Nagarjun S. J. (16BTCFC008) PDF

“A STUDY ON IMPACT OF FLUCTUATIONS IN USD, EURO, GBP RATES
ON USDINR, EURINR, GBPINR FUTURES CONTRACTS.’’
Dissertation submitted in partial fulfilment of the requirement for the award of

the Degree of
MASTER OF COMMERCE (FINANCIAL ANALYSIS)
of
BANGALORE UNIVERSITY
By
Nagarjun S. J.
Reg. No. 16BTCFC008
Under the guidance of
CA S. Lakshmi Narayanan
Chartered Accountant (CA)
Seshadripuram College
Post Graduate Department of Commerce and Management
# 27 Nagappa Street, Seshadripuram,
Bengaluru – 560020
2017–2018
DECLARATION BY THE STUDENT
I hereby declare that “A STUDY ON IMPACT OF FLUCTUATIONS IN USD,

EURO, GBP RATES ON USDINR, EURINR, GBPINR FUTURES
CONTRACTS.” is the result of the Project work carried out by me under the guidance
of CA S. Lakshmi Narayanan in partial fulfilment for the award of Master of Commerce
(Financial Analysis) Degree by Bangalore University.
I also declare that this study is the outcome of my own efforts and that it has not
been submitted to any other university or Institute for the award of any other
degree or Diploma or Certificate.
Place: Bangalore Name: Nagarjun S. J.
Date: Register Number: 16BTCFC008

CERTIFICATE OF ORIGINALITY
Date:
This is to certify that the project titled “A STUDY ON IMAPCT OF
FLUCTUATIONS IN USD, EURO, GBP RATES ON USDINR,
EURINR, GBPINR FUTURES CONTRACTS.” is an original work of
Mr. Nagarjun S.J. bearing University Register Number 16BTCFC008 and
is being submitted in partial fulfilment for the award of the Master of
Commerce degree at Bangalore University. The report has not been
submitted earlier either to this University Institution for the fulfilment of the
requirement of a course of study.
SIGNATURE OF PRINCIPAL SIGNATURE OF DIRECTOR
Dr Anuradha Roy Dr Bhargavi V.R.
Date: Date:
GUIDE CERTIFICATE
This is to certify that Mr. NAGARJUN S. J. bearing university register number

16BTCFC008 has completed this project titled “A STUDY ON IMAPCT OF
FLUCTUATIONS IN USD, EURO, GBP RATES ON USDINR, EURINR,
GBPINR FUTURES CONTRACTS.” under my guidance. This project is based
on the original study conducted by him and the report has not formed a basis of
awarding any other Degree/ Diploma/ Certificate by this University or any other
University.
Place: Bengaluru Signature of the Guide
Date: CA S. LAKSHMI NARAYANAN

ACKNOWLEDGEMENT
I take this as an opportunity to express my profound gratitude to who has been a

significant part of this project.
I express my deepest sense of gratitude to my guide, CA S. Lakshmi Narayanan

Professor, Post Graduate Department of Commerce and Management, Seshadripuram
College for his valuable guidance suggestions and constant support.
I heartily thank Dr. Bhargavi V. R., Director, Post Graduate Department of

Commerce and Management, Seshadripuram College, for her constant
encouragement.
I am grateful to Dr. Anuradha Roy, Principal Seshadripuram College,

Bengaluru for her support and guidance.
I wish to thank my parents, friends who always believed me and had faith in me.
Name: Nagarjun S. J.
Reg. No: 16BTCFC008

Table of Contents
Sl. No. Particulars Page No.
1 INTRODUCTION 1
1.1 Introduction 1
1.2 Introduction to Derivative market 1
1.3 Types of Derivatives 2
1.4 Emergence of Financial Derivatives 3
1.5 Players in Derivatives Market 4
1.6 Significance of Derivative Market 6
1.7 International Derivatives Market 7
1.8 Derivatives Market in India 7
1.9 India’s Experience in Futures and Options 8
1.10 Introduction to Currency Markets 10
1.11 Major Currency Pairs 12
1.12 Basics of Currency Market and Peculiarities in India 15
1.13 Settlement Date or Value Date 18
1.14 Economic Indicators of Currency Market 20
1.15 Terminologies used in Futures 21
1.16 Distinction between Forward and Futures Contracts 22
1.17 Interest rate parity 22
1.18 Using Currency Futures for hedging various kinds of Forex 23

Exposures
1.19 Trading spreads using currency futures 23
1.20 Currency Futures contract Specifications 23
1.21 Terminologies with respect to Contract Specifications 25
1.22 Entities in the trading system 25
1.23 Types of Orders 26
1.24 Clearing entities 27
1.25 Clearing Mechanism 28
1.26 Regulatory guidelines on Open Position Limits 28
1.27 Settlement of Currency futures contracts 30
1.28 Margin requirements 31
1.29 Mark to Market Settlement 33
1.30 Unique Client Code 33
2 RESEARCH DESIGN 34
2.1 Title of the Study 34
2.2 Need for Study 34
2.3 Statement of Problem 34
2.4 Objectives of the Study 34
2.5 Scope of the Study 35
2.6 Literature review 35
2.7 Limitations of the Study 38
2.8 Research Methodology 38
2.9 Plan of Analysis 39
2.10 Operational Definitions 39

2.11 Chapter Scheme 40
3 INDUSTRY PROFILE 41
3.1 Market Overview 41
3.2 Currency Futures 41
3.3 Recent Development in Indian currency derivatives markets 42
3.4 Market Participants 42
4 DATA ANALYSIS AND INTERPRETATION 44
4.1 Testing of Hypothesis 44
4.2 USDINR Futures Contracts 45
4.3 EURINR Futures Contracts 56
4.4 GBPINR Futures Contracts 67
5 FINDINGS, CONCLUSION AND SUGGESTIONS 78
5.1 Findings 78
5.2 Conclusion 81
5.3 Suggestions 82
5.4 Scope for Further Study 83
6 BIBLIOGRAPHY 84
7 ANNEXURES 85
7.1 USDINR Futures contracts 85
7.2 EURINR Futures contracts 90
7.3 GBPINR Futures contracts 95

List of Tables
Table No. Title of the Table Page No.
1.1 Showing Products Available for Trading on Derivatives 9

Segment
1.2 Showing the Most Traded Currency Pairs in 2010 12
1.3 Showing the Most Traded Currency Pairs in 2016 13
1.4 Showing the Contract Design of Currency Pairs 24
1.5 Showing gross open position limits prescribed by SEBI 29
1.6 Showing the Minimum margin requirement for different 31

currency pairs
1.7 Showing the Calendar Spread margin in Rs. for different 32

currency pair
1.8 Showing Extreme Loss Margin for different currency pairs 32
4.1 Showing Exchange rate of USD and Forward rate of 45

USDINR futures contracts for the year 2013




4.6 Showing Exchange rate of EURO and Forward rate of 56
EURINR futures contracts for the year 2013




4.11 Showing Exchange rate of GBP and Forward rate of 67

GBPINR futures contracts for the year 2013




List of Graphs
Graph No. Title of Graph Page No.
4.1 Showing movement of exchange rate and forward rate of USD 46

for the year 2013

for the year 2014

for the year 2015

for the year 2016

for the year 2017
4.6 Showing Scatter plot for USDINR 55
4.7 Showing movement of exchange rate and forward rate of 57

EURO for the year 2013




4.12 Showing Scatter plot for EURINR 66
4.13 Showing movement of exchange rate and forward rate of GBP 68

for the year 2013

for the year 2014

for the year 2015

for the year 2016

for the year 2017
4.18 Showing the Scatter plot for GBPINR 77

EXECUTIVE SUMMARY
International trade involves different currencies which is subject to changes in value. As the
exchange rate varies from second to second which could affect the profits of the traders, as the
exchange rate could have adverse impact of the interests of the traders. In order to safeguard
the profits or interests the traders can make use of hedging instruments like futures, forwards,
options and swaps to hedge their risk.
This study concentrates on the futures contracts traded in NSE, the effect of exchange rate
fluctuations on the futures contracts (forward rate). The objective of the study is to study the
impact of the exchange rate fluctuations on the futures contracts. To study the impact of the
exchange rate fluctuations on the forward rate through correlation.
For the purpose of the study, the forward rate of the futures contracts traded in NSE and the
currency exchange rate were taken into account. The data for the study is majorly collected
from the websites of RBI and NSE. The study is conducted using correlation and the scatter
plot diagram. The correlation for the period of five years is calculated using the closing prices
of exchange rate of currency and the forward rate of the futures contracts.
From the study it is found that the correlation between the exchange rate and the forward rate
is highly positive correlation, which indicates that the exchange rate and the forward rate varies
in the same direction.
A STUDY ON IMPACT OF FLUCTUATIONS IN USD, EURO, GBP RATES ON
USDINR, EURINR, GBPINR FUTURES CONTRACTS.
CHAPTER – 1
INTRODUCTION
1.1 INTRODUCTION
Derivative is an agreement between two parties which derives its value from one or
more underlying assets. It is a contract between two or more parties based upon the
underlying asset or assets. Its value is determined by fluctuations in the prices of
underlying asset. The derivatives market is a financial market for financial instruments
like futures or options contracts which derives its value from the underlying asset. The
market can be divided into over the counter derivatives and exchange traded derivatives
markets.
Futures exchanges market trade in standardized derivatives contracts, such as Chicago

Mercantile Exchange and Euronext.liffe. the members of the exchange hold positions
with the exchange, who act as counterparty. When one party buys a futures contract
(long), another party sells (short). When new contract is introduced, the position in the
contract is zero. Therefore, sum of all long positions must be equal to all short positions.
Over-the-counter markets, also known as the OTC market consist of investment banks
with traders, clients. The derivatives traded in OTC market are Swaps, Forward rate
agreements, forward contracts, credit derivatives etc. OTC market is generally divided
into two segments: the customer market and the interdealer market.
1.2 INTRODUCTION TO DERIVATIVE MARKET

Many associates financial market with the equity market, but it is far broader,
encompassing bonds, foreign exchange, real estate, commodities and financial
instruments. Of late derivatives market has seen the highest growth among all financial
market segments. In spite of the importance of the derivatives market, many want to
have a comprehensive perspective on its size, structure, role, etc. and on how it works.
Last decade was the most eventful decades in the international financial markets, more
specifically derivatives market. On the other hand, few disaster stories were enough to
bring the entire derivatives business under limelight and make everyone worry about
the unknown risks embedded with the derivatives, and there were people who started
understanding the derivatives for hedging and mitigating risks while adding liquidity to
the markets.
SESHADRIPURAM COLLEGE 1
The derivatives market has attracted more participants against the backdrop of the
financial crisis, fraud cases and the failure of some market participants. Although the
financial crisis was caused by structured credit-linked securities that are not derivatives,
policy makers and regulators have started thinking to strengthening regulation to
increase transparency and safety both for derivatives and other financial instruments.
1.3 TYPES OF DERIVATIVES

The most commonly used derivatives contracts are forwards, futures and options.
1.1.1 Forward contracts

A forward contract is an agreement between two parties to buy and sell commodity or
financial asset at a certain future date for a certain price. The forward markets are
forerunners of futures markets. The forward contract is a simple derivative that can be
contrasted with a spot contract, which is an agreement to buy or sell commodity or
financial asset today. A Forward contract is traded in the OTC market usually between
two financial institutions or between a financial institution and one of its clients. One
of the parties to forward contract assumes long position and agrees to buy underlying
asset on a certain future date for a certain specified price. Other party assumes short
position and agrees to sell asset on the same date and same price. These contracts are
very popular on foreign exchange. Most large banks have a forward desk which is
devoted to the trading of forward contracts.
1.1.2 Futures contracts

