile. Their risk assessment may not be total despite the
hedging. Thus, they need excessive monitoring, which makes
the contract very complex.
2. Incorrect speculation:
Price discovery of an underlying asset in the future requires
complex speculations, and false speculations may lead to heavy
losses.
3. Leverage:
Currency derivatives, especially futures, involve a small margin
of the overall contract value. If currency movement is not
speculated in the right direction, the margin may drop rapidly
below minimum levels leading to immediate margin top-up.
4. Counter party risks:
There is a possible chance that in currency derivatives contracts,
especially in options, the buyer or seller may choose not to
exercise their rights, leading to losses to either party.

5.12. Currency Derivatives and the Indian

Market
In India, Currency derivatives are used to safeguard businesses
against currency fluctuations from foreign currencies such as the
euro, dollar, and yen. Corporate societies often use these
contracts for certain currencies if they are repeatedly subject to
imports and exports.

Currency derivatives in the Indian market are still largely

dominated by central banks and importers-exporters. The daily
volume of 44,859 Cr. is mainly supplied by banks, companies,
importers, and exporters. But speculators and arbitrageurs are
also increasing their participation in the currency market. As
more retail investors begin to discover the extent of profit gains
in the forex market, the popularity and demand for currency
derivatives in India will witness substantial growth.
A currency derivative is similar to stock futures. But instead of
stocks, the underlying asset is a currency pair. The most actively
traded currency derivatives in India have the following currency
pairs as the underlying asset –

US Dollar and Indian Rupee (USD INR)

Euro and Indian Rupee (EUR INR)
Japanese Yen and Indian Rupee (JPY INR) and
Great Britain Pound and Indian Rupee (GBP INR).
In addition to the above, currency derivatives are also available
in cross-currency pairs like –

 EUR USD
 GBP USD
 USD JPY

In India, currency derivatives are traded on the following stock

exchanges –

 National Stock Exchange (NSE)

 Bombay Stock Exchange (BSE)
 Metropolitan Stock Exchange (MSE)

5.13. Introduction of Currency Futures in India

The introduction of currency futures trading effective August
29, 2008, on the NSE was a major milestone in the evolution of
the Indian financial markets. Subsequently, Reserve Bank of
India (RBI) and Securities and Exchange Board of India (SEBI)
permitted trading in USD INR currency futures in other stock
exchanges, albeit with some control. Currency futures in India
are cash-settled and not physically settled. This means that
actual delivery of the currency does not take place on expiry.

Currency futures allow investors to buy or sell the underlying

currency on a future date at a pre-fixed price. Trading of
currency futures on stock exchanges has facilitated an additional
avenue and greater flexibility to investors and corporates in
India to hedge their foreign currency exposure. Currency
derivatives also ensures more transparency in dealing.

Currency Derivatives trading on stock exchanges is still at a

nascent stage. Hence, the lot size has been pegged at 1,000 units
of the overseas currencies in case of USD, EUR & GBP and
1,00,000 units in the case of JPY, with a maximum tenor of 12
months. Currency derivatives have to be mandatorily settled in
local currency – Indian Rupee. Foreign Institutional Investors
(FIIs) and Non-Resident Individuals (NRIs) cannot directly
participate in currency derivatives trading.

5.14. Types of Currency Derivatives in India –

There are three main types of currency derivatives in India –

 Currency Derivatives

1. Currency Futures contract allow investors to buy and sell

underlying currency at a future date. However, the buyer and
seller are able to lock-in the exchange rate today itself. This
makes them immune from adverse currency depreciation.
Currency futures are mostly used by banks, importers and
exporters etc.
2. Currency Options contract gives the buyer the right but not
the obligation to buy or sell the underlying currency pairs on
expiry. Currency options are flexible compared to futures as
there is no obligation to buy or sell the underlying asset.
Currency options are of two types –
3. Call Option – This gives the buyer the right but not the
obligation to BUY the underlying currency on expiry.
4. Put Option – This gives the buyer the right but not the
obligation to SELL the underlying currency on expiry.
5.15. Commonly Used Terms in Currency
Derivatives Trading

These are some of the terms one must know while entering the
world of currency derivatives trading :-

1. Exchange rate: This is the price at which the buyer and

seller decide to exchange units of the underlying currency. It
is one unit of currency expressed in the units of other
currency which are offered for exchange.

2. Spot price: The value of one currency offered or accepted

for delivery or settlement. In the case of USD INR, spot
value is T + 2.

3. Futures price: The price at which the currency futures

contract trades in the futures market.

4. Contract cycle: The currency futures contracts on SEBI

recognized exchanges have monthly expiry with a maximum
tenure of 12 months. Hence, these exchanges can have 12
contracts outstanding at any given point in time.

5. Final settlement date: This is the last business day of the

contract cycle.

6. Expiry date: It is the last working day on which the final

trade has to take place in the specified contract cycle period.
Since for USD INR trades, trade needs 2 days for settlement,
 the expiry date for such contracts is two working days before
the final settlement date or value date.

7. Contract size: In the case of USD INR it is USD 1,000;

EUR INR it is EUR 1,000; GBP INR it is GBP 1,000, and in
the case of JPY INR it is JPY 1,00,000.

8. Spread: This is the difference between futures price and the

spot price. In a normal market, the spread is positive.

9. Initial margin: Currency derivatives are transacted

through a broker. Investors have to deposit a certain amount
with the broker before initiation of the trades. This amount is
known as initial margin. The margin requirement for
currency trading is quite low which makes these trades
highly leveraged but even a small move could wipe out your
entire capital.

10.Mark-to-market: In the futures market, at the end of each

trading day, the margin account is adjusted to reflect the
investor’s gain or loss depending on the closing price of the
futures. This is known as marking-to-market. Depending on
the profit and loss, the investors have to replenish the
account to maintain the initial margin.

11. Leverage: Intraday currency segment leverage (MIS)

ranges from 3X to 15X depending on the underlying
currency pair. MIS trades are allowed at almost half the
normal margins. Intraday cover order (CO) / Bracket order
trades which have compulsory built-in stop loss order can
have higher leverage than normal.

5.16. Advantages of Currency Derivatives in

India –
 Hedging: This is the biggest advantage of currency
derivatives. It is especially important for banks, importers
and exporters as they need to hedge against an adverse
movement in underlying currency pairs.
 Speculating: Forex market is highly liquid. In fact, the world
wide liquidity of forex market is much greater than the stock
markets. This liquidity helps speculators make money from
even the smallest price movement in currencies.
 Trading Leverage: The movement in currencies are much
smaller compared to the stock market. A pip is 1/4th of a
paisa. Hence, traders would need substantial capital to make
higher profits. This is where leverage comes into the picture.
Majority of brokers provide high currency trading leverage
so that investors can take exposure to huge trades with a
small initial margin.
 Arbitrage Facility: Arbitrage is a trading strategy which
works on the difference in price of the same asset in different
exchanges. Currency traders can buy currency derivatives on
NSE and sell them on BSE (or vice-a-versa) to take
advantage of the short-term price difference.
CHAPTER NO. -2
RESEARCH AND
METHODOLOGY
2.1 OBJECTIVE OF STUDY.

 To have an in-depth study about the currency derivatives and

forex market.
 To give the idea about the forex market and its exchange
rates and process.
 To give idea about the types of currency derivatives available
in Indian market.
 To study the pros and cons of investing in forex market.
 To study and examine the difference in exchange rates
between India and other countries.
 To study the impact of currency derivatives and forex market
on Indian market.
 Study about the best approach to enter investing in forex
market.

