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INTRODUCTION OF CURRENCY DERIVATIVES Each country has its own currency through w
hich both national and international transactions are performed.All the internat
ional business transactions involve an exchange of one currency for another. For
example, If any Indian firm borrows funds from international financial market i
n US dollars for short or long term then at maturity the same would be refunded
in particular agreed currency along with accrued interest on borrowed money.It m
eans that the borrowed foreign currency brought in the country will be converted
into Indian currency, and when borrowed fund are paid to the lender then the ho
me currency will be converted into foreign lender’s currency. Thus, the currency u
nits of a country involve an exchange of one currency for another. The price of
one currency in terms of other currency is known as exchange rate. The foreign e
xchange markets of a country provide the mechanism of exchanging different curre
ncies with one and another, and thus, facilitating transfer of purchasing power
from one country to another. With the multiple growths of international trade an
d finance all over the world, trading in foreign currencies has grown tremendous
ly over the past several decades.Since the exchange rates are continuously chang
ing, so the firms are exposed to the risk of exchange rate movements.As a result
the assets or liability or cash flows of a firm which are denominated in foreig
n currencies undergo a change in value over a period of time due to variation in
exchange rates This variability in the value of assets or liabilities or cash f
lows is referred to exchange rate risk.Since the fixed exchange rate system has
been fallen in the early 1970s, specifically in developed countries, the currenc
y risk has become substantial for many business firms. As a result, these firms
are increasingly turning to various risk hedging products like
FOREIGN CURRENCY FUTURES FOREIGN CIRRENCY FORWARDS AND FOREIGN CURRECNY SWAPS
RESEARCH METHODOLOGY TYPE OF RESEARCH In this project Descriptive research method
ologies were use. The research methodology adopted for carrying out the study wa
s at the first stage theoretical study is attempted and at the second stage obse
rved online trading on NSE/BSE. SOURCE OF DATA COLLECTION Secondary data were use
d such as various books, report submitted by RBI/SEBI committee and NCFM/BCFM mo
dules. OBJECTIVES OF THE STUDY The basic idea behind undertaking Currency Derivat
ives project to gain knowledge about currency future market. To study the basic
concept of Currency future To study the exchange traded currency future To under
stand the practical considerations and ways of considering currency future price
. To analyze different currency derivatives products. LIMITATION OF THE STUDY The
limitations of the study were The analysis was purely based on the secondary da
ta. So, any error in the secondary data might also affect the study undertaken
Introduction to The topic Introduction of Financial Derivatives
Types of Financial Derivatives
Derivatives Introduction in India
History of currency derivatives
Utility of currency derivatives
Introduction to Currency Derivatives
Introduction to Currency Future
8 4 Brief Overview of the foreign exchange market Overview of foreign exchange ma
rket in India
Currency Derivatives Products
Foreign Exchange Spot Market
Foreign Exchange Quotations
Need for exchange traded currency futures
Rationale for Introducing Currency Future
Future Terminology
Uses of currency futures
Trading and settlement Process
Regulatory Framework for Currency Futures
Comparison of Forward & Future Currency contracts
5Interest rate parity principle