A Futures contract is an agreement between two parties to buy or sell an asset at a
certain time in the future for a certain price. These contracts are normally traded on an
exchange. The exchange specifies certain standardized features of the contract to
facilitate the trading. As the parties to the contract not necessarily know each other, the
exchange provides a mechanism that gives the two parties a guarantee that the contract
will be honored. The largest futures contracts exchange is Chicago Board of Trade
(CBOT) and the Chicago Mercantile Exchange (CME). On the exchanges throughout
the world, a wide range of commodities and financial assets form underlying assets in
the various contracts. The commodity includes live cattle, pork bellies, sugar, wool,
copper, gold, aluminium and tin. The financial assets include stock indices, currencies,
and treasury bonds. The futures contract is different from a forward contract as the exact
delivery date is usually not specified. The contract is referred by its delivery month, the
exchange specifies the period during the month when delivery must be made. For
commodities, the delivery period is often the entire month. The party who holds the
short position has the right to choose the time during the delivery month when the
delivery will be made. Usually, the contracts with several different delivery months are
traded at one time. The exchange specifies the amount of the underlying asset to be
delivered for one contract and how futures price to be quoted. In case of commodity the
exchange also specifies the quality of the product and the delivery location.
1.1.3 Options contracts

Options contracts are traded both on the exchanges and in the OTC market. There are
two types of options namely call option and put option. A call option gives the right to
the holder to buy underlying asset by a certain date for a certain price. A put option
gives the right to the holder to sell underlying asset by a certain date for a certain price.
The price in the contract is known as strike price or exercise price. The date in the
contract is known as maturity date or expiration date. An American option can be
exercised at any time up to the maturity date, where as a European option can be
exercised only on the maturity date. Most of the options traded on exchanges are
American options. European options are generally easier to analyse than the American
options. It should be emphasized that an option gives the right to the holder to do
something. The holders do not necessarily have to exercise this right. This is what
differentiates options from forwards and futures, where the holder is obligated to buy
or sell the underlying asset. Acquiring an option involves a certain cost where as to
enter into a forward or futures contracts does not cost anything.
1.4 EMERGENCE OF FINANCIAL DERIVATIVES

Derivatives initially emerged as hedging instruments against fluctuations in prices, and
commodity-linked derivatives remained the only derivative for almost three hundred
years. Financial derivatives came into picture in 1970s due to growing instability in the
financial markets. Since their emergence, financial derivatives have become very
popular and in 1990s, overtaking the commodity derivatives they accounted for about
two-thirds of the total transaction in the derivative market. In recent years, the market
for the financial derivatives has grown tremendously in terms of instruments available,
their complexity in terms of turnover. In case of equity derivatives, futures and options
on the stock indices have gained more popularity than that of individual stocks,
especially among institutional investors, who are the major users of the index-linked
derivatives. Even the small investors find usefulness of the derivatives became of the
existence of a high correlation between the popular indexes with various portfolios. The
less cost associated with the index derivatives than the derivatives based on individual
securities is another reason for their growing use.
1.5 PLAYERS IN THE DERIVATIVES MARKET

Derivative markets have been outstandingly successful. The main reason is that it has
attracted many different types of traders and have a great deal of liquidity. When an
investor wants to take one side of a contract, there is usually no problem in finding
someone who is prepared to take the other side. There are three broad categories of
traders who can be identified among the players in the market: hedgers, speculators,
and arbitrageurs. Hedgers use futures, options and forwards to reduce the risk that they
face from potential future movements in a market variable. Speculators use them to bet
the future direction of a market variable. Arbitrageurs take offsetting positions in two
or more instruments to lock in a profit.
1.1.4 Hedgers
Hedging is the main reason which has led to the emergence of derivatives. The
derivatives allow one to undertake many activities at a considerably lower risk. Hedgers
are the important components of the derivatives markets. They are the traders who wish
to eliminate the risk embedded with the price of an asset and take long position or short
position on a commodity or financial instrument to lock in existing profits. The main
purpose of hedgers is to reduce the volatility of a portfolio, by reducing the risk
associated with it. While a forward contract requires no payment, an option contract
involves an initial cost. In case of call is not exercised, the premium paid for the option
becomes a net loss, if it is exercised the profit resulting from the call option exercise
compensates the cost i.e. the net profit would be the profit less the initial cost.
1.1.5 Speculators
Hedgers are the traders who wish to avoid the price risk, while speculators are those
who are willing to take such risk. Speculators are the traders who take positions in the
market and assume risks, to make profits from the fluctuations in prices. Speculators
analyse the information and make forecasts about the prices and put their money in
these forecasts. In this process they give information into prices and contribute to
market efficiency. By taking positions, speculators are betting that a price would go up
or they are betting that it would go down. Depending on their perceptions, speculators
take long or short positions in futures or options contracts or may hold spread positions.
Derivatives make speculation easy with less investment. In the absence of derivatives,
speculative activity would become very difficult as it would require huge funds to be
invested.
Speculators in the derivatives market may be divided into scalpers, day traders and
position traders. Scalpers are those who attempt to make profit from small changes in
the contract price. Day traders speculate on the price movements during single trading
day, thus open and close positions many times a day but do not carry any position at
the end of the day. They monitor the prices continuously and generally attempt to make
profit from just a few ticks per trade. The position traders attempt to gain from price
fluctuations by keeping their position open for a longer period- may be for a few days,
weeks or even months. They make use of fundamental analysis, technical analysis and
other information available to them from their opinions on likely price movements.
1.1.6 Arbitrageurs
Arbitrageurs attempt to earn risk-free profits by exploiting market imperfections and
inefficiencies. They make profits by trading a given commodity or other items that sell
for different prices in different markets. Thus, arbitrage involves making riskless profit
by simultaneously entering into transactions in two or more markets. If a share is quoted
at a lower rate in NSE and at a higher rate in BSE, an arbitrageur would make profit by
buying the share at NSE for lower price and simultaneously selling at BSE for higher
price. This type of arbitrage is “arbitrage over space”. If an arbitrageur feels that the
futures are quoted at a high level considering the cost of carry, the arbitrageur would
buy securities underlying today and sell the future in market maturing in a month or
two. Since futures and options with various maturity dates are traded in the market,
there are several arbitrage opportunities in trading. Thus, if a trader believes that the
price differential between the futures contracts on the same underlying asset with
differing maturities is more or less than what the arbitrageur assumes them to be, then
appropriate positions in them may be taken to make profits.
The existence of well-functioning derivatives markets alters the flow of information

inti the prices. This is because, in a purely cash market, speculators feed the information
into the spot prices. The presence of a derivatives market ensures that a major part of
the transformation of information into prices, due to less transaction costs involved in
derivative market, than it gets transmitted to the spot markets. It is here the arbitrageur
provide a link between the derivatives market and cash market by synchronizing the
prices in the two markets. Thus, through the actions the arbitrageur provides a critical
link between the two markets namely cash and derivatives markets.
1.6 SIGNIFICANCE OF DERIVATIVE MARKET

The derivatives market performs the following economic functions,
1. Price Discovery:
Prices in an organised derivatives market reflect the perception of market participants
about the future and lead the prices of the underlying asset to the perceived future level.
The prices of derivatives converge with the prices of the underlying asset at the maturity
of the derivative contracts. Hence, derivatives help in discovery of future price as well
as current price.
2. Risk Transfer:
Due to the inherent link of derivatives market with underlying cash market, witnesses
higher trading volumes because of participation of more players who would not have
otherwise participated for lack of an arrangement to transfer risk.
3. Controlled Speculative Trading:

Speculative traders shift to a more controlled environment due to the existence of
derivatives market. In the absence of an organised derivatives market, speculators trade
in underlying cash markets and margining, monitoring and surveillance of the activities
of participants become extremely difficult in derivatives markets.
4. Financial Architecture:
An important incidental benefit that flows from derivatives trading is that derivatives
act as a catalyst for new entrepreneurial activity. The derivatives have a history of
attracting many creative, bright, well-educated people with an entrepreneurial attitude.
They often energize others to create new businesses, new products and new
employment opportunities, the benefit of which is immense.
5. Enhancing Volume of Activity:

Derivatives market help to increase savings and investment in the long run and transfer
of risk enables the market participants to expand their volume of activity.
1.7 INTERNATIONAL DERIVATIVES MARKETS

A comparison of the derivatives markets, over the last few years, in various countries,
gave rise to an interesting pattern. The exchanges of the developed markets have shown
robust growth and maintained their leadership position over the past five years at the
same time, emerging market exchanges have gained a position eminence with strong
growth patterns. The Indian market has emerged fourth along with the markets in
Korea, Spain and Israel, but only in the case of single stock option contracts traded
Indian market stood at 11th position.
1.8 DERIVATIVES MARKET IN INDIA

Derivatives market is a new market design of the Indian equity market, which plays a
vital role in disseminating information and offsetting undesirable price risks. It ensures
the cheapest trading facilities to the investors and shareholders. The development of
derivative markets was initially not possible in view of prohibition in the Securities
Contracts (Regulation) Act, 1956 (SCRA). The preamble to the Act itself spoke of
prohibiting options trading. Section 20 of the Act explicitly prohibited options trading
in securities. Under this Act, by a notification in 1969, Government prohibited forward
trading in securities in order to curb unhealthy practices and to prevent undesirable
transactions. The introduction of trading in derivative options and forwards required
withdrawal of these prohibitions.
The first step towards the introduction of trading in derivatives in Indian financial
markets was the declaration of the Securities Laws (Amendment) Ordinance, 1995,
which withdrew the prohibition the trading of options in securities. The derivatives
market did not take off, as there were no regulations or regulatory framework to govern
trading of derivatives. SEBI set up a 24-member committee under the chairmanship of
Dr. L.C. Gupta on November 18, 1996 to develop appropriate regulatory framework
for derivatives trading in India. This committee submitted its report on March 17, 1998,
prescribing necessary conditions for the introduction of trading in derivatives in India.
The committee recommended that derivatives should be declared as “securities” so that
regulatory framework applicable for trading of securities could govern. SEBI also set
up a group in June 1998 under the chairmanship of Prof. J.R. Varma to recommend
measures for risk containment in derivatives market in India. This report, which was
submitted in October 1998, worked out the operational details of margining system,
methodology for charging initial margins, broker networth, deposit requirement and
real-time monitoring requirements.
In December 1999, amendment to Securities contracts (Regulation) Act was notified

making way for derivatives trading in India. In June 2000, Futures contracts on Nifty
and Sensex were introduced, followed by options contracts on Nifty and Sensex
(European style), in June 2001. The option contracts were introduced on stocks
(American style), in July 2001 and Futures contracts on stocks in November 2001. The
number of underlying stocks and indexes has increased over the years.
In Indian market, the Index option contracts are cash settled European style options.
Stock options are also cash settled American style contracts. Interest rate derivatives
are based on notional 10-year bonds and 91-days T-bill. Equity derivatives contracts
traded through exchanges will be cash settled contracts.
1.9 INDIA’S EXPERIENCE IN FUTURES AND OPTIONS

The launch of equity derivatives market has been extremely positive with the global
derivatives market. The turnover of derivatives on the NSE surpassed the equity market
turnover. The turnover of derivatives on the NSE increased from Rs. 23,654 million in
2000-01 to Rs. 166,193,220 million in 2009-10. India is one of the most successful
developing countries in terms of a vibrant market for exchange-traded derivatives. This
shows the strengths of the developments of India’s securities markets, which are based
on nationwide market access, anonymous electronic trading, and a predominantly retail
market. There is an increasing belief that the equity derivatives market is playing a
major role in shaping price discovery.
As per Indian Securities Market Review (ISMR) 2009, NSE ranked as the eighth largest
derivatives exchange in the world, the second largest exchange in terms of number of
contracts traded in single stock futures and the third largest in terms of number of
contracts traded in the index futures category. The derivatives trading at NSE started
on June 12, 2000 with futures trading on S&P CNX Nifty Index. Subsequently, the
product base has been increased to include trading in options on S&P CNX Nifty Index,
futures and options on CNX IT Index, Bank Nifty Index, Nifty Midcap 50 Indices and
190 single stocks were observed as of December 2010. Nifty Junior, CNX 100 and
DEFTY indices were discontinued from option trading from July 31, 2009. The various
products on the derivative segment of NSE and their date of launch are shown in the
table below.
Table 1.1 – Showing Products Available for Trading on Derivatives Segment
Products on Derivative Segment Date of Launch