2.2 SCOPE OF STUDY

In my study, the scope is to get a understanding of forex market

and what currency derivatives mean. The research will cover the
study of types of currency derivatives, the process of investing
in the forex market, the advantages and disadvantages of
investing in forex market, studying about the difference in
exchange rates between India and other countries and why so.
What impact does the forex market has on not only Indian
market but also economy. These topics are discussed in detail in
the further project.

2.3 LIMITATION OF STUDY

 One of the major problem is time constraint, less time and

lots of information on forex market and derivatives to soak
in.
 The study is very limited in certain aspects.
 The lack of information for analysis part.
 Lack of private information of private sector.
 Limited access to data

2.4 SIGNIFICANCE OF SYUDY

The forex market allows participants, including banks, funds,

and individuals to buy, sell or exchange currencies for both
hedging and speculative purposes.
The forex market operates 24 hours, 5.5 days a week, and is
responsible for trillions of dollars in daily trading activity.
Forex trading can provide high returns but also brings high risk.
Keeping these in mind forex is easy and an important aspect of
the world market.
The Forex market exists mainly to cater to the exchange needs
of exporters, importers and travelers. However, the Forex
market isn’t the identical because the securities market that’s
mainly driven by investors. In other words, investors are a
significant and indispensable a part of the stock exchange. On
the contrary, the investor is that the one who needs the presence
of the forex market to form his investments abroad. In other
words, the currency market can function normally even within
the absence of investors and speculators, given the massive
number of important functions that it performs within the body
of the economy. within the following lines, we are going to try
and list a number of these vital functions.

2.5 TYPES OF STUDY

 Non – Probability
 Exploratory and Descriptive Experimental research
The research is primary both exploratory as well as descriptive
in nature. Primary and Secondary sources of information are
considered. A well – structured questionnaire was prepared to
collect the perception of the respondent, through this
questionnaire.
2.6 RESEARCH METHODOLOGY
Research can be done systematically to gain new knowledge and
information. It is carried out by different methodology, and also
have their own pros and cons. Research methodology is mode to
solve research problem with the logic behind them. Thus ,when
we talk about the research methodology we consider both
research method and the context of our research study and
explain why we use a particular method or technique and why
not other, so that research results can be evaluated either by the
researchers himself or by others.

2.7 TYPES OF DATA

Primary vs. secondary research
Primary research is any original data that you collect yourself
for the purposes of answering your research question (e.g.
through surveys, observations and experiments).
Secondary research is data that has already been collected by
other researchers (e.g. in a government census or previous
scientific studies).

If you are exploring a novel research question, you’ll probably

need to collect primary data. But if you want to synthesize
existing knowledge, analyze historical trends, or identify
patterns on a large scale, secondary data might be a better
choice.

2.8 HYPOTHESIS
A hypothesis is a proposed explanation for a phenomenon. For a
hypothesis to be a scientific hypothesis, the scientific method
requires that one can test it. Scientists generally base their
hypotheses on previous observations or knowledge.

For a research project, the hypothesis typically outlines what the

researcher expects to find during their investigation.

The formulation of a hypothesis is an important part of the

research process. It allows the researcher to narrow their focus
and develop a clear research question. The hypothesis should be
based on previous knowledge and observations.

1st HYPOTHESIS

H1 - Awareness of currency derivative/ forex trading in India.

H0 - Unawareness of currency derivatives/ forex trading in

India.

2nd HYPOTHESIS

H1 - Significant impact of forex trading on Indian economy.

H0 - Insignificant impact of forex trading on Indian economy.

2.9 SAMPLE SIZE

Sample size - 105 customers have been selected as a sample size
for the research.

2.10 SAMPLE METHOD

1. Sample method -
Random sampling is used for research project

2. Data representation techniques and tools -

Column charts, Bar graph, Pie chart and Line charts have been
used for the representation.

2.11 DATA COLLECTION METHOD

 Survey method - Online
 Survey instrument - Questionnaire
 Method of survey - Through the personal interaction with
the help of the questionnaire.
 CHAPTER NO. -3
LITERATURE REVIEW
3.1. LITERATURE REVIEW

3.1.1. How India forex reserves climbed to more

than $600 billion

TINA EDWIN AUGUST 16, 2021 / 02:26 PM IST

Portfolio investment alone is not the reason for the rising pile of
foreign exchange reserves.
India’s foreign exchange reserves topped $600 billion a few
weeks ago, making the country the fourth largest holder of the
US dollar, other foreign currencies, monetary gold and special
drawing rights, narrowly ahead of Russia. Only China, Japan
and Switzerland currently hold more forex reserves than India.
Nearly 60% of these reserves were accumulated after the
financial and economic crisis of 2008-09. At that point, India’s
reserves were worth about $250 billion.

The accretion to the forex reserves in 2020-21 was the highest

since the crisis, triggered mostly by increased net buying of
Indian equities by foreign portfolio investors. The balance of
payment statement for 2020-21 published by the Reserve Bank
of India (RBI) shows that portfolio investors net bought
securities worth $36.14 billion. They purchased equities and
debt instruments worth $313.72 billion and sold securities worth
$277.58 billion during the financial year.

This avalanche of inflows necessitated active intervention in the

market by the RBI in keeping with its exchange rate
management policies. Had the central bank not intervened when
there was a gush of dollars into the markets, the Rupee would
have sharply appreciated. A stronger rupee makes Indian
exports less competitive. Conversely, had the RBI not sold
dollars when funds were being repatriated, the rupee would have
depreciated sharply, making imports expensive.
The RBI net bought foreign exchange worth $68.32 billion
during the year in the spot market – it bought $162.48 billion
and sold $94.16 billion during 2020-21. It continues to intervene
as the flow of dollars remains strong, both into the secondary
and primary securities markets.
The gush of inflows and active intervention of the central bank
led to an $87.3 billion rise in foreign exchange reserves on the
balance of payments basis. The RBI has also reported an $11.9
billion increase from valuation changes. This was much higher
than the $59.5 billion increase on the balance on payments basis
and $5.4 billion rise due to valuation changes in 2019-20.

Yet, portfolio investment alone is not the reason for the rising
pile of foreign exchange reserves.

In the normal course, trade in goods and services, remittances

from non-residents to resident households, repatriated incomes
on investments, foreign direct investments (FDI) and portfolio
investment all contribute to the accretion of foreign exchange
reserves of a nation.

In the instance of India, accretions to foreign exchange reserves

are led primarily from the capital flows – FDI and portfolio
investments. This is because India usually runs a current account
deficit, owing to a wide merchandise trade deficit. However, the
current account was in a surplus of $24 billion in 2020-21 due to
a sharp contraction of the trade deficit. The current account
balance is the sum of the net balance of trade in goods and
services and net receipts of incomes including remittances.

Here’s a look at how components of the Balance of Payments

contributed to the rise of foreign exchange holding of the
country from 2009-10.

Portfolio investments: Between 2009-10 and 2020-21,

portfolio investors net bought securities – both equity and debt -
worth $221.41 billion. A bulk of the money was invested in
equity shares, which also helped drive up the valuation of
stocks. Net buys exceeded $20 billion in six years between
2008-09 and 2020-21.

After the National Democratic Alliance won the national

elections in 2014, foreign portfolio investors increased their
exposure to India and net bought securities worth $40.92 billion
that financial year. They were net sellers in just two years -
2015-16 and 2018-19.

Foreign direct investments: Policymakers prefer FDI over

foreign portfolio investment for several reasons. Firstly, it is
considered more durable – investors are willing to ride out
uncertainty in the political and business environment. Secondly,
FDI usually results in the transfer of knowledge and technology
to host countries.

India received $468.88 billion worth of FDI between 2009-10

and 2020-21, which included reinvested earnings and other
capital flows. In 2020-21, the country received net FDI worth
$54.93 billion – a significant part of which was brought in by
investors that bought into Reliance digital and retail businesses.
However, 2019-20 was the best year for FDI inflows into the
country, foreigners invested $56 billion in the country.

Remittances from overseas workers: India has been the

highest recipient of remittances from overseas workers for a
long time. Between 2009-10 and 2020-21, India received an
estimated $450 billion as net remittances from non-residents
working overseas. Net inflows climbed to $56.19 billion in
2019-20 and then declined to $50.25 billion in the pandemic
year.

However, workers’ remittances are not the only form of

transfers that happen between residents and non-residents. Non-
resident deposit is another mode of transferring money to
residents. But it accounts for a bulk of such transfers, referred to
as personal transfers. The sum of personal transfers between
2009-10 and 2020-21 was an estimated $750 billion. Transfers
from residents to non-residents also take place. For instance,
households transfer money to their wards studying in
universities overseas.

Software and other services exports: Exports of software

services have been the most stable source of forex earnings for
the country. India earned as much as $827.45 billion on a net
basis from providing information technology and information
technology-enabled services between 2009-10 and 2020-21. Net
export earnings from IT and ITeS rose steadily over the years.
The Balance of Payments statement shows that net export
earnings climbed to $90.80 billion in 2020-21 from $85.90
billion in the preceding year, as IT spending of companies
across the world rose.

Other services: Inbound tourism and some business services

have also been foreign exchange generators traditionally.
Tourism suffered in the last year due to travel restrictions
imposed by several countries. Among various business services
exported, professional and management consulting services
have been net foreign exchange-earners. However, outgo on
some other business services almost equals the receipts from
professional and management services, leaving a negative
balance under this head in several years.

Merchandise trade: One measure of the adequacy of foreign

exchange reserves was the number of months of import cover it
provided. That’s one count on which India does not have to
worry, even if there is a flight of portfolio investors from the
stock markets. India imports exceed exports given its high
dependence on imported crude oil. Gold is another top item of
import. As a result, India runs a negative trade balance for
merchandise. The cumulative trade deficit between 2009-10 and
2020-21 was about $1,766 billion. A narrower trade balance
means a lower drawdown of the foreign exchange pile, as had
happened in 2020-21 when global trade contracted. The trade
balance had widened the most in 2012-13 to $195.66 billion
when gold imports soared.

3.1.2. Indian rupee seen struggling to rise much

in coming months - Reuters poll

By Devayani Sathyan and Anant Chandak

BENGALURU, Feb 7 (Reuters) - The Indian rupee, one of the

worst-performing Asian currencies last year, is forecast to
strengthen very little in coming months and still trade above the
80 per dollar mark a year from now, a Reuters poll of foreign
exchange strategists found.

Although India is the fastest-growing major economy, with

growth slowing but still expected at 6.0% in fiscal 2023/24, that
relative strength is not reflected in the currency. Underlying
economic problems, including a reliance on imported oil and
persistent unemployment, continue to hold it back.

The Reserve Bank of India is also near the end of a modest

campaign to increase interest rates, and is due to deliver a final
25 basis point rise, to 6.50%, on Wednesday.
That is also putting pressure on the rupee through a widening
interest rate gap as the U.S. Federal Reserve, managing rate
policy in a much stronger labour market, is forecast to deliver at
least two more quarter-point rises by mid-year.
"Over the next three months, you could start seeing some
support for the rupee come back again and the reason for that
could be the Fed finally signals that it is going to pause," said
Sakshi Gupta, principal India economist at HDFC Bank.

The risk, however, is if U.S. inflation does not fall as much as

markets are hoping it does in coming months.
"This could nudge the Fed to reprice how many rate hikes it
needs to deliver. Even if it's marginally higher than what the
market is currently expecting ... that could lead to a brief dollar
rally and pressure the rupee."

After recovering less than 1% from a record low of 83.29/$ in

October last year, the rupee fell by the most in more than four
months on Monday, as an upbeat January U.S. jobs report made
an interest rate cut from the Fed later this year even less likely.

The latest Reuters poll of 43 foreign exchange analysts, taken

after the Feb. 1 budget, showed the rupee strengthening just over
1% to 81.75 per dollar in the next six months.

While the 12-month consensus was for it to gain more than 2%

to 80.79 per dollar, no survey respondent expected the currency
to trade where it was in January last year, at 73-74 per dollar,
with the most optimistic call at 79.00.

The median view from 16 analysts who answered a separate

question said the strongest the rupee would get over the next six
months was roughly 2% above the current level, to 81.00/$.
Forecasts were in a 79.00 to 83.00/$ range.

3.1.3. History
15 Years of Indian Forex Reserves – Historical
Chart
International Forex reserves are used to settle balance of
payments deficits between countries. International reserves are
made up of foreign currency assets, gold, holdings of SDRs and
reserve position in the IMF.

The foreign exchange market in India has come a long way

since it faced crisis during the 1990-91 period. Since then there
was no looking back. The Forex reserves have always been on
the rise, and the overall economy reflected a buyout growth. On
the export and import front, the country has done exceedingly
well and has been able to garner a competitive edge over several
developing nations.
The foreign exchange market is a market where dealers and
brokers interact with each other around the globe. It performs an
international clearing function by bringing two parties who are
willing to trade currencies at agreeable exchange rates. The
daily volume of business dealt within the foreign exchange
markets is estimated to be about $5 tn. The Indian forex market
is predominantly a transaction based market with the existence
of underlying forex exposure generally being an essential
requirements for market users. In India, the foreign exchange
market includes customer, Authorized Dealers (ADs) in foreign
exchange and Reserve Bank of India (RBI).

With the collapse of Bretten Wood Agreements, the market

players occupied an important role in the forex market during
the 1970's. In India as the first step, the RBI allowed banks to
undertake intra-day trading in foreign exchange in 1978. Due to
this, the stipulation of maintaining "square" or "near square"
position was to be compiled with only at the close of business
each day. During the period of 1975-92, RBI determined the
exchange rate of rupee in terms of a weighted basket of
currencies of India's major trading partners. RBI announced its
buying and selling rates on a daily basis to ADs for merchant
transactions.

There was an external payment crisis in India in 1990-91. This

was due to the macroeconomic imbalances in the second half of
mid-eighties such as monetization of fiscal deficit, over valued
exchange rate, high tariffs and inward looking industrial policy.
International factors such as recession in the industrial world,
first Iraq war in August 1990, restriction of external finance by
international banks were responsible for the degradation of
international confidence in India. As a result, the current account
deficit was around 3.2% of GDP. To keep the external
competitiveness and to restore Balance of Payments (BoP)
position, some structural changes were introduced.

This has been the history of Forex trading in India.

Graph representing the increase in forex reserves over the years.

In 1991, India faced a major financial crisis due to poor
economic policies resulting in a twin deficit and extremely low
forex reserves. The situation forced it to pledge its gold reserves
to avoid the specter of bankruptcy as it had measly foreign
exchange (forex) reserves of USD1.2 billion at the time, worth
three weeks of imports. The country was financially mired for a
while, but on June 5, 2020, India crossed a milestone of
USD500 billion of forex reserves. The figure was a hundred-
fold growth from that in 1991. So, we can say India has
progressed much and assume is ready to face any financial
upheaval.

Forex reserves are made up of external assets, namely, reserves

of gold, reserve tranche position, the IMF’s special drawing
rights (SDRs), and foreign currency assets [capital flows to
capital markets, external commercial borrowings, and foreign
direct investment (FDI)] accumulated by India. The country’s
central bank – Reserve Bank of India (RBI) – controls the forex
reserves. The main purpose of these reserves is to instill
confidence in the exchange rate and monetary policies. The
reserves also help absorb shocks during financial crises and
when access to borrowing is curtailed.