S&P CNX Nifty Futures June 12, 2000
S&P CNX Options June 4, 2001
Single Stock Options July 2, 2001
Single Stock Futures June 24, 2003
CNX IT Futures and Options August 29, 2003
Bank Nifty Futures and Options June 13, 2005
CNX Nifty Junior Futures and Options June 1, 2007
CNX 100 Futures and Options June 1, 2007
Nifty Midcap 50 Futures and Options October 5, 2007
Mini Nifty Futures and Options on S&P CNX January 1, 2008
Long term Options on S&P CNX Nifty March 3, 2008
S&P CNX Defty Futures and Options December 10, 2008
Interest rate Futures August 31, 2009
As per NSE fact book 2010, the total number of contracts traded increased by 3% to 68
crore contracts during 2009-10. Out of the total contracts, traded, 50.26% of the
contracts were traded on Index options followed by Index Futures on which 26.25% of
the contracts were traded. The number of contracts traded on stock futures were
21.45%, while 2.06% of the total contracts were traded on stock Options.
1.10 INTRODUCTION TO CURRENCY MARKETS

The current currency rate mechanism has evolved over the millennia of the international
community to try with different mechanism to facilitate the exchange of goods and
services. Initially, exchanges of goods and services was barter system where in goods
traded with each other. For example, a farmer would trade Wheat grown on his farm
land with a cotton with another farmer. This system has its difficulties, mainly due to
the non-divisibility of some goods, cost for the transport of these goods for trade and
the difficulty in evaluating the services. For example, how a dairy farmer to exchange
his cattle for a few litters of cooking oil or a kilogram of salt? The farmer has no way
to divide the cattle! Similarly, suppose that the wheat is grown in a part of a country
and sugar is grown in another part of the country, the farmer must travel long distances
whenever it needs to Exchange wheat for sugar. Therefore, the need to have a good
medium of Exchange has resulted in innovation of money.
People tried various products like the medium of Exchange, ranging from food products
to metals. The metal gradually became more important medium of Exchange, because
of their portability, divisibility, the certainty of quality and universal acceptance. People
started using metal parts as a means of Exchange. Among the metals, pieces of gold
and Silver were larger, and finally the gold coins became the standard medium of
Exchange. The process of evolution of medium of Exchange has made more progress
in the development of paper money. People drop the pieces gold / money with Bank
and obtain a document promising that the value of this document at any time would be
equal to number of gold pieces. This entry system the coins against the paper book was
the beginning of paper money.
Over time, the country began traded across borders, that they realized that not
everything can be produced in each country or cost of production of certain goods is
cheaper in some countries than others. The growth of international trade has resulted in
the evolution of the foreign exchange (FX) value of a currency of a country the value
of currencies other countries. Each country has its own 'brand' alongside its flag. When
money is the brand, it is called "currency". Whenever there is a cross-border trade, it is
necessary to exchange one brand of money for another, and this exchange of two
currencies is called 'change' or simply 'forex' (FX).
The functioning of international trade required a foreign currency that is universally

accepted to settle trade internal and a way to balance the trade imbalances between
countries. This led to the question of the determination of the relative value of the two
currencies Different systems have been tried in the past to arrive at the relative value of
the two currencies. Documented history suggests that sometime in 1870 country agreed
to assess their currency against currencies from other countries using gold as a
benchmark for the assessment. According to this procedure, central banks issued paper
money and hold an equivalent amount of gold to their reserves. The value of each
currency against another currency was derived from gold exchange rate. For example,
if a unit of gold is valued at Indian rupees (INR) 10 000 and dollar US (USD) 500 INR
exchange rate against USD would be 1 USD = 20 INR. This evaluation of currency
mechanism called as gold standard.
And their number in international trade, changing political situations (wars, civil wars,
etc.) and situations of deficit / surplus on the trade account requires the countries to
move from gold to floating exchange rates. In the floating exchange rate regime, the
Central Bank intervention has been a popular tool to manage the value of the currency
to maintain the trade competitiveness of the country. Central Bank would either buy or
sell the local currency, according to the desired direction and the value of the local
currency.
During 1944-1971, the country adopted a system called Bretton Woods system. This
system was a mixture of the gold standard system and system of floating rates. Under
the system, all currencies were pegged to USD at a fixed rate and USD value was
attached to the gold. The United States guaranteed to other central banks that they can
convert their currency in USD anytime and USD value will be attached to the value of
the gold. Countries have also agreed to keep the exchange rate in the meantime more
or fixed less than 1% of parity with the U.S. dollar. With the adoption of this system,
USD has become the dominant currency in the world.
Finally, Bretton Woods system was suspended and the country has adopted the system
of free floating or directed floating of the currency valuation method. Developed
countries gradually moved to a market determined exchange rate and developing
countries has adopted a system of pegged currency or a managed rate system. The value
of the currency is pegged system, attached to another currency or basket of currencies.
The pegged currency advantage is that it creates a climate of stability for foreign
investors because they know that the value of their investment in the country at any
time would be fixed. Although in the long run, it is difficult to maintain the ankle and
ultimately, the Central Bank can change the value of peg or win a managed floating or
floating. Managed float, countries have controls on capital flows and Central Bank
intervention is a common tool to contain the high volatility and the direction of
movement of the currency.
1.11 MAJOR CURRENCY PAIRS

The most traded currency pairs are called the Majors. This includes the following
currencies: Euro (EUR), US Dollar (USD), Japanese Yen (JPY), Pound Sterling (GBP),
Canadian Dollar (CAD), Australian Dollar (AUD), and Swiss Franc (CHF). The
currencies mentioned follow the free-floating method of valuation. The most active
currency pairs among these currencies are: EURUSD, USDJPY, GBPUSD, CADUSD,
AUDUSD and USDCHF. As per Bank for International Settlement (BIS) survey of
April 2010, the share of different currency pairs in daily trading volume is presented in
the following table,
Table 1.2 – Showing the Most Traded Currency Pairs in 2010
Currency Pairs Share (%)
EURUSD 28
USDJPY 14
GBPUSD 9
AUDUSD 6
USDCHF 4
USDCAD 5
USD/Others 18
Others/Others 16
Total 100
As per ETX Capital, an UK based financial company the daily traded volume of
currency pairs are as follows:
Table 1.3 – Showing the Most Traded Currency Pairs in 2016
Currency Pairs Share (%)

EURUSD 23
USDJPY 17.7
GBPUSD 9.2
AUDUSD 5.2
USDCHF 3.5
USDCAD 4.3
From the above tables it is evident that the trading in currency pair of EURUSD has
reduced by volume whereas the trading volume of USDJPY has increased.
US Dollar (USD)
The U.S. Dollar is the currency most widely open. The widespread dollar use reflects
in part, its international role as a currency of 'investment' in many capital markets,
currency of 'reserve' held many central banks, the motto of 'deal' on a many international
raw materials markets, "Bill" currency in many contracts and the motto 'intervention'
used by monetary authorities in the market operations to influence their own exchange
rate.
In addition, widespread dollar exchanges reflect its use as currency 'vehicle' in foreign
exchange transactions, use that strengthens its international role trade and finance. For
most of the currency pairs, the market practice is to trade in each of the two currencies
against a good third currency as a vehicle, rather than exchanging the two currencies
directly against each other. The vehicle currency used the more often is the US Dollar,
although very recently EUR has also become an important vehicle currency.
So, a trader who wants to transfer funds from one currency to another, say from Indian
rupees to Philippine Pesos, will probably sell INR for U.S. Dollars and then sell the US
Dollars for Pesos. Even if this approach translates into two transactions instead of one,
it may be preferable, given that the market of the United States/INR of Dollar and the
Dollar of US/Philippine Peso are much more active and more liquid and have many
better information that a bilateral deal for the two currencies directly against each other.
By using the US Dollar or any other currency as a vehicle, banks and other players in
the Forex market can limit more of their turnover to the vehicle currency funds, rather
than hold and manage many currencies and can focus their research and sources of
information on vehicle currency.
Use of a vehicle currency reduces the number of exchange rate which must be dealt
with in a multilateral system. In a system of 10 currencies, if a currency is chosen as
the motto of vehicle and used for all transactions, there will be a total of nine pairs of
currency or exchange rate to deal with (i.e. a currency exchange rate vehicle against
each of to the) (very), while if no currency of vehicles has been used, there are 45
exchange rates to deal with. In a system of 100 coins with no currencies of vehicle,
potentially there is 4 950 pairs of currency or exchange rate [the formula is: n(n-1) / 2].
Thus, using a vehicle currency can produce benefits the less numerous, larger, and
liquid markets more with less currency balances, information needs reduction and
simpler operations.
Euro (EUR)
Like US Dollar, Euro has strong presence in International market and has emerged as a
premier currency over the years, second only to the US Dollar.
Japanese Yen (JPY)

Japanese Yen is the third most traded currency in the world. It has smaller international
presence compared to US Dollar or Euro. Japanese Yen is very liquid around the world,
practically around the clock.
British Pound (GBP)

Till the end of world war 2, GBP was the currency of reference. It has a nickname cable
which is derived from the telegrams used to update the exchange rate of USDGBP
across the Atlantic. This currency is heavily traded against Euro and US Dollar but has
spotty presence against other currencies.
Swiss Franc (CHF)

Swiss Franc is the only currency of a major European country that belongs neither to
European Monetary Union nor to G-7 countries. The Swiss economy is relatively small,
Swiss Franc is one of the major currencies, closely resembling the strength and quality
of Swiss economy and finance. Switzerland has very close economic relationship with
Germany, and thus to Euro zone.
It is believed that the Swiss Franc is a stable currency. But from a foreign exchange
point of view, Swiss Franc closely resembles the patterns of the Euro, but lacks the
liquidity that of Euro.
1.12 BASICS OF CURRENCY MARKETS AND PECULIARITIES

IN INDIA
1.12.1 Currency Pair

Like any other traded asset class, significant part of currency market is the concept of
currency pairs. In currency market, while initiating a trade one would buy one currency
and sell another currency. Therefore, same currency will have very different value
against each and every other currency in the market. For major currency pairs,
economic development in each of the country underlying would impact value of each
of the country, but in varying degree. The currency dealers have to keep themselves
aware of the latest happening in each of the country.
1.12.2 Base Currency/ Quotation Currency

Each trade in FX market is based on currency pair: one currency is bought with or sold
for another currency. We need to identify the two currencies in a trade by giving them
a name “foreign currency” and “domestic currency” because the foreign currency in
one country is the domestic currency in the other country.
The two currencies are called “Base Currency” (BC) and “Quoting Currency” (QC).
The base currency is the currency’s price is fixed at one unit. The quoting currency is
used to price base currency and its amount varies as the price of base currency varies
in the market. Therefore, in FX market the price of base currency is always expressed
in terms of quoting currency. There is no exception to this rule.
For any currency pair, the standard practice is to write the BC code followed by QC
code. For example, in USDINR, USD is the base currency and INR is the quoted
currency and in the market the price of USD is expressed in terms of INR. If we want
the price of INR expressed in terms of USD, then it must be specified the currency pair
as INRUSD. Therefore, if a dealer quotes a price of USDINR as 64, which means that
one unit of USD has a value of 64 INR. Similarly, GBPUSD is quoted as 1.3 Means
that one unit of GBP is valued at 1.3 USD.
In the interbank market US Dollar is the base currency other than quoted Euro (EUR),
Sterling Pound (GBP), Australian Dollar (AUD), Canadian Dollar (CAD) and New
Zealand Dollar (NZD).
1.12.3 Interbank Market and Merchant Market

There are two distinct segments of the OTC currency market. A segment called the
"interbank" market and the other is called 'merchant market '. Interbank market is that
between the banks where the dealers quote prices at the same time to buy and sell
currency. The mechanism to quote prices for buying and selling is called as Market
making. For example, your vegetable vendor nearby informs price only for sale and he
will not mention any price to buy it. While in a wholesale market, vegetable wholesaler
will quote price for the purchase of vegetables from the farmer and also quotes the
selling price to the retailer of vegetable. Therefore, the wholesaler is a market maker as
he quotes two-way prices (for purchase and sale). Similarly, dealers priced the
interbank market for buying and selling, i.e., provide two-way quotes. In the majority
of the 'merchant' market, merchants are price takers and banks are suppliers of price.
Although a few large traders or businesses may ask banks to quote two-way prices so
merchants can have both side interest either to sell or buy, or both.
1.12.4 Two Way Quotes

In the interbank market, currency prices are always quoted with two-way prices. In a
two-way quote, the prices offered to buy is called bid price and the selling price is called
as offer or ask the price. These prices are always from the perspective of the market
maker and not from the point of view of the price taker. For example, Suppose that a
bank quote USDINR spot price 64.05 / 64.06 to a merchant. In this quote, 64.05 is the
bid price and 64.06 is the offer price or asking price. This quote means that the Bank is
prepared to buy one unit of USD for a price of INR 64.05 and is willing to sell a unit of
USD to INR 64.06. So, a trader interested to buy a unit of USD will get priced at INR
64.06, i.e. the price at which Bank is willing to sell. The difference between the bid and
the offer price is called "spread". The price quoted by a market maker is valid for certain
amount of the currency pair and it can vary if the amount for which it is requested is
higher. Spread is an important parameter to note everything in assessing the liquidity
of the market, the efficiency of the market maker and market direction. Obviously, a
close margin indicates a higher liquidity and greater efficiency of the market maker. In
the USDINR spot market, the spreads are wide at the opening and begin gradually
shrinking the market discovers the award. Similarly, for a transaction of USD 100 Mn,
the spread is probably higher compared to the spread of transaction USD 1 Mn.
There are certain norms for two-way quotes. Some of them are as follows,
1. The bid price (lower price) is quoted first and then the offer price is quoted (higher
price).
2. The offer price is quoted in abbreviated form. In case the currency pair is quoted up
to four decimal points then offer price is quoted in terms of last two decimal points and
if the currency pair is quoted in two decimal places then offer price is quoted in terms
of two decimal points.
1.12.5 Appreciation/ Depreciation

Exchange rates are constantly changing, which means that the value of a currency with
respect to the other is constantly changing. Changes in rates are expressed in
strengthening or weakening of one currency against the other currency. Changes are
also expressed in appreciation or depreciation of a currency in terms of the other
currency. Whenever the base currency buys more of the quote currency, the base
currency has strengthened / appreciated and the quote currency has weakened /
depreciated. For example, if USDINR is gone from 64.00 to 64.25, the USD appreciated
and INR has depreciated. Similarly, to say that USD strongly resembles the course of
the next months would mean that the USDINR pair may move from current levels of
64.00 to 65.00.
1.12.6 Market Timing

In India, Over-the-Counter market is open from 9:00 AM to 5:00 PM. But for the
merchants the OTC market is open from 9:00 AM to 4:30 PM and the last half hour is
meant for interbank dealings for the banks to square off excess positions. Central bank
has prescribed certain net overnight open position limit for various banks. Banks cannot
exceed their overnight open position beyond the prescribed limits and therefore the last
half hour of trading window is used to offload excess position to adhere to the
guidelines.
1.12.7 Price Benchmarks

There are two types of price benchmarks used in OTC market to price the merchant
transactions. Banks price large value merchant transactions from interbank rate (IBR).
IBR is price available to bank in the interbank market. IBR differs from bank to bank.
The price variation generally seems very small, may be in the range of 0.25 paise to 2
paise from bank to bank. IBR is price at a specific point of time and for a specific
transaction amount. For small value transactions, banks will publish a standard price
for a day called as card rate. On the days of high volatility, banks revise the card rate
multiple times a day.
1.12.8 Price Discovery

Indian currency market is getting aligned to the international markets. The opening
levels of OTC market are primarily dependent on the developments in the international
market since closing of the domestic market on previous day. The market is not liquid
during the first few hours due to the subjective nature of the impact of the overnight
developments on the opening level of currency. But it discovers equilibrium price
gradually at which the market clears buy and sell orders. This process of the discovering
an equilibrium price is called as price discovery.
1.12.9 RBI Reference rate

It is the rate published daily by RBI for spot rate for various currency pairs. These rates
are arrived at by averaging the mean of bid / offer rates pooled from a few selected
banks during a random five-minute window between 11:45 AM and 12:15 PM and
these daily RBI reference rates is issued every week-day (excluding Saturdays) at
around 12:30 PM. The banks are selected on the basis of their standing, market share
in the domestic foreign exchange market and representative character. To ensure that
the reference rate is the true reflection of the market activity RBI periodically reviews
the procedure for selecting the banks and the method of pooling the bid / offer rates.
The reference rate is a transparent price which is available from any authentic rate.
1.13 SETTLEMENT DATE OR VALUE DATE

Unlike the currency futures market, the settlement on the OTC market happens by
actual delivery of the currency. Settlement mechanism where each counterparty
exchanges the goods traded at the end of the contract is called the gross settlement and
the mechanism where market participants pay only the difference in value of the goods
is called the net settlement. For example, in the currency futures market if an exporter
sells a month USDINR term contract to 64.5. Upon termination of the contract (either
after or even before the expiry) if the price of 64.2 USDINR the exporter will receive
the difference of 64.5 and 64.2 i.e. Rs 0.3 for a dollar. In OTC spot market, if an exporter
sells $ 1 million at a price of 64.5. On the settlement date, he will deliver 1 million USD
to the Bank and receive Rs 6,40,00,000 from the Bank. In the OTC currency market,
the settlement date is also called as the value date. The value date is different from the
trade date. On the trade date, the two counterparties agree to a transaction with certain
terms (currency, price and value date). The settlement of the transaction, when
counterparties actually exchange currencies, called value date.
The most important value date is the “spot” value date, which is the settlement after
two business days. In practice, it may be after "two working days" because the
settlement takes place in two different centers which may have a different holiday. The
correct definition of the spot value date is the second business day, subject to these two
centers being opened that day. If one of them is closed, then the settlement will be on
the next business day (which could be third day, fourth day, etc., after the date of the
transaction) on which the two centers are open at the same time. Any settlement date
after the spot value date is called as “Forward value dates”, which are standardized into
1 month, 2 months, etc. after the spot value date. The Forward market can be extended
up to one year.
It is also possible to set the transaction prior to the spot date. The price at which the
settlement prior to spot date is a price derived from the spot price and is not a traded
price. For a currency pair for which spot date is T+2 and if the settlement happens on
the date of the transaction, the settlement price is called rate "cash rate" and if the
settlement happens after the one day after the trade rate, the price is called the rate of
"tom rate".
1.14 ECONOMIC INDICATORS OF CURRENCY MARKET
1.14.1 Gross Domestic Product (GDP)

It represents the total market value of all goods and services produced in the country
during the given year. The GDP growth rate higher than expected may mean relative
strengthening of the currency of that country assuming everything else remaining the
same
1.14.2 Retail sales

Retail sales is a leading indicator and it provides early guidance on the health of the
economy. Retail sales report measures the total receipts of all the retail stores in the
country. Report is particularly useful as it is the timely indicator of broad consumer
spending patterns that is adjusted for seasonal variables. The retail sales number higher
than expected may mean relative strengthening of currency of that country.
1.14.3 Industry production

Index of Industrial Production (IIP) shows the changes in the production of the
industrial sector of an economy in a given period of time, in comparison with a fixed
reference point in the past. In India, the reference point is fixed for 1993-94 and the IIP
numbers are reported using 1993-94 as the base year for the purpose of comparison. A
healthy IIP number indicates industrial growth and which could result in relative
strengthening of the currency of that country.
1.14.4 Consumer Price Index

CPI is a statistical measure of the time series of a weighted average of the prices of a
specified set of goods and services purchased by consumers. It is a price index that
follows the price of a specified basket of consumer goods and of services, providing a
measure of inflation.
CPI is an index of prices for fixed quantity and considered by some as an indication of
the cost of living.
A CPI rise means an increase in the prices of goods and services and is an early indicator
of inflation. It is difficult to assess the impact of inflation on the value of the currency.
If rising CPI probably means increase in the interest rate by the Central Bank, the
currency may strengthen in the short term but can start to weaken in the long term as
the rise in inflation and interest may begin to affect the growth of the economy.
1.15 TERMINOLOGIES USED IN FUTURES

Some of the commonly used terminologies in the currency futures market are as
follows:
1.15.1 Spot price

It is the price at which the underlying asset trades at the spot market.
1.15.2 Futures price

It is the current price of the specified futures contract.
1.15.3 Contract Cycle

Contract cycle is the period over which the contracts are traded. On SEBI recognised
stock exchanges the currency futures contracts have one-month, two-month, three-
month upto twelve-month expiry cycles. So, these exchanges would have 12 contracts
outstanding at any given period of time.
1.15.4 Value date/ Final settlement date

For each contract the last business day is termed as value date/ final settlement date.
1.15.5 Expiry date

The expiry date on which the trading in contracts ceases and is also known as last
trading day. It is two days before the final settlement of the contract.
1.15.6 Contract size

It is also called as lot size, it is the amount of the asset to be delivered under one contract.
In case of USDINR it is 1,000 USD, in case of EURINR it is 1,000 Euro, in case of
GBPINR it is 1,000 GBP and in case of JPYINR it is 1,00,000 JPY.
1.15.7 Initial Margin

Initial margin is the amount which has to be deposited in the margin account at the time
of first entering into the futures contract.
1.15.8 Marking-to-market
At the end of each trading day in the futures market, the margin account is adjusted to
reflect investors gain or loss depending on the futures closing price. This is called as
marking-to-market.
1.16 DISTINCTION BETWEEN FORWARD AND FUTURES

CONTRACTS
Forward contracts are often confused with the futures contracts. This is due to the both
forwards and futures contracts serve essentially the same economic functions of
allocating the risk in the probability of future price uncertainty. But futures have some
of the distinct advantages over the forward contracts as they eliminate counterparty risk
and offer more liquidity and price transparency. But forwards enjoy the benefit of being
customised to meet specific client requirements. The following are the advantages and
limitations of futures contracts,
Advantages of futures
 Price transparency.
 Elimination of Counterparty credit risk.
 Access to all types of market participants. The OTC market is restricted to
Authorised dealers, individuals and entities with forex exposures. Retail speculators
with no exposure to forex cannot trade in OTC market.
 Futures offer lower cost of trading as compared to the trading in the OTC market.
Limitations of futures
 Since the amount and settlement dates cannot be customised, it provides imperfect
hedge.
 The participants have to maintain the margin, but in the OTC forwards there is no
need to maintain any collateral.
1.17 INTEREST RATE PARITY

Let us assume that risk free rate of interest in India for one-year deposit is 7% and that
of USA is 3%. As smart trader/ investor will raise money from USA and deploy it in
India and try to capture the arbitrage of 4%. And continue to do this transaction as a
non-ending money making machine. But such arbitrage opportunity doesn’t exist for a
long time.
1.18 USING CURRENCY FUTURES FOR HEDGING VARIOUS

KINDS OF FOREX EXPOSURES
Some of the common transactions for which currency futures can be used for the
purpose of hedging in addition to Import/Export are as follows,
 Payment in foreign currency for education, for travel abroad, for medical treatment,
payment for employees based abroad etc.
 Payment of interest and repayment of loan availed in foreign currency.
 Investment is assets outside India or repatriation of capital invested outside India.
 Payment of loan instalments in INR by a person earning in foreign currency.
1.19 TRADING SPREADS USING CURRENCY FUTURES
Spread refers to the difference in prices of two futures contracts. A good understanding
of spread relation in terms of pair spread is essential to earn profit.
Spread movement is based on following factors,

 Interest Rate Differentials.
 Liquidity in Banking System.
 Monetary policy Decisions (Repo rate, Reverse Repo rate and CRR).
1.19.1 Intra currency pair spread
It is also called as calendar spread. It consists of one long futures contract and one short
futures contract. Both have same underlying asset but different maturities.
1.19.2 Inter currency pair spread

The inter currency pair spread is the long-short position in futures on different
underlying currency pairs. Both typically have same maturity.
1.20 CURRENCY FUTURES CONTRACT SPECIFICATIONS