The RBI Act of 1934 provides the legal framework for

deployment of reserves in gold and foreign currency assets
within the broad parameters of instruments, currencies,
counterparties, and issuers. Almost 64% of the foreign currency
reserve is held in securities such as treasury bills of foreign
countries (mainly the US), 28% is deposited with foreign central
banks, and 7.4% is held in foreign commercial banks.

As of March 2020, India had 653 tons of gold reserves, of which

360.7 tons was in safe custody with the Bank for International
Settlements and the Bank of England. The rest remains within
the country. In USD terms, the share of gold in India’s forex
reserves increased from approximately 6.14% at the end of
September 2019 to about 6.92% during June 2020.

The return earned on forex reserves held in commercial banks

and foreign central banks is negligible. While the RBI has not
disclosed the return on India’s forex investment, the figure is
estimated to be 1%, or less, considering the low interest rates in
the Eurozone and the US.
One may wonder why forex reserves are on the rise despite the
slowdown in the global economy. A key reason is the increase
in investment by foreign portfolio investors (FPIs) in the Indian
stock market and also FDIs. Foreign investors have taken up
considerable stakes in several Indian companies over the past 2–
3 months. After withdrawing INR600 billion each from equity
and debt markets in March, FPIs expect a turnaround in the
economy later during this financial year. This anticipation has
prompted them to return to Indian markets and buy stocks worth
over USD2.75 billion in the first week of June 2020. Forex
inflows would be further boosted as the Reliance Industries
subsidiary, Jio Platforms, drew a slew of foreign investments
worth over INR1520 billion. Another notable factor is that the
fall in crude oil prices brought down India’s oil import bill, thus
saving precious forex. Additionally, foreign travels and overseas
remittances crashed during the past few months, a situation that
may continue until December 2020, which would further stanch
dollar outflows. Though the rupee depreciated initially, due to
outflows at the start of the pandemic, it has made a good
comeback since foreign capital inflows have resumed.

The significance of rising forex reserves is that they bring

comfort to the RBI and the Indian government in managing
internal and external financial issues when economic growth is
estimated to contract by 1.51% in FY20–21. More than USD500
billion is a big enough cushion for India’s import bills for over a
year in the event of an economic crisis. The ratio of foreign
exchange reserves to GDP is around 15%. These reserves create
a positive sentiment in the markets that India can meet its
foreign exchange needs and external debt obligations. It also
demonstrates the backing of domestic currency by external
assets while maintaining a reserve for emergencies and national
disasters. Since the return on forex reserves is less than 1%,
there should be greater emphasis on generating returns on forex
assets rather than on liquidity, thus helping reduce India’s net
costs. The money can also be deployed for infrastructure
development. Thus, we can unanimously say that a rise in forex
reserves is beneficial for India and with efficient usage, these
reserves can bring in greater benefits

3.1.4. How does forex market work

1) What Is the Forex Market?

The foreign exchange (FX) market, also known as the forex

market, is a decentralized global currency market where
currencies are bought and sold.

The forex market operates 24 hours a day, five days a week,

allowing traders to buy and sell currencies anytime. It comprises
banks, central banks, commercial companies, hedge funds, and
individual investors.

The major players in the forex market include central banks,

commercial banks, and investment banks. Central banks, such as
the Federal Reserve in the United States, play a crucial role in
the forex market by setting monetary policy and influencing
exchange rates. Commercial banks and investment banks also
play a significant role in the forex market by facilitating trades
for their clients and engaging in speculative trading.
In addition to these traditional players, the forex market is
accessible to individual investors through online brokers. These
brokers allow individuals to trade on the forex market through
their platforms, often using leverage and margin.

Simply put, the forex market is an essential component of the

global financial system, facilitating the exchange of currencies
and allowing for speculation on the value of different currencies.

2) How Does Forex Trading Work?

Forex trading involves buying and selling currencies in the

foreign exchange market to profit from changes in the value of
these currencies. Traders can speculate on the value of a
currency by buying it if they think its value will increase or by
selling it if they think its value will decrease.

Exchange rates are the prices at which one currency can be

exchanged for another on the best forex trading platform. These
rates are determined by supply and demand in the forex market
and can be influenced by various factors, including economic
indicators, political events, and natural disasters. Leverage and
margin are two essential concepts in forex trading.

Leverage allows traders to control large positions with a small

amount of capital. For example, a trader with a leverage of
100:1 can control a $100,000 position with only $1,000 in their
account. While leverage can increase potential profits, it also
increases the risk of losses.

Margin is the amount of money required to open a position in

the forex market. It’s usually a small percentage of the total
position size and is used to cover any potential losses.

Traders can place orders in the forex market to buy or sell

currencies at a specific price. These orders can be executed
immediately at the current market price or can be set to execute
at a future price if certain conditions are met. Some common
order types include market orders, limit orders, and stop-loss
orders.

To sum that all up, the trading process involves buying and
selling currencies in the foreign exchange market to profit from
changes in exchange rates. Leverage, margin, and different order
types can all be used to manage risk and execute trades in the
forex market.

3) Risks and Rewards of Forex Trading

Forex trading strategies carry potential risks and rewards. On the

one hand, traders can potentially profit from favorable exchange
rate movements. For example, if a trader buys a currency that
increases in value relative to the currency they sell, they can
make a profit.

However, forex trading also carries the risk of loss. If a trader

buys a currency that decreases in value relative to the currency
they sell, they will incur a loss. Additionally, the use of leverage
can amplify both potential profits and losses.

To manage risk in forex trading, traders can use stop-loss orders.

A stop-loss order is an order to sell a currency if it reaches a
certain price, which is typically below the current market price.
This helps to limit potential losses by automatically selling the
currency if it reaches a certain level.

Risk management strategies, such as position sizing and

diversification, can also be used to mitigate the risks of forex
trading. Position sizing involves adjusting the size of a trade
based on the level of risk the trader is comfortable with.
Diversification involves spreading risk across a range of
different trades and currencies.
So, while there are potential rewards to be gained from forex
trading, it's important to carefully consider the risks and use risk
management strategies to mitigate them.

4) Steps To Get Started With Forex Trading

If you are interested in getting started with an fx trading

platform, there are five straightforward steps you should follow:

A. Choose a broker
There are many online brokers that offer forex trading services.
It's important to research and compare different brokers to find
one that is reputable and meets your needs. Be sure to consider
factors such as fees, platform features, and customer service.

B. Set up a trading account

Once you have chosen a broker, remember to set up a trading
account on the best forex trading platform. Creating this account
typically involves completing an online application and
providing personal and financial information.

C. Practice with a demo account

Many brokers offer demo accounts that allow you to practice
forex trading with virtual money. This is a great way to get a
feel for the platform and try out different trading strategies
without risking real money.

D. Develop a trading strategy

It’s important to have a clear plan for your trades, including
entry and exit points and risk management strategies. Consider
using technical analysis or fundamental analysis to inform your
trades.

E. Start trading
Once you are comfortable with the platform and have developed
a trading strategy, you can start trading with real money.
Remember always to manage your risk and be mindful of the
potential for losses and gains.

3.1.5. How Forex Trading has been beneficial

for Indian Economy

1. The function of Transfer:

The primary purpose of the foreign exchange market is to make
it easier to convert one currency into another or to make buying
power transfers between nations. A number of credit
instruments, such as telegraphic transfers, bank draughts, and
foreign bills, are used to transmit purchasing power. The foreign
exchange market performs the transfer function by making
international payments by clearing debts in both directions at the
same time, similar to domestic clearings.
For example, if an Indian exporter imports products from the
United States and the payment is to be paid in dollars, FOREX
will simplify the conversion of the rupee to the dollar. Credit
instruments such as bank draughts, foreign exchange bills, and
telephone transfers are used to carry out the transfer function.

2. The function of Credit:

Another important role of the foreign exchange market is to
facilitate international trade by providing credit, both domestic
and international. When foreign bills of exchange are used in
overseas payments, a credit of around three months is necessary
before they mature. The FOREX provides importers with short-
term loans in order to promote the flow of goods and services
between countries. The importer can fund international imports
with his own credit.

3. Hedging Function:
Hedging foreign exchange risks is a third function of the foreign
exchange market. Hedging is the process of avoiding foreign
currency risk. When the exchange rate, or the price of one
currency in terms of another currency, changes in a free
exchange market, the party involved may earn or lose money. If
there are large amounts of net claims or net liabilities that must
be satisfied in foreign currency, a pAs a whole, exchange risk
should be avoided or minimized. For this, the exchange market
offers forward contracts in exchange as a means of hedging
potential or present claims or liabilities. A three-month forward
contract is a contract to purchase or sell foreign exchange
against another currency at a price agreed upon today for a
defined period in the future. At the moment of the deal, no
money is exchanged. However, the contract allows you to
ignore any potential changes in the currency rate. As a result of
the presence of a forward market, an exchange position can be
hedged.

4. Flexibility: The forex market offers traders a great deal of

freedom. This is due to the fact that the quantity of money that
may be traded is unlimited. Moreover, market regulation is
essentially non-existent.
5. Transparency: The Forex market is enormous in size and
spans many time zones. Despite this, information about the
Forex market is freely available. Additionally, neither
government nor the central bank has the authority to corner the
market or set prices for an extended period of time. Because of
the Temporal lag in transferring information, some entities may
get short-term benefits. The magnitude of the Forex market
makes it fair and efficient.

6. Options Trading: Traders can choose from a wide range of

trading alternatives on the forex markets. Traders have lots of
different currency pairs to select from. Investors can also choose
between spot trading and signing a long-term contract. As a
consequence, the Forex market has a remedy for any budgetary
and investor’s risk appetite.

7. Low-Cost Transactions: In these markets, there are no

commissions. Unlike other investment alternatives, FOREX
traders only charge a minimal fee. The difference between the
purchasing and selling prices of currencies is the only cost of
trading in the forex market. Because the costs are low, the risk
of losing money is likewise low, allowing even modest investors
to profit from trading.

8. Increased Leverage: In the FOREX market, you can sell on

margins, which are technically borrowed cash. The value of
your investment is large because the rate of return on your
investment is expanding rapidly. Trading with leverage
(borrowed money) on the FOREX market can result in
significant losses if the market goes against you. Trading foreign
exchange is a two-edged sword. If the market is on your side,
you will make a lot of money; if the market is against you, you
will lose a lot of money.

9. Exceptionally Transparent: The Indian foreign exchange

market is open and transparent, with traders having full access
to market data and information needed to complete transactions.
Traders that trade on open markets have greater control over
their investments and are better able to make informed
judgments based on the information available to them.

10. Accessibility of the FOREX Market: If you have an

internet connection, you can access your foreign currency
trading account from anywhere. You can trade at any time and
from any location you like. The FOREX market has an
advantage over other markets in that it allows dealers to time
their trade activities.

11. High Liquidity: The most liquid financial market on the

planet is the foreign exchange market. It entails the international
trade of multiple currencies. All traders on this market have
complete freedom to purchase and sell currencies at any time.
They have complete freedom to swap currencies without
altering the rates of the currencies they are trading. Currency
prices remain stable during order placement and execution,
allowing you to profit at the predicted rates.
3.1.6 Forex Trading Risks – How to Understand
and Manage Risks

 Forex trading risks

You should never trade currency pairs without first learning
how to manage the various risks associated with Forex trading.
Needless to say, you want to trade Forex because you want to
make a profit. And if you want to make a profit, you must
understand the basics of risk management.

Most traders plunge headlong into Forex trading without

learning how to handle potential losses. Such traders are actually
“gambling” away their hard-earned money, not making a wise
investment decision.

 Use the following tips to manage your risks:

a) Stop Loss – As previously mentioned, you can add a stop
loss order to your trade. This enables you to minimize your
losses when a trade is not moving in your favor.
b) Leverage – Be careful when you use leverage because it is
involved with high risks. While leverage can help you make
huge profits, it can also lead to huge losses.

c) Control Your Emotions – You have to be able to control

your emotions and stay calm, cool, and collected while
trading Forex. When you lose your cool, you tend to make
the wrong decisions.

d) Get Educated – Never stop learning about Forex trading

because there is always a lot to learn. In fact, you can never
stop learning new things as a trader. You will find plenty of
free educational material at top online Forex brokers.

e) Avoid Investing Everything in Forex – Forex should be

just one of the eggs in your basket, a part of your investment
portfolio. Avoid putting all your money in Forex trading.

f) Experiment with Social Trading – If you feel that you are

too new to trading to make wise decisions, try social trading.
This feature allows you to copy the trades of successful
traders and thus boost your chances of making a profit.

 Main Factors that Influence Exchange Rates

 Determinants of Exchange Rates

 Differentials in Inflation
 Differentials in Interest Rates
 Current Account Deficits
 Public Debt
 Terms of Trade
 Strong Economic Performance

These are the main factors that determine the exchange rates of
the currency of a country, and currently Indian rupees in the
forex market is not at par with other countries. Dollar has the
strongest hold on the forex market currently and many other
countries are trying to climb the ladder to be on the top. Seeing
as the Indian economy is not at its best and India is in debt with
the world bank and other countries the rates of rupees is falling
more then before.

This is the table showing the INR exchange rates compared to

other countries currency

 Factor Affecting Forex Market In India

These are major factors which are affecting Forex trading in
India:

I. RBI
When the rupee-dollar exchange rate is excessively volatile, the
RBI intervenes to keep rates under control and preserve the
domestic economy. When the rupee gains too much, the RBI
buys dollars, and when the rupee depreciates too much, it sells
dollars.

II. Inflation
When inflation rises, demand for local products falls while
demand for international goods rises (increasing demand for
foreign currency). As a result, the value of foreign currency rises
while the value of the home currency falls, negatively
influencing the exchange rate of the home currency.

III. Export & Import

Importing foreign products necessitates payment in foreign
currency, boosting the demand for that currency. Demand raises
the value of a foreign currency, whereas exports have the
opposite effect.

IV. Interest Rates

Interest rates on government bonds in growing markets like
India attract international investment. If the rates are high
enough to cover international market risk, money will start
flooding into India, causing rupee demand to rise and the value
of the rupee to appreciate.

V. Supply & Demand

In the Indian foreign exchange market, receipts on account of
exports and invisible in the current account, draft picks,
travellers’ checks, and inflows in the capital account including
foreign direct investment (FDI), portfolio investment, open
market borrowings (ECB), and non-resident deposits are the
main sources of foreign exchange supply.
Imports and invisible payments in the current account,
amortisation of ECB (particularly short-term trade credits) and
external aid, redemption of NRI deposits, and outflows on
account of direct and portfolio investment, on the other extreme,
all increase the demand for foreign exchange.

3.1.7. India Forex Trading Strategies

Forex traders rely on certain basic strategies to make a profit on

international markets. These forex trading strategies are easy to
learn but difficult to master. Take a look at some of the major
forex trading strategies.
A. Scalping
Scalping is a forex trading strategy that involves making small
profits with multiple trades. You can set the entry and exit
positions with minor changes in the currencies to achieve low
margins. Scalping needs precise execution to make the most of
your trades. These are short-term trades that can last anywhere
between 1 to 60 minutes. Being well-informed about currency
trends is crucial to successful scalping.