At present currency futures contract on four currency pairs i.e. USDINR, EURINR,
GBPINR, JPYINR is permitted. The contract design for these currency pairs is given
in the following table,
Table 1.4 – Showing the Contract Design of Currency Pairs
Contract specification: USDINR, GBPINR, EURINR and JPYINR Currency

derivatives.
Underlying Foreign currency as base currency and INR as quoting
currency.
Market timing 9:00 AM to 5:00 PM.
Contract Size USD 1000 (for USDINR), EUR 1000 (for EURINR), GBP
1000 (for EURINR) and JPY 100000 (for JPYINR).
Tick Size Re. 0.0025
Quotation The contract would be quoted in terms of Rupee. But the
outstanding position would be in USD, GBP, EUR and JPY
terms for USDINR, GBPINR, EURINR and JPYINR
respectively.
Available Contracts The maximum of 12 calendar months from the current
calendar month. New contract would be introduced on the
expiry of current month of contract.
Settlement Date Last working day of the month (subject to calendar
holidays) at 12 noon.
Last working day 12 noon on the day that is 2 working days prior to
(or Expiry day) settlement date.
Settlement basis Daily mark to market settlement on T+1-day basis and final
settlement would be on T+2 days and settled in cash.
Daily settlement Daily mark to market settlement price will be announced by
price the exchange, based on volume weighted average price in
the last half an hour of trading, or a theoretical pricing if
there is no trading in the half hour.
Settlement Cash settled in INR.
Final settlement The reference rate fixed by the RBI on the last trading day
price or expiry day.
Final settlement day Last working day (excluding Saturdays) of expiry month.
The last working day will be same as interbank settlements
in Mumbai. The rules for interbank settlement would be as
same laid down by FEDAI (Foreign Exchange Dealers
Association of India).
1.21 TERMINOLOGIES WITH RESPECT TO CONTRACT

SPECIFICATION
1.21.1 Base price

Base price of the futures contracts on first day of its life shall be theoretical futures
price. The base price of contracts on subsequent trading days will be daily settlement
price of the previous trading day.
1.21.2 Settlement price (or closing price)

It is currently calculated as the last half an hour weighted average price of the contract.
In case a futures contract is not traded on a day or not traded during the last half hour,
a ‘theoretical settlement price’ is computed as may be decided by the relevant authority
from time to time.
1.21.3 Tenor of futures contract

Tenor of a contract means the period for when the contract will be available for futures
trading i.e. the cycle of the contract. The currency futures contracts are available for
trading for all maturities from 1 month to 12 months.
1.22 ENTITIES IN THE TRADING SYSTEM

The trading system consists of five trading entities namely trading members, clearing
members, trading-cum-clearing members, professional clearing members and
participants.
1.22.1 Trading Members (TM)

Trading members are the members of authorised exchanges. Who can trade on their
own or on behalf of their clients or other participants. These members are assigned
trading member ID by the exchange. The exchange notifies from time to time the
number of users. Each user has to be registered with the exchange, who will be assigned
a unique user ID.
1.22.2 Clearing Members (CM)

Clearing members are the members of the clearing corporation. They carry out risk
management activities and confirmation/inquiry of participant trades through the
trading system.
1.22.3 Trading-cum-Clearing Members (TCM)

The member with a right to trade on his own account as well as on account of his clients.
He can clear and settle the trades for self and for his clients through the Clearing House.
1.22.4 Professional Clearing Member (PCM)

The professional clearing member is a clearing member who is not a trading member.
Banks and custodians become professional clearing members and clear and settle for
their trading members and participants.
1.22.5 Participants
The participant is a client of a trading member like financial institutions. These clients
may trade through multiple trading members but settle through a single clearing
member.
1.23 TYPES OF ORDERS

The exchanges allow its members to enter into orders with various conditions. These
conditions can be broadly classified into following categories,
 Time conditions.
 Price conditions.
 Other conditions.
The order types and conditions are summarised as follows,
1.23.1 Time conditions
 Day order: As the name suggests is an order which is valid for the day on which it
is entered. If the order is not executed during the day, the system cancels the order
automatically at the end of the day.
 Immediate or Cancel (IOC): An Immediate or cancel order allows the user to buy
or sell a contract as soon as order is released into the system, failing which order is
cancelled from the system. Partial match is possible for the order, and the
unmatched portion of the order is cancelled immediately.
1.23.2 Price conditions

 Market price: Market orders are orders for which no price is specified at the time
order is entered (i.e. price is the market price). For such orders, the trading system
determines the price. For the buy order placed at the market price, the system
matches it with readily available sell order in the order book. For the sell order
placed at the market price, the system matches it with the readily available buy order
in the order book.
 Limit price: The order to buy a specified quantity of a security at or below a
specified price, or the order to sell it at or above a specified price (called the limit
price). This ensures that a person will never pay more for the futures contracts than
whatever price is set as the limit. It is also the price of orders after triggering from
stop-loss book.
 Stop-loss: This allows the user to release an order into the system, after the market
price of the security reaches or crosses a threshold price. Thus, for stop-loss buy
order, the trigger price has to be less than the limit price and for stop-loss sell order,
the trigger price has to be greater than the limit price.
1.23.3 Other conditions

 Pro: It means that the orders are entered on the trading members own account.
 Cli: It means the orders are entered by the trading members on behalf of his clients.
1.24 CLEARING ENTITIES

The Clearing Corporation undertakes the process of settlement and clearing in the
Currency derivatives market with the help of following entities,
1.24.1 Clearing Members

In Currency Derivatives Market, trading-cum-clearing member clear and settle their
own trades as well as trades of other trading members (TMs). There is a special category
of members called as professional clearing members (PCM) who will clear and settle
trades executed by trading members. The members clearing their own trades and trades
of others, and the professional clearing members are required to bring in additional
security deposits in respect of every trading members whose trades they undertake to
clear and settle.
1.24.2 Clearing Banks

The funds settlement takes place through clearing banks. For the purpose of the
settlement all clearing members are required to open a separate bank account with the
Clearing Corporation designated clearing bank for currency derivatives market. The
Clearing and Settlement process comprises of the following three main activities,
1. Clearing.
2. Settlement.
3. Risk management.
1.25 CLEARING MECHANISM

The clearing mechanism is essentially to work open positions and obligations of
clearing (trading-cum-clearing/professional members). This position is considered for
exposure and daily margin purposes. Open positions of clearing members (CMs)
arrived by aggregating the open positions of all the TMs and all participants in charge
of clearing through him. Open position of a TM is arrived at as the sum of the clients
open position and proprietary open position. Entering orders on the trading system,
TMs are necessary in order to identify the orders, if the proprietary (if own trades) or
client (if it is entered on behalf of clients) through "Pro/Cli" indicator presented in the
entry screen of order. Proprietary positions are calculated on a net basis (buy - sale) for
each contract. The clients position is arrived by adding together net (buy - sale)
positions of each client. The positions are deducted only for each client and not netted
across clients and added up to all clients. Open position of a TM is the sum of the
proprietary open position, customer and client open long position and client open short
position.
1.26 REGULATORY GUIDELINES ON OPEN POSITION LIMITS

The regulator has specified maximum allowable open position limit in order to avoid
the huge building up of Open positions across all trading members of the exchange.
Rules with respect to monitoring and enforcement of position limits in currency futures
market,
 Positions during the day are monitored based on the total open interest at end of the
previous day’s trade.
 The monitoring is for both client level positions (based on the unique client code)
and for trading member level positions.
 The exchange treats violation of position limits as an input for further surveillance
action. The exchange conducts detailed analysis on the overall nature of positions,
trading strategy, positions in underlying market, positions of related entities, etc.
upon detection of large open positions.
 The violators of position limits are accountable for their large positions and are
asked to submit detailed information pertaining to their trading activities whenever
the information is sought by Exchange. Clearing member is accountable for
positions of all trading members and clients of the trading members clearing
through him. Likewise, the trading member is accountable for the positions of their
clients.
The following table shows the gross open position limits across all contracts prescribed
by SEBI for different currency pairs and different market participants,
Table 1.5 – Showing gross open position limits prescribed by SEBI
Client Level Non-bank TM Bank TM

6% of total open 15% of total open 15% of total open
interest or USD 10 interest or USD 50 interest or USD 100 Mn,
USDINR
Mn, whichever is Mn, whichever is whichever is higher.
higher. higher.

interest or EUR 5 interest or EUR 25 interest or EUR 50 Mn,
EURINR
higher. higher.

interest or GBP 5 interest or GBP 25 interest or GBP 50 Mn,
GBPINR
higher. higher.

interest or JPY 200 interest or JPY 1000 interest or JPY 2000 Mn,
JPYINR
higher. higher.
The above table does not mention any open position limits for a clearing member as no
separate position limit is prescribed at the level of clearing member. But, the clearing
member is expected to ensure that his own trading position and the positions of each
trading member clearing through him are within the limits specified.
The position limits shall be specified to an Exchange and not to the Exchange Traded
Currency Derivatives Market as a whole.
1.27 SETTLEMENT OF CURRENCY FUTURES CONTRACTS

Currency futures contracts have two types of settlement, the Mark-To-Market
settlement which happens on a continuous basis at the end of each day, and final
settlement which happens on the last trading day of the futures contract.
1.27.1 Mark-to-Market settlement (MTM Settlement)

The futures contracts for each member are marked to market to the daily settlement
price of the relevant futures contract at the end of each day. The profit/loss could be
computed differently for different types of positions. The computation methodology is
as follows,
A. For squared off position: Buy price and sell price for contracts executed during
the day and squared off.
B. For positions not squared off: Trade price and the day’s settlement price for
contracts executed during the day but not squared up.
C. For brought forward positions: Previous day’s settlement price and the current
day’s settlement price for brought forward contracts.
1.27.2 Final settlement for futures

After the close of trading hours, on the last trading day the futures contracts, the
Clearing Corporation marks all positions of a Clearing Member to the final settlement
price and the resulting profit/loss is settled in cash. The final settlement loss/profit
amount is debited/credited to the relevant CM’s clearing bank account on T+2 working
day following last trading day of the contract. The final settlement price is the RBI
reference rate for the last trading day of the futures contracts. The open positions are
marked to market on final settlement price for the positions which gets settled at
contract expiry.
1.28 MARGIN REQUIREMENTS

The types of margins collected by the Exchanges are as follows,
1.28.1 Initial margin

The initial deposit paid by a member is considered as his initial margin for the purpose
of allowable exposure limits. Initially, every member is allowed to take the exposures
up to level permissible on the basis of the initial deposit. The Initial Margin requirement
is based on a worst-case loss of a portfolio of an individual client across various
situations of price changes. The various situations of price changes would be computed
so as to cover a 99% of Value at Risk (VaR) over a one-day horizon. In order to achieve
this, the price scan range is fixed at 3.5 standard deviation. The initial margin so
computed would be subject to a minimum margin for first day of trading and a
minimum margin % thereafter.
Table 1.6 – Showing the Minimum margin requirement for different currency pairs
USDINR EURINR GBPINR JPYINR

Minimum margin requirement 1.75% 2.8% 3.2% 4.5%
on first day
Minimum margin requirement 1% 2% 2% 2.3%
after first day
Initial margin shall be deducted from the liquid networth of the clearing member in
online or real time basis.
1.28.2 Portfolio based margin

The Standard Portfolio Analysis of Risk (SPAN) method is adopted to take an
integrated view of the risk involved in portfolio of each individual client comprising
his positions in futures contracts across different maturities. The client-wise margin is
grossed across various clients at the Trading / Clearing Member level. The proprietary
positions of the Trading / Clearing Member are treated as that of a client.
1.28.3 Real-Time Computation

The computation of worst scenario loss has two components. The first is valuation of
the portfolio under the various scenarios of price changes. At second stage, these
scenario contract values are applied to the actual portfolio positions to compute
portfolio values and initial margin. The Exchange updates the scenario contract values
at least five times in the day, which is carried out by taking closing price of previous
day at the start of trading, at the prices at 11:00 am, 12:30 pm, 2:00 pm, and at the end
of the trading session. The latest available scenario contract values are applied to
member/client portfolios on a real-time basis.
1.28.4 Calendar Spread Margins

The currency futures position at one maturity which is hedged by an offsetting position
at a different maturity is treated as a calendar spread. The benefit for a calendar spread
continues till expiry of the near-month contract. For the calendar spread position, the
extreme loss margin is charged on one-third of the mark-to-market value of the far-
month contract.
Table 1.7 – Showing the Calendar Spread margin in Rs. for different currency pair