B. Day trading
As the name suggests, day trading involves opening and closing
a trade on the same day. These trades can take place anywhere
between a few minutes to a couple of hours. This way you can
avoid running through unprecedented losses due to overnight
price volatility. If you’re new to forex trading, day trading is a
simple and straightforward method to start earning. It can limit
your risk while improving your chances of profitability.

C. Swing trading
Swing trading is a strategy that involves trading forex currencies
over a day or a week. This method gives you plenty of time to
deflect daily ups and downs in the value of currency pairs. You
can skip through needless stop losses along the way with this
medium-term forex trading strategy.

D. Position trading
Position trading is a strategy that involves holding your trade
positions open for the long term. These trades can take place
anywhere between a week to several months or even years. This
method lets you take advantage of major shifts in the value of
currency pairs without stressing over micro changes in the
market. You can set the entry and exit positions for lengthier
durations with position trading. Keeping a watchful eye over
current events and socio-economic policies that affect the world
at large is key to making this type of trading work. You can
casually sign-in to your account once or twice a week.
E. Range trading
Range trading is a strategy that involves predictable price
movements of currency pairs. This method relies on historical
performance data of currency pairs to identify repeating patterns
of lows and highs. Based on the financial data, you can set a
wider entry and exit position to capitalize on previous price
trends. With the calculated risks involved, it is a safer alternative
to day trading.

3.1.8. Forex Trading Example in India

Let’s say the USD/INR is trading at 74.6350. If you’re
expecting the value of USD to rise in a few hours, you can buy
100,000 units of USD. In this case, you’ll need 7,463,500 INR
deposited in your account to complete the transaction.

In 3 hours, the value of the U.S. dollar against the Indian Rupee
rises to 75.0000. You can immediately sell the $100,000 you
bought and make a profit of 36,500 INR (7,500,000 - 7,463,500)
within a single day.

3.1.9. Making Money with Forex in India

The biggest hurdle you’ll face when trading Indian forex is the
limited number of foreign currencies. Indian residents can only
trade forex pairs with the INR in it. But the USD/INR is a
popular currency pair with an attractive return rate.

Historically, the USD has been proven to grow stronger in value

over the years. Considering the recent performance, the 52-week
low for the USD is 68.2900 while the 52-week high is 76.9163.
You can leverage the broad range of price movements to make
tremendous profits in the short and long-term.

3.1.10. Forex Terminology

Millions of people trade forex every day. For successful forex
trading, learn these basic terms before you get started.

i. Pip: the smallest unit of price movement in a currency pair.

Forex pairs are usually listed to the 4th decimal point. For
instance, if the USD/INR has moved from 74.6535 to
74.6545, it is considered a rise of 10 pips.

ii. Lot size: the total number of currency units bought or sold.
100,000 units is the standard lot size but you can trade lesser
units as well.

iii. Orders: an order lets you execute the trade. For instance, if
you want to buy 100 USD/INR, you execute a buy order.
Similarly, if you want to sell 100 USD/INR, you execute a
sell order. There are different types of orders to help you
minimize losses and maximize profits.

iv. Calls: a call is sent out by your online broker when your
trade positions need additional funding to be maintained.
You should constantly check your account for any calls you
may have received to avoid further losses.
 CHAPTER NO. -4
DATA ANALYSIS,
INTERPRETATION AND
1. AGE
Table no. 1
Choices % Count
18-30 54.4% 58
31-45 19.1% 20
46-60 23.5% 25
60 and above 3% 2
Total 100% 105

60 and above 0.03

46-60 0.235

31-45 0.191

18-30 0.544

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00%

Interpretation:
From above charts and tables we can conclude that maximum %
can be seen between the age group of 18-30 that is 54.4% and
31-45 age group have a % of 19.1% and 46-60 age group have a
% of 23.5% and the rest goes to age group above 60.

2. Gender
Table no 2
Choices % Count
male 45.6% 48
female 51.5% 54
Prefer not to say 2.9% 3
Total 100% 105

60.00%

51.50%
50.00%

45.60%

40.00%

30.00%

20.00%

10.00%

2.90%
0.00%
male female Prefer not to say

Interpretation:
From above charts and tables we can conclude that maximum
number of investors are the female that is 51.5% and that of
male is 45.6%.

3. What is your occupation?

Table no 3
Choices % Count
Services 25% 26
Student 32.4% 34
Business 29.4% 31
Retired 10.3% 11
Teacher 0.9% 1
Other 2.0% 2
Total 100% 105

35%

32%

30%
29%

25% 25%

20%

15%

10% 10%

5%

2%
1%
0%
Services Student Business Retired Teacher Other

Interpretation:
From above charts and tables we can conclude that maximum %
of them are students with a 32.4% and 25% are employed in
service sector whereas 29.4% are businessmen while the
remaining are either retired or employed in different sector.

4. Are you aware of forex market?

Choices % Count
Yes 55.2% 58
No 29.9% 31
Maybe 14.9% 16
Total 100% 105

60.00%

50.00%

40.00%

30.00%
55.20%

20.00%

29.90%

10.00%
14.90%

0.00%
Yes No Maybe

Interpretation:
From above charts and tables we can conclude that maximum %
of respondent that is 55.2% have said yes and 29.9% have said
no and remaining 14.9%, maybe.

5. Have you ever invested in stocks and shares?

Choices % Count
Yes 51.5% 54
No 30.9% 33
Maybe 17.6% 18
Total 100% 105

17.
60
%

51.50%

30.
90
%

Interpretation:
From above charts and tables we can conclude that maximum %
of respondent that is 51.5% have said yes and 30.9% have said
no and remaining 17.6%, maybe.

6. Have you invested in forex trading ?

Choices % Count
Yes 39.7% 42
No 44.1% 46
Maybe 16.2% 17
Total 100% 105

50.00%

45.00%
44.10%

40.00% 39.70%

35.00%

30.00%

25.00%

20.00%

16.20%
15.00%

10.00%

5.00%

0.00%
Yes No Maybe

Interpretation:
From above charts and tables we can conclude that maximum %
of respondent that is 39.7% have said yes and 44.1% have said
no and remaining 16.2%, maybe.
7. How much percent of your income do you
invest in forex market?

Choices % Count
Nil 36.8% 39
0-10% 19.1% 20
11-30% 22.1% 23
31-50% 14.7% 15
More then 50% 7.4% 8
Total 100% 105

31-50% 14.70%

11-30% 22.10%

0-10% 19.10%

Nil 36.80%

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00%

Interpretation:
From above charts and tables we can conclude that maximum %
of respondent that is 36.8% don’t invest any amount of money
where as 22.1% invest 11% to 30% and 14.7% invest 31% to
50% of their income in forex trading and remaining 29.1%
invest up to 10%2 of their income in forex trading.
8. What currencies do you mainly trade?
 Choices EUR/ GBP/ USD/ USD/ EUR/ GBO JPY/
TO Other
USD USD JPY INR TINR /INR INR
A
L
% 3.2% 8.1% 14.5% 30.6% 22.6% 9.7% 11.3% 25.8% 125.

Count 3 9 15 32 24 10 12 27 132

OTHER OTHER; 29.40%

JPY/INR JPY/INR; 11.50%

GBO/INR GBO/INR; 9.80%

EUR/INR EUR/INR; 23.00%

USD/INR USD/INR; 29.50%

USD/JPY USD/JPY; 14.80%

GBP/USD GBP/USD; 8.20%

EUR/USD
EUR/USD; 3.30%

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00%

Interpretation:
From above charts and tables we can conclude that maximum %
of respondent that is 29.5% invest in USD/INR where as 3.30%
respondents invest in EUR/USD.

9. How do you invest in forex market?

Choices % Count
Agent 35% 37
Yourself 45% 47
Others 20% 21
Total 100% 105

50%

45%
45%

40%

35%
35%

30%

25%

20%
20%

15%

10%

5%

0%
Agent Yourself Others

Interpretation:
From above charts and tables we can conclude that maximum %
of respondent that is 45% invest themselves and 35% invest
through a agent and remaining 20% through other ways.

10. Have you heard of these forex brokers in

India?

Choices % Count
IG 11.3% 12
Saxo bank 11.3% 12
Interactive broker 6.5% 7
Forex.com 27.4% 29
Ava trade 9.7% 10
XM group 12.9% 14
OctaFx 30% 32
Others 24.5% 26
Total 133.6% 142

35.00%

30.00% 30.00%
27.40%
25.00% 24.50%

20.00%

15.00%
12.90%
11.30% 11.30%
10.00% 9.70%

6.50%
5.00%

0.00%
IG Saxo bank Interactive Forex.com Ava trade XM group OctaFx Others
broker

Interpretation:
From above charts and tables we can conclude that maximum %
of respondent that is 30% are aware of OctaFx where as 6.50%
respondents are aware of interactive broker.

11. What is your source of investment adviser?

Choices % Count
Friends/family 43.1% 45
Internet 41.5% 44
Newspaper 20% 21
News channel on tv 20% 21
Nil 7.7% 8
Others 9.2% 10
Total 141.5% 149

120.00%

100.00% 100.00%

80.00%

60.00%

43.10% 41.50%
40.00%

20.00% 20.00% 20.00%

7.70% 9.20%

0.00%
Friends/family Internet Nrewspaper News channel Nil Others Total
on tv

Interpretation:
From above charts and tables we can conclude that maximum %
of respondent that is 43.1% get the investment advice from
family or friends where as 7.7% respondents don’t take advice
from anyone at all.

12. What is your reason of trading in forex

market?

Choices % Count
Liquidity 11.1% 12
Wide range 19% 20
Low risk 17.5% 18
Profits 30% 32
Tax saving 15.9% 17
Retirement 11.1% 12
Others 23.8% 25
Total 128.4% 105

Others 23.80%

Retirement 11.10%

Tax saving 15.90%

Profits 30.00%

Low risk 17.50%

Wide range 19.00%

Liquidity 11.10%

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00%

Interpretation:
From above charts and tables we can conclude that maximum %
of respondent that is 30% do investment in forex market for
profits where as 11.1% do investment in forex market for
liquidity and retirement.
13. Are you satisfied with your investments so
far?

Choices % Count
Yes 38.1% 40
No 15.9% 17
Maybe 46% 48
Total 100% 105

Yes, 38.10%
Maybe, 46%

No, 15.90%

Interpretation:
From above charts and tables we can conclude that maximum %
of respondent that is 38.1% have said yes and 15.9% have said
no and remaining 46%, maybe.

14. Will you invest in forex market so forth?

Choices % Count
Yes 49.2% 52
No 7.9% 8
Maybe 42.9% 45
Total 100% 105

Maybe Maybe; 42.90%

No No; 7.90%

Yes Yes; 49.20%

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00%

Interpretation:
From above charts and tables we can conclude that maximum %
of respondent that is 49.2% have said yes and 7.9% have said no
and remaining 42.9%, maybe.
 CHAPTER NO. -5

CONCLUSION, FINDINGS AND

SUGGESTIONS.
Conclusion

Forex trading can be a smart option for financial investments in

India, but it’s important to comprehend the market’s risks and
rewards. Currency trading in India contributes significantly to
the national economy due to its size, volume, and trade
frequency. The economy comprises small and large businesses,
so everything that benefits the company improves the overall
economy. By understanding the rules, volatility, accessibility,
charge and commission, and education and resources available,
investors can make educated decisions and improve their
chances of success in the forex market.Forex trading in India
can be an excellent way of earning huge profits. However, like
any other trading activity, forex trading also involves risks.
Hence, traders must develop a proper trading plan, use risk
management strategies, pay attention to political and economic
developments, and be updated on the availability and use of
modern technology to increase their chances of making money
from forex trading.’

The derivatives market in India has been expanding rapidly and

will continue to grow. While much of the activity is
concentrated in foreign and a few private sector banks,
increasingly public sector banks are also participating in this
market as market makers and not just users. Their participation
is dependent on development of skills adapting technology and
developing sound risk management practices. While derivatives
are very useful for hedging and risk transfer, and hence improve
market efficiency, it is necessary to keep in view the risks of
excessive leverage, lack of transparency particularly in complex
products, difficulties in valuation, tail risk exposures,
counterparty exposure and hidden systemic risk. Clearly there is
need for greater transparency to capture the market, credit as
well as liquidity risks in off-balance sheet positions and
providing capital there for. From the corporate point of view,
understanding the product and inherent risks over the life of the
product is extremely important. Further development of the
market will also hinge on adoption of international accounting
standards and disclosure practices by all market participants,
including corporate. Increasing convertibility on the capital
account would accelerate the process of integration of Indian
financial markets with international markets. Some of the
necessary preconditions to this as suggested by the Tara- pore
committee report are already being met. Increasing
convertibility does carry the risk of removing the insularity of
the Indian markets to external shocks like the South East Asian
crisis, but a proper management of the transition should speed
up the growth of the financial markets and the economy.
Introduction of derivative products tailored to specific corporate
requirements would enable corporate to completely focus on its
core businesses, de-risking the currency and interest rate risks
while allowing it to gain despite any upheavals in the financial
markets. Increasing convertibility on the rupee and regulatory
impetus for new products should see a host of innovative
products and structures, tailored to business needs. The
possibilities are many and include INR options, currency
futures, exotic options, rupee forward rate agreements, both
rupee and cross currency swaps, as well as structures composed
of the above to address business needs as well as create real
options.
Finding.

 From above charts and tables we can conclude that

maximum % can be seen between the age group of 18-30
that is 54.4% and 31-45 age group have a % of 19.1% and
46-60 age group have a % of 23.5% and the rest goes to age
group above 60.

 From above charts and tables we can conclude that

maximum number of investors are the female that is 51.5%
and that of male is 45.6%.

 From above charts and tables we can conclude that

maximum % of them are students with a 32.4% and 25% are
employed in service sector whereas 29.4% are businessmen
while the remaining are either retired or employed in
different sector.

 From above charts and tables we can conclude that

maximum % of respondent that is 55.2% have said yes and
29.9% have said no and remaining 14.9%, maybe.

 From above charts and tables we can conclude that

maximum % of respondent that is 51.5% have said yes and
30.9% have said no and remaining 17.6%, maybe

 From above charts and tables we can conclude that

maximum % of respondent that is 39.7% have said yes and
44.1% have said no and remaining 16.2%, maybe.

 From above charts and tables we can conclude that

maximum % of respondent that is 36.8% don’t invest any
amount of money where as 22.1% invest 11% to 30% and
14.7% invest 31% to 50% of their income in forex trading
and remaining 29.1% invest up to 10%2 of their income in
forex trading.
 From above charts and tables we can conclude that
maximum % of respondent that is 29.5% invest in USD/INR
where as 3.30% respondents invest in EUR/USD.

 From above charts and tables we can conclude that

maximum % of respondent that is 45% invest themselves and
35% invest through a agent and remaining 20% through
other ways

 From above charts and tables we can conclude that

maximum % of respondent that is 30% are aware of OctaFx
where as 6.50% respondents are aware of interactive broker.

 From above charts and tables we can conclude that

maximum % of respondent that is 43.1% get the investment
advice from family or friends where as 7.7% respondents
don’t take advice from anyone at all.

 From above charts and tables we can conclude that

maximum % of respondent that is 30% do investment in
forex market for profits where as 11.1% do investment in
forex market for liquidity and retirement.

 From above charts and tables we can conclude that

maximum % of respondent that is 38.1% have said yes and
15.9% have said no and remaining 46%, maybe.

 From above charts and tables we can conclude that

maximum % of respondent that is 49.2% have said yes and
7.9% have said no and remaining 42.9%, maybe.
1st HYPOTHESIS

H1 - Awareness of currency derivative/ forex trading in India.

H0 - Unawareness of currency derivatives/ forex trading in
India.
Source : Primary data
Age Gender Awareness No. Of Total
People
18 - 60 Male Yes 58 74
above
18 - 60 Female No 31 47
above

t-Test: Two-Sample Assuming Unequal

Variances
Variable 1 Variable 2
Mean 78.5 97.5
Variance 4.25 7.25
Observations 2 2
Hypothesized Mean Difference 0
df 1
t Stat -5.5876
P(T<=t) one-tail 0.05637
t Critical one-tail 6.313752
t Critical two-tail 12.7062

Awareness of currency derivative/ forex trading in India in case

P (T<-t) one tail value is 4.25 and accepted value is 4.25. Hence
hypothesis is accepted.
2nd HYPOTHESIS

H1 - Significant impact of forex trading on Indian economy.

H0 - Insignificant impact of forex trading on Indian economy.
Source : Primary data
Impact No. Of Total
People
Profit 32 73
Liquidity 12 93
t-Test: Two-Sample Assuming Unequal
Variances
Variable 1 Variable 2
Mean 78.5 97.5
Variance 5.25 9.25
Observations 2 2
Hypothesized Mean Difference 0
df 1
t Stat -5.6576
P(T<=t) one-tail 0.05258
t Critical one-tail 7.316572
t Critical two-tail 15.7022
Significant impact of forex trading on Indian economy currency
derivative/ forex trading in India in case P (T<-t) one tail value
is 4.25 and accepted value is 4.25. Hence hypothesis is accepted.

Suggestions
Conduct extensive study and analysis to evaluate the various
investment methods used by traders to achieve high profits in forex
trading.
It also aids in the comparison of several strategies and the creation of
your own individualized plan that is capable of aligning with your
own aims and requirements.

To avoid spreading your interests too thin, it’s advisable to trade only
one or two currency pairs at a time. One of the first skills acquired
when trading, irrespective of the instrument, is to keep your
concentration on your assets.

For example, if you’re trading the USD and GBP, or even just one of
them, stay with those currencies for a longer amount of time rather
than the JPY and EUR.

This will allow you to have a better understanding of the market

circumstances for these currencies and build a more organised plan
for profiting.

While developing a plan, it’s also critical to define your own

boundaries. Determine when you will exit a transaction or when it
will no longer be profitable for you to continue trading.

Once you’ve figured it out, it’ll be a lot easier to make dynamic

judgments in response to market fluctuations.

Knowing your market and instrument is essential to effectively

navigating the trading environment, which is why it’s key to stay
current on global events that might impact currency movements
CHAPTER NO. -6
REFERNCES AND
WEBLIOGRAPHY.
References
1. Record, Neil, Currency Overlay (Wiley Finance Series)
2. Global imbalances and destabilizing speculation (2007),
UNCTAD Trade and development report 2007 (Chapter 1B).
3. "Triennial Central Bank Survey of foreign exchange and
OTC derivatives markets in 2022".
4. CR Geisst – Encyclopedia of American Business History
Infobase Publishing, 1 January 2009 Retrieved 14 July 2012
ISBN 1438109873
5. GW Bromiley – International Standard Bible Encyclopedia:
A–D William B. Eerdmans Publishing Company, 13 February
1995 Retrieved 14 July 2012 ISBN 0802837816
6. T Crump – The Phenomenon of Money (Routledge
Revivals) Taylor & Francis US, 14 January 2011 Retrieved 14
July 2012 ISBN 0415611873
7. J Hasebroek – Trade and Politics in Ancient Greece Biblo &
Tannen Publishers, 1 March 1933 Retrieved 14 July 2012 ISBN
0819601500
8. S von Reden (2007 Senior Lecturer in Ancient History and
Classics at the University of Bristol, UK) - Money in Ptolemaic
Egypt: From the Macedonian Conquest to the End of the Third
Century BC (p.48) Cambridge University Press, 6 December
2007 ISBN 0521852641 [Retrieved 25 March 2015]
9. Mark Cartwright. "Trade in Ancient Greece". World History
Encyclopedia.
10. RC Smith, I Walter, G DeLong – Global Banking Oxford
University Press, 17 January 2012 Retrieved 13 July 2012
ISBN 0195335937
11. (tertiary) – G Vasari – The Lives of the Artists Retrieved 13
July 2012 ISBN 019283410X
12. (page 130 of ) Raymond de Roover – The Rise and Decline
of the Medici Bank: 1397–94 Beard Books, 1999 Retrieved 14
July 2012 ISBN 1893122328
13. RA De Roover – The Medici Bank: its organization,
management, operations and decline New York University
Press, 1948 Retrieved 14 July 2012
 14. Cambridge dictionaries online – "nostro account"
15. Oxford dictionaries online – "nostro account"
16. S Homer, Richard E Sylla A History of Interest Rates John
17. Wiley & Sons, 29 August 2005 Retrieved 14 July 2012
ISBN 0471732834
18. T Southcliffe Ashton – An Economic History of England:
19. The 18th Century, Volume 3 Taylor & Francis, 1955
Retrieved 13 July 2012
20. (page 196 of) JW Markham A Financial History of the
United States, Volumes 1–2 M.E. Sharpe, 2002 Retrieved 14
July 2012 ISBN 0765607301
21. (page 847) of M Pohl, European Association for Banking
History – Handbook on the History of European Banks Edward
Elgar Publishing, 1994 Retrieved 14 July 2012
(secondary) – [1] Retrieved 13 July 2012
22. S Shamah – A Foreign Exchange Primer ["1880" is within
1.2 Value Terms] John Wiley & Sons, 22 November 2011
Retrieved 27 July 2102 ISBN 1119994896
Webliography

 https://en.wikipedia.org/wiki/Foreign_exchange_market

 https://profitmust.com/forex-market-in-india/

 https://www.forexbrokers.com/guides/india

 https://www.compareforexbrokers.com/forex-trading/
statistics/

 https://www.dailyforex.com/
CHAPTER NO. -7
APPENDIX
Questionnaire

Your name -

Age
> 18 - 30
>31 - 45
>46 - 60
>60 and above

Gender
>Male
>Female
>Prefer not to say

What is your occupation

>Service
>Student
>Business
>Retired
>Other

Are you aware of forex trading

>Yes
>No
>Maybe

Have you ever invested in stocks and shares

>Yes
>No
>Maybe

Have you invested in forex trading

>Yes
>No
>Maybe
How much percent of your income do you invest in forex
market
>Nil
>0 - 10%
>11 - 30%
>31 - 50%
>More then 50%

What currencies do you mainly trade

>EUR/USD
>GBP/USD
>USD/JPY
>USD/INR
>EUR/INR
>GBO/INR
>JPY/INR
>OTHER

How do you invest in forex market

>Through agents
>Yourself
>Others

Have you heard of these forex brokers in India

>IG
>Saxo bank
>Interactive brokers
>Forex.com
>Avatrade
>XM group
>OctaFx
>Others
What is your source of investment advisers
>Friends/Family
>Internet
>Newspaper
>News channel on television
>Nil
>Others

What is your reason for trading in forex market

>Liquidity
>Wide range of different markets
>Low risk
>Profits
>Tax saving
>Retirement
>Others

Are you satisfied with oyu investments so far

>Yes
>No
>Maybe

Will you invest in the forex market so forth

>Yes
>No
>Maybe