1 month
400 700 1500 600
spread
2 months
500 1000 1800 1000
spread
3 months
800 1500 2000 1500
spread
4 or more
months 1000 1500 2000 1500
spread
1.28.5 Extreme loss margin

The Extreme loss margin is computed as percentage of the mark-to-market value of the
Gross Open Position. It shall be deducted from the liquid assets of the Clearing
Member.
Table 1.8 – Showing Extreme Loss Margin for different currency pairs
Extreme loss margin 1% 0.3% 0.5% 0.7%
1.28.6 Liquid Networth

The initial margin and extreme loss margin are deducted from the liquid assets of the
clearing member. The clearing member’s liquid networth after adjusting for initial
margin and extreme loss margin requirements must be at least Rs. 50 lacs at all points
in time. The minimum liquid networth will be treated as a capital cushion for days of
unforeseen market volatility.
1.28.7 Liquid assets

The liquid assets for trading in the currency futures are maintained separately in the
currency futures segment of the clearing corporation. But, the permissible liquid assets,
applicable haircuts and minimum cash equivalent norms would be same as that are
applicable for equity derivatives segment.
1.29 MARK TO MARKET SETTLEMENT

The mark-to-market gain and loss are settled in cash before start of trading on T+1 day.
If mark-to-market obligations are not collected before start of next day’s trading,
clearing corporation collects correspondingly higher initial margin to cover the
potential for losses over the time elapsed in the collection of margins.
1.30 UNIQUE CLIENT CODE (UCC)

The Exchange ensures that each client is assigned a client code that is unique across all
members. The unique client code is assigned with the use of Income Tax Permanent
Account Number (PAN) number.
CHAPTER – 2
RESEARCH DESIGN
This chapter deals with the methodology that has been replayed in the dissertation. It
covers the type of research used in this dissertation, sample description, data collection.
Each of the above will be described separately in this chapter.
2.1 TITLE OF THE STUDY

“A STUDY ON IMPACT OF FLUCTUATIONS IN USD, EURO, GBP RATES
ON USDINR, EUROINR, GBPINR FUTURES CONTRACTS.”
2.2 NEED FOR STUDY

The need of this study is to examine the relationship between exchange rate fluctuations
and currency futures contract with help of forward rates using the historical data. The
study helps hedgers to minimise risk associated with the hedging decisions and get
maximum returns by covering their risk.
2.3 STATEMENT OF PROBLEM

Movement of the currency exchange rates of USD, GBP, EURO is highly fluctuating
due to numerous macro and micro economic factors of a particular country as well as
the economies of other countries. The rate fluctuation of these currencies has an impact
on the forward rate which would impact the currency futures contracts traded in the
derivative markets. Hence, the study is based on this problem.
2.4 OBJECTIVES OF THE STUDY

This study is carried out with the following objectives,
 To Measure the fluctuations in USD, EURO and GBP exchange rates and forward
rates over a period of 5 years.
 To Analyse the correlation between,
a) The USD rate (spot rate) and USDINR forward rates.
b) The Euro rate (spot rate) and EURINR forward rates.
c) The GBP rate (spot rate) and GPBINR forward rates.
 To measure the impact of fluctuations in,
a) USD rate over USDINR futures contracts.
b) EURO rate over EURINR futures contracts.
c) GBP rate over GBPINR futures contracts.
2.5 SCOPE OF THE STUDY

This study is done to examine the impact of exchange rate fluctuations on currency
futures contract over a period of 5 years. The study is limited to 5 years as the futures
contract of EURINR, GBPINR were introduced on 17th October 2012, but USDINR
futures contracts were introduced on 29th August 2008.
2.6 LITERATURE REVIEW

For the purpose of the study, extensive literatures are referred and reviewed.
T. K. Dhaneesh Kumar, B. G. Poornima, P. K. Sudarshan, 2017 article examines

the role of the market of the Futures Exchange in India in the context of high volatility
of the Indian rupee (INR). It examines whether the volatility of the spot before and after
the introduction of the term of currencies were significantly different. He also examines
the causality of volatility among currency spot and future market in India. The study
considered three international currencies, namely US dollar (USD), British pound
(GBP) and Euro with respect to the INR for the period 2006-2013. He made use of
GARCH model framework and Granger causality test. The GARCH model results
indicate that after the introduction of futures contracts, there is less volatility for
Sterling and the Euro, but not in the case of USD. Granger causality test revealed that
the USD and Euro a one-way causality, which means that this place cause future
fluctuations, whereas in the case of GBP, two-way causality there. The study concludes
that the implementation of futures contracts is not effective at reducing spot for INR-
USD volatility but there are marginally for INR-GBP and INR-EURO.
Golak Nath, Manoel pacheco, 2017 analyses the effectiveness of the 1-month
USD/INR currency futures rates in predicting the expected spot rate. The volatility of
the USD/INR spot returns was also analysed. Modelling volatility of the USD/INR spot
rate using a generalized autoregressive conditional heteroskedasticity (GARCH) and
exponential generalized autoregressive conditional heteroskedasticity (EGARCH)
model indicated the presence of volatility clustering. Using multivariate GARCH
models such as the constant conditional correlation and dynamic conditional
correlation, signs of a volatility spill over between the USD/INR spot and currency
futures market.
Anupam Kumar, 2016 employs a DCC GARCH model to derive dynamic co

variances and dynamic conditional correlations in currency-equity linkage (proxy
as currency futures - Index Nifty futures) and currency-bullion linkage (proxy
as currency futures - Gold futures, currency futures - Silver futures). The paper
estimates the optimal weights of portfolio allocation, hedge effectiveness, risk adjusted
return effectiveness for currency-equity and currency-bullion portfolios using two
different diversification strategies. Findings suggest that currency-equity linkage
provides better effectiveness of hedging and risk adjusted return. Moreover JPYINR
(Japanese Yen futures) is most efficient diversifiable currency futures. Adding Index
Nifty futures to JPYINR increases risk adjusted return effectiveness by 585%. Their
findings also indicate that there is no generic form of spill over dynamics in currency-
bullion market, however there is a strong form of volatility spill over from equity
to currency in currency-equity linkages. Dynamic conditional correlations derived from
DCC GARCH suggest that currency-equity linkage have dynamic negative correlation
while currency-bullion linkage has positive correlations.
Saurabh Singh, L.K. Tripathi, 2016 aims at analyzing the impact of introduction of
currency derivatives on exchange rate volatility of Euro. The data used in this paper
comprises of daily exchange rate of Euro in terms of Indian rupees for the sample period
April 2005 to March 2015. To explore the time series properties Unit Root Test and
ARCH LM test have been employed and to study the impact on underlying volatility
GARCH (1,1) model has been employed. The results indicate that the introduction of
currency futures has not been successful in reducing the volatility of the foreign
exchange market in India.
Baldeaux, Jan, 2015 considers realistic modelling of derivative contracts on exchange

rates. A stochastic volatility model that recovers not only the typically observed implied
volatility smiles and skews for short dated vanilla foreign exchange options but allows
one also to price payoffs in foreign currencies, lower than possible under classical risk
neutral pricing, in particular, for long dated derivatives. The main reason for this
important feature is the strict super martingale property of benchmarked savings
accounts under the real-world probability measure, which the calibrated parameters
identify under the proposed model. Using a real dataset on vanilla option quotes, we
calibrate our model on a triangle of currencies and find that the risk neutral approach
fails for the calibrated model, while the benchmark approach still works.
Saurabh Singh, L.K. Tripathi, 2014 analyses impact of introduction of currency

derivatives on exchange rate volatility of Pound. The data used in this paper comprises
of daily exchange rate of Pound in terms of Indian rupees for the sample period April
2006 to December 2013. To explore the time series properties Unit Root Test and
ARCH LM test have been employed and to study the impact on underlying volatility
GARCH (1, 1) model has been employed. The result indicates that the introduction of
currency futures trading has helped in reducing the exchange rate volatility of the
foreign exchange market in India. Further, the result is also indicative of the fact that
the importance of recent news on spot market volatility has decreased and the
persistence effect of old news has declined with the introduction of currency futures
trading.
Praveen Bhagwan M. and Jijo Lukose P.J., 2014 article mentions that the forwards
are main instruments for managing currency risk followed by options and swaps.
The objectives, in the order of priority, are reduction in exposure associated with
foreign currency receivables, foreign currency long-term loans and foreign
currency payables. Firm’s decision to hedge is positively related to size, foreign
exchange exposure and leverage, while negatively related to liquidity and
investment opportunities. We find evidence of higher derivative usage by firms
with both higher currency risk and higher financial distress costs.
Belghitar, Yacine, 2013 analyses the effect of foreign currency derivatives use on
shareholders’ value. Exposures are broken down by currency, by whether the currency
is appreciating or depreciating and by whether exposures are symmetric or asymmetric.
We find that derivatives are effective in reducing overall FC exposure but there is no
evidence of value creation through the application of a program that identifies and
targets only loss causing exposures. We also find that FC derivative use has no
significant effect on firm value in the overall sample and when the sample is broken
down by exposure type and derivative product.
Tulsi Lingareddy, 2013 says that the India’s foreign exchange market has been
witnessing extreme volatility trends for the past 3 years. In this context, foreign
exchange derivatives become important tools for market risk management. While the
over the counter (OTC) derivatives, forwards, are widely used in the post liberalization
period, exchange traded currency futures are also available for trading since August,
2008. An attempt is made to study the hedging effectiveness of exchange traded futures
and OTC traded forwards. The results indicated that the hedging effectiveness of
forwards is significantly higher than that of exchange traded futures. This could be one
of the reasons for the less popularity of the futures among hedgers compared to OTC
forwards.
RBI-SEBI Standing Technical Committee (RBI-SEBI), 2008 report in the context

of the liberalization of market in terms of capital and commodity futures market, the
participant of the two markets, most believe that coverage opportunity through currency
trading increase the flexibility to dynamically manage their foreign exchange risk.
Indeed, international experience shows that exchange traded currency futures facilitates
the efficient price discovery. The launch of derivatives of the currency in India follows
the recommendation made jointly by the Securities and Exchange Board of India
(SEBI) and the Reserve Bank of India (RBI) in May 2008.
Indian currency futures contracts would be cited and settled in the Indian rupee and the
maturity of the contracts would not exceed 12 months. The futures date and price will
be fixed on the date of purchase. Only Indian rupee US dollar contracts would be
allowed and the contract size will be $ 1,000 and the size of the tick (minimum price
fluctuation) will be 0.25 paisa.
2.7 LIMITATIONS OF THE STUDY

The study is limited to currency futures contracts of USDINR, EURINR, GBPINR for
the period of 5 years only.
2.8 RESEARCH METHODOLOGY

The study is an analytical study. The study reports impact of exchange rate fluctuations
on Futures contract (USDINR, EUROINR, GBPINR) in Indian currency derivative
market. The data is collected from NSE and RBI websites.
2.9 PLAN OF ANALYSIS
The tool used for data analysis and interpretation – Correlation.

Correlation is a statistical tool that shows whether and how strongly the variables are
related. It measures the degree to which two variables move in relation to each other.
Correlation implies that as one variable moves, either up or down the other variable
moves in lockstep, in the same direction.
Correlation between the variables are calculated using following formula –
𝑵(∑ 𝒙𝒚) − (∑ 𝒙)(∑ 𝒚)

𝒓=
√(𝑵 ∑ 𝒙𝟐 − (∑ 𝒙)𝟐 )(𝑵 ∑ 𝒚𝟐 − (∑ 𝒚)𝟐 )
Where,
r = Pearson r correlation coefficient
N = number of observations
∑xy = sum of the products of paired variables
∑x = sum of x variables
∑y = sum of y variables
∑x2= sum of squared x variables
∑y2= sum of squared y variables
2.10 OPERATIONAL DEFINITIONS OF CONCEPTS

1. DERIVATIVE: It is an Instrument whose price is dependent on or derived from one
or more underlying assets. It is a contract between two or more parties based upon the
underlying asset or assets. Its value is determined by fluctuations in the prices of
underlying asset.
2. CURRENCY DERIVATIVE: It is a contract between seller and buyer, whose value

is to be derived from the underlying asset, the currency value.
3. FUTURES CONTRACTS: It is the legal agreement, generally made on trading

floor of a futures exchange, to buy or sell a particular commodity or financial instrument
at a predetermined price at a specified time in the future.
4. INR: It stands for Indian Rupee and is the official currency of India.
5. USD: It is the official currency of United States of America, USD stands for United
States Dollars.
6. EURO: It is the official currency of European Union.
7. GBP: It is the official currency of Great Britain, GBP stands for Great Britain Pound
(Sterling).
8. USDINR: It is the futures contract in which USD is the underlying asset and is
expressed in terms of INR.
9. EURINR: It is the futures contract in which EURO is expressed in terms of INR.
10. GBPINR: It is the futures contract in which GBP is expressed in terms of INR.
2.11 CHAPTER SCHEME

The study has been divided into 5 chapters and the details of which are as follows,
Chapter 1 – Introduction
This chapter includes theoretical background of the study about the history of finance,
meaning of commodities market and its history and brief introduction about gold crude
oil and forex.
Chapter 2 – Research design
This tells about the title of the study, statement of the problem, objective of the
study, limitations, methodology, sources of data, plan of analysis and reference
period.
Chapter 3 – Industry Profile
It gives complete details of the industry like introduction, market size, investment
opportunities, government initiatives and road ahead.
Chapter 4 – Data Analysis and Interpretation
It deals with analysing and interpreting the data collected into meaningful sense upon
which statistical tools like charts are used to understand it better.
Chapter 5 – Findings, Conclusion and Suggestions
It deals with the findings and suggestions arrived upon based on the analysis and
interpretation done about the data. It also deals with conclusion and giving
recommendations on the study.
CHAPTER – 3
INDUSTRY PROFILE
3.1 MARKET OVERVIEW
India nine-year-old currency futures market has seen a steady stream of new entrants,
drawn by the promise of richer rewards. The intense growth has attracted financial
institutions, trading companies and banks. The concept of 24-hour market has become
reality due to the overlap of business hours, as some centres closes, some centres open
and begin trade. With access to all of foreign exchange markets generally open to
participants from all countries, and with vast amounts of market information
transmitted simultaneously and almost instantly to the dealers throughout the world,
there is an enormous amount of cross-border foreign exchange trading among dealers
as well as between dealers and their customers. As per Bank for International
Settlements (BIS) survey of April 2010, daily turnover of currencies in the global
market is approximately USD 3.9trillion, making it the largest traded asset class.
3.2 CURRENCY FUTURES

Currency futures are an agreement to buy or sell a currency at a specific date in the
future at a specific price. The exchange rates of the currencies changes from second to
second. If the price goes up, the buyer of the futures contract makes money, because he
gets the currency at the lower, agreed-upon price and can now sell it at the today's higher
exchange rate. If the price goes down, the futures seller makes money, because he can
buy the currency at the today's' lower exchange rate, and sell it to the futures buyer at
the higher, agreed-upon price.
Future contracts are just a step ahead the forward contract, wherein the settlement is
done in standardized manner. The contracts are being cleared by clearing houses, so no
question of counter party risk arise therein. In currency derivatives, the crux of future
contracts is to lock up the future price of currency on the day of contract and cover the
risk to go down of price in case of short and rise in case of long. This is basically used
to transfer the risk. For e.g. if you are holding a bill denominated in USD and expect a
fall in exchange rate in future say at the time of realising, can short the currency future
in future market for specified quantity and get the agreed price, no matter where the
exchange rate of the currency goes. Likewise, if an industrialist is in the need of USD
over the next three months, he can also go for long in present and can cover the
exchange rate risk which can lead to reduction in profits.
3.3 RECENT DEVELOPMENT IN INDIAN CURRENCY

DERIVATIVE MARKETS
The Currency futures contract was introduced to trade in the stock exchanges in the
year 2008, with the introduction of USDINR contract. But later in 2012 knowing the
requirement of other currencies futures contracts, the GBPINR, EURINR and JPYINR
were introduced for trading through exchanges.
3.4 MARKET PARTICIPANTS

Participants who trade in the currency futures market can be classified into three broad
categories,
1. Hedgers.
2. Speculators.
3. Arbitrageurs.
3.4.1 Hedgers
These types of participants have a real exposure to foreign currency risk on account of
their underlying business and their objective is to remove the foreign exchange risk
using currency futures. The exposure could be because of imports/exports of
goods/services, foreign investments or foreign expenditure on account of travel, studies
or any other type of need resulting in foreign exchange exposure. In other words,
anyone having a mismatch in foreign exchange earnings and expenses would have an
actual exposure to foreign exchange. The objective of hedgers is to reduce the volatility
in future cash flows by locking in the future currency rates. For example, a shoe
exporter from India buys all its raw material domestically and sells all its goods to
Europe. For him, the expenditure is in INR while revenue is in EUR. Assume he has
shipped an order of EUR 1 million for which payment will be received after 3 months.
During the 3-month credit period, shoe exporter is carrying the risk of EURINR price
movement. He is interested to hedge the currency price risk. In this example, the shoe
exporter is a hedger.
3.4.2 Speculators
Speculators play a vital role in the futures markets. Futures are designed primarily to
assist the hedgers in managing their exposure to price risk; however, this would not be
possible without the participation of speculators. Speculators, or traders, assume the
price risk that hedgers attempt to lay off in the markets. In other words, hedgers often
depend on speculators to take the other side of their trades (i.e. act as counter party) and
to add depth and liquidity to the markets that are vital for the functioning of a futures
market.
This set of market participants does not have the real exposure to foreign currency risk.
These participants assume foreign exchange risk by taking a view on the market
direction and hope to make returns by taking the price risk.
3.4.3 Arbitrageurs
This set of market participants identify mispricing in the market and use it for making
profit. They have neither exposure to risk and nor do they take the risk. Arbitrageurs
lock in a profit by simultaneously entering opposite side transactions in two or more
markets. For example, if relation between forward prices and futures prices differs, it
gives rise to arbitrage opportunities. Difference in the equilibrium prices determined by
demand and supply at two different markets also gives opportunities to arbitrage. As
more and more market players will realize this opportunity, they may also implement
the arbitrage strategy and in the process will enable market to come to a level of
equilibrium and the arbitrage opportunity may cease to exist.
CHAPTER – 4
DATA ANALYSIS AND INTERPRETATION
4.1 TESTING OF HYPOTHESIS
1. USDINR contracts
𝐇𝟎 = The fluctuation in USD spot rate has impact on USDINR futures contracts.
𝐇𝟏 = The fluctuation in USD spot rate has no impact on USDINR futures contracts.
When the data is tested as per two tailed T-test at 5% level of significance, the critical
region is < -1.96 and > 1.96 and the computed value of null hypothesis is 0.7019526
which is in the acceptable region and indicates that the null hypothesis is acceptable i.e.
the fluctuation in USD rate has impact on USDINR futures contracts.
2. EURINR contracts
𝐇𝟎 = The fluctuation in EURO spot rate has impact on EURINR futures contracts.
𝐇𝟏 = The fluctuation in EURO spot rate has no impact on EURINR futures contracts.
the fluctuation in EURO rate has impact on EURINR futures contracts.
3. GBPINR contracts
𝐇𝟎 = The fluctuation in GBP spot rate has impact on GBPINR futures contracts.
𝐇𝟏 = The fluctuation in GBP spot rate has no impact on GBPINR futures contracts.
the fluctuation in GBP rate has impact on GBPINR futures contracts.
4.2 USDINR FUTURES CONTRACT

Table 4.1 – Showing Exchange rate of USD and Forward rate of USDINR
futures contracts for the year 2013
Trade Month Exchange rate (USD) Forward rate (USDINR)

Jan 2013 53.2890 53.3975
Feb 2013 53.7735 54.7275
March 2013 54.3893 54.6750
April 2013 54.2190 53.9475
May 2013 56.4958 56.7975
June 2013 59.6995 59.7475
July 2013 61.1150 61.0350
Aug 2013 66.5742 66.7125
Sep 2013 62.7770 63.2200
Oct 2013 61.4100 61.8150
Nov 2013 62.3948 62.9125
Dec 2013 61.8970 62.1550
ANALYSIS
The above table shows USD exchange rate and forward rate of USDINR futures
contracts, for the first two months the difference between forward rate and exchange is
more and there is premium added for forward rate, in the month of April forward rate
is less than the exchange rate, there after the rates move hand in hand till the end of the
year. Both the rates are year low at 53.2890 and 53.3975 in the month of January and
year high at 66.5742 and 66.7125 in the month of August.
68 68
66 66
64 64
Forward rate
62 62
Exchange rate
60 60
58 58
56 56
54 54
52 52
Trading Months
Exchange rate (USD) USDINR Forward rate
Graph 4.1 – Showing movement of exchange rate and forward rate of USD for
the year 2013
INTERPRETATION
The exchange rate and the forward rate at the beginning of the year stood at 53.2890
and 53.3975 respectively. After the financial year ending i.e. after the month of march
the rates started to rise hand in hand and touched year high in the month of August and
came down subsequently. At the end of the year the exchange rate stood at 61.8970 and
the forward rate stood at 62.1550. The fluctuations in the rates were due to the demand
and supply of USD and INR in Foreign Exchange market.
CORRELATION
The correlation between exchange rate and the forward rate for the year 2013 is
0.997450156 which denotes that the variables are positively correlated. If the exchange
rate (independent variable) changes by 1 unit it would change the forward rate
(dependent variable) by 0.997450156 unit.
In the month of February, the value of futures contracts traded on NSE were 28310.26
Cr., in the same month the difference between the forward rate and exchange rate was
high compared to all other months which would denote that the impact on Forward rate
wold directly impact the Futures contracts.

Jan 2014 62.4768 63.0875
Feb 2014 62.0720 62.2175
March 2014 60.0998 60.1625
April 2014 60.3375 60.5550
May 2014 59.0335 59.3150
June 2014 60.0933 60.5625
July 2014 60.2460 60.8500
Aug 2014 60.4745 60.9550
Sep 2014 61.6135 61.7125
Oct 2014 61.4080 61.6400
Nov 2014 61.9736 62.3875
Dec 2014 63.3315 63.4675
ANALYSIS
contracts, exchange rate for the entire year is lower than the forward rate i.e. forward
rate was at premium. But with fluctuating difference between exchange rate and
forward rate. The exchange rate and forward rate are year low at 59.0335 and 59.3150
respectively in the month of May and year high at 63.3315 and 63.4675 respectively in
the month of December.
64 64
63 63
Exchange rate
Forward rate
62 62
61 61
60 60
59 59
58 58
Trading Months
Exchange rate (USD) Forward rate (USDINR)
the year 2014
INTERPRETATION
The exchange rate and the forward rate at the beginning of the year stood at 62.4768
and 63.0875 respectively. The rates decreased till may and then the rates saw moderate
rise for next three months and then reached year high in the month of December which
stood at 63.3315 and 63.4675 respectively. The fluctuations in the rates were due to the
demand and supply of USD and INR in Foreign Exchange market.
CORRELATION
In the month of July, August and September the contracts traded on the exchange had
seen a rise due to the anticipation that the exchange rate and the forward rate would
rise, which resulted in the rise in the value of the contracts traded in NSE. Which
impacted the forward rate.

Jan 2015 61.7575 62.2350
Feb 2015 61.7908 62.2175
March 2015 62.5908 62.8300
April 2015 63.5780 63.8050
May 2015 63.7615 64.2000
June 2015 63.7549 64.0075
July 2015 64.0054 64.4875
Aug 2015 66.3062 66.8350
Sep 2015 65.7418 65.8975
Oct 2015 65.2231 65.6100
Nov 2015 66.8148 66.9750
Dec 2015 66.3260 66.3875
ANALYSIS
forward rate. The exchange rate and forward rate opened at 61.7575 and 62.2350
respectively in the month of January and closed at 66.3260 and 66.3875 respectively in
68 68
67 67
Forward rate
Exchange rate 66 66
65 65
64 64
63 63
62 62
61 61
Trading Months
the year 2015
INTERPRETATION
The above graph shows that the forward rate is at premium during the year 2015. The
exchange rate and the forward rate are year high in the month of November at 66.8148
and 66.9750 respectively and exchange rate is year low in the month of January at
61.7575 and forward rate in the month of February at 62.2175. The fluctuations in the
rates were due to the demand and supply of USD and INR in Foreign Exchange market.
CORRELATION
The futures contract traded in NSE was at year high in the month of April at 12,304.73
Cr., the second high was in the month of September at 10,487.55 Cr., where the traders
existed the contracts in the anticipation of loss due to rise in the exchange rate. In the
year Indian Rupees lost its value against US Dollars. The exchange rate was 61.7575
INR against 1 USD, as the rupee depreciated the exchange rate came to 66.3260 INR
against 1 USD in the month of December.

Jan 2016 67.8763 68.1025
Feb 2016 68.6160 68.7675
March 2016 66.3329 66.5050
April 2016 66.5176 66.6650
May 2016 67.2030 67.6000
June 2016 67.6166 67.7725
July 2016 67.0340 67.2900
Aug 2016 66.9813 67.2725
Sep 2016 66.6596 66.8775
Oct 2016 66.8566 67.0600
Nov 2016 68.5260 68.5625
Dec 2016 67.9547 68.1025
ANALYSIS
69 69
68.5 68.5
68 68
Forward rate
67.5 67.5
Exchange rate
67 67
66.5 66.5
66 66
65.5 65.5
65 65
Trading Months
Exchange rate (USD) Forward rate
the year 2016
INTERPRETATION
exchange rate and the forward rate are year high in the month of February at 68.6160
and 68.7675 respectively and exchange rate and forward rate is year low in the month
of March at 66.3329 and 66.5050 respectively. The fluctuations in the rates were due
to the demand and supply of USD and INR in Foreign Exchange market.
CORRELATION
The futures contract traded in NSE was at year high in the month of February at
12,847.43 Cr. and fell to year low in the month of July at 4,973.65 Cr. due to the drop
in the exchange rate from 68.6160 INR per 1 USD in the month of February to 66.3329
INR per 1 USD in the month of March which resulted in the fear of more downfall of
rupee against dollar.

Jan 2017 67.8125 68.0650
Feb 2017 66.7375 66.9375
March 2017 64.8386 65.0850
April 2017 64.2170 64.5300
May 2017 64.5459 64.7300
June 2017 64.7379 64.8175
July 2017 64.0773 64.4075
Aug 2017 64.0154 64.0825
Sep 2017 65.3552 65.5100
Oct 2017 64.7745 64.9875
Nov 2017 64.4332 64.6475
Dec 2017 63.9273 64.0575
ANALYSIS
69 69
68 68
67 67
Exchange rate
Forward rate
66 66
65 65
64 64
63 63
Trading Months
the year 2017
INTERPRETATION
exchange rate and the forward rate are year high in the month of January at 67.8125
of December at 63.9273 and 64.0575 respectively. The rates were in the high note in
the beginning of the year though it gradually decreased to year low in the month of
December. The fluctuations in the rates were due to the demand and supply of USD
and INR in Foreign Exchange market.
CORRELATION
The Futures contract traded in NSE was at year high in the month of September as well
as in November at 11,807.29 Cr. and 11,791.49 Cr. respectively, as the exchange rate
saw a rise which would have made the traders to exit the contract or to enter into the
contracts.
SCATTER PLOT
USDINR
68.5
68 y = 1.0097x - 0.4313
67.5 R² = 0.9953
Forward rate
67
66.5
66
65.5 Series1
65 Linear (Series1)
64.5
64
63.5
63 64 65 66 67 68 69
Exchange rate
Graph 4.6 – showing the Scatter Plot for USDINR
INTERPRETATION
From the graph the equation of USDINR is derived, i.e. Y = 1.0097X – 0.4313, which
can be used to estimate the forward rate for next trading months.
If the exchange rate for the month of December 2018 is 69, then the forward rate would
be Y = 1.0097 (69) – 0.4313, i.e. the forward rate for the month of December 2018
would be 69.238.
4.3 EURINR FUTURES CONTRACTS
Table 4.6 – Showing Exchange rate of EURO and Forward rate of EURINR
Trade Month Exchange rate (EURO) Forward rate (EURINR)

Jan 2013 72.2325 72.2750
Feb 2013 70.6805 71.7350
March 2013 69.5438 70.0275
April 2013 70.9775 70.5450
May 2013 73.6807 73.7150
June 2013 77.9760 78.0250
July 2013 80.9535 80.9400
Aug 2013 88.1605 88.2250
Sep 2013 84.6745 85.2450
Oct 2013 84.1245 84.4175
Nov 2013 84.9755 85.6100
Dec 2013 85.3635 85.5475
ANALYSIS
The above table shows EURO exchange rate and forward rate of EURINR futures
rate was at premium except for the month of April. But with fluctuating difference
between exchange rate and forward rate. The exchange rate and forward rate opened at
72.2325 and 72.2750 respectively in the month of January and closed at 85.3635 and
85.5475 respectively in the month of December.
93 93
88 88
Exchange rate
Forward rate
83 83
78 78
73 73
68 68
Trading Months
Exchange rate (EURO) Forward rate (EURINR)
Graph 4.7 – Showing movement of exchange rate and forward rate of EURO for
the year 2013
INTERPRETATION
The above graph shows that the forward rate is at premium during the year 2013 except
for the month of April. The exchange rate and the forward rate are year high in the
month of August at 88.1605 and 88.2250 respectively and exchange rate and forward
rate is year low in the month of March at 69.5438 and 70.0275 respectively. The rates
saw a steep rise in the month of August which recorded the years high, even close on a
high note at the end of the year as compared to the year beginning. Various factors
contributed to the fluctuations in the rates, major factor was the demand and supply of
EURO and INR in Foreign Exchange Market.
CORRELATION
The EURINR Futures contracts traded in NSE were at year high in the month of August
at 1,116.82 Cr., even the rates were at year high in the same month. The trading in the
year started at 162.11 Cr. and closed at 451.28 Cr. which is high as compared to the
beginning of the year.

Jan 2014 84.6022 85.3525
Feb 2014 85.0285 85.8025
March 2014 82.5765 82.5900
April 2014 83.3060 83.8350
May 2014 80.3350 80.7450
June 2014 82.0094 82.6625
July 2014 80.6985 81.4525
Aug 2014 79.8620 80.3900
Sep 2014 78.2060 78.1250
Oct 2014 77.1899 77.5700
Nov 2014 77.1633 77.6775
Dec 2014 77.0048 77.1300
ANALYSIS
rate was at premium except for the month of September. But with fluctuating difference
86 86
84 84
Exchange rate 82 82
Forward rate
80 80
78 78
76 76
74 74
72 72
Trading Months
the year 2014
INTERPRETATION
for the month of September. The exchange rate and the forward rate are year high in
the month of February at 85.0285 and 85.8025 respectively and exchange rate and
forward rate is year low in the month of December at 77.0048 and 77.1300 respectively.
The rates were on a higher note during the year beginning and saw a downward trend
and attained year low in the month of December. The rate for the September was at a
discount which means the forward rate was less than exchange rate. Various factors
CORRELATION
The EURINR Futures contracts traded in NSE were at year high in the month of
February 749.57 Cr. which had the highest exchange rate and forward rate for the year.
The rates ended on lower note as compared to the opening of the year.

Jan 2015 70.0268 70.6250
Feb 2015 69.2860 69.9100
March 2015 67.5104 67.5325
April 2015 70.5334 71.3025
May 2015 69.9081 70.3825
June 2015 71.2015 71.5250
July 2015 70.1627 70.7400
Aug 2015 74.4950 74.8900
Sep 2015 73.7952 73.8950
Oct 2015 71.6671 72.2775
Nov 2015 70.6834 70.8425
Dec 2015 72.5010 72.4875
ANALYSIS
rate was at premium except for the month of September. But with fluctuating difference
76 76
74 74
Forward rate
72 72
Exchange rate
70 70
68 68
66 66
64 64
Trading Months
the year 2015
INTERPRETATION
for the month of December. The exchange rate and the forward rate are year high in the
month of August at 74.4950 and 74.8900 respectively and exchange rate and forward
rate is year low in the month of March at 67.5104 and 67.5325 respectively. The rates
opened at a moderate note in January and saw a downward trend till March then had an
uptrend till the month of August after attaining year high saw a downward trend for
next 3 months and ended on a higher note compared to the opening. Various factors
CORRELATION
The futures contracts traded in NSE were at year high in the month of February at
573.13 Cr. and in the month of September it stood at 535.54 Cr. which is due to the
effect of year high rates in August, then it gradually decreased.

Jan 2016 74.0666 74.2900
Feb 2016 75.0796 74.9200
March 2016 75.0955 75.7200
April 2016 75.7303 75.9700
May 2016 74.7902 75.5550
June 2016 75.0071 75.5250
July 2016 74.2737 74.8325
Aug 2016 74.6239 74.9850
Sep 2016 74.7521 74.7925
Oct 2016 72.9071 73.6600
Nov 2016 72.8431 73.1650
Dec 2016 71.6175 71.9275
ANALYSIS
rate was at premium except for the month of February where it was traded at discount.
But with fluctuating difference between exchange rate and forward rate. The exchange
rate and forward rate opened at 74.0666 and 74.2900 respectively in the month of
January and closed at 71.6175 and 71.9275 respectively in the month of December
lower than 2015.
77 77
76 76
75 75
Forward rate
Exchange rate 74 74
73 73
72 72
71 71
70 70
Trading Months
Graph 4.10 – Showing movement of exchange rate and forward rate of EURO
for the year 2016
INTERPRETATION
for the month of February. The exchange rate and the forward rate are year high in the
month of April at 75.7303 and 75.9700 respectively and exchange rate and forward rate
is year low in the month of December at 71.6175 and 71.9275 respectively. The rates
opened at a higher note and had an upward trend till the month of March. Then saw a
downward trend closing at year low in the month of December. The rates were on a
higher level compared to 2nd half of 2015, but the exchange rate and forward rate saw
a downtrend to end at 71.6175 and 71.9275 respectively. Various factors contributed to
the fluctuations in the rates, major factor was the demand and supply of EURO and INR
in Foreign Exchange Market.
CORRELATION
0.972376 which denotes that the variables are positively correlated. If the exchange rate
(independent variable) changes by 1 unit it would change the forward rate (dependent
variable) by 0.972376 unit.
The futures contract traded on NSE were at year high in the month of June at 1481.85
Cr. as for the same month the premium paid i.e. the difference between the exchange
rate and forward rate were at year high. Then it saw a downward trend to end at year
low in the month of December at 331.93 Cr.

Jan 2017 72.5526 72.9225
Feb 2017 70.7151 71.0600
March 2017 69.2476 69.6575
April 2017 69.8809 70.6425
May 2017 72.1430 72.6550
June 2017 74.0019 74.0100
July 2017 75.2203 75.6375
Aug 2017 76.0439 76.0125
Sep 2017 77.0603 77.4775
Oct 2017 75.4234 75.7125
Nov 2017 76.4887 76.5950
Dec 2017 76.3867 76.8325
ANALYSIS
rate had premium factor in it. But with fluctuating premium between exchange rate and
80 80
78 78
76 76
Forward rate
Exchange rate
74 74
72 72
70 70
68 68
66 66
64 64
Trading Months
Graph 4.11 – Showing movement of exchange rate and forward rate of EURO
for the year 2017
INTERPRETATION
exchange rate and the forward rate are at year high in the month of September at
77.0603 and 77.4775 respectively and exchange rate and forward rate is year low in the
month of March at 69.2476 and 69.6575 respectively. The rates opened at a lower note
in the month of January and saw a downward trend till the month of March and saw an
upward trend due to the demand for EURO’s in the Forex market and attained year high
in the month of September and ended on a higher note in the month of December due
to shortage of supply and increase in the demand for EURO’s.
CORRELATION
The EURINR futures contracts traded on NSE were at year high in the month of June
at 864.29 Cr. and year low in the month of October at 354.63 Cr. due to the impact of
the rates of September, which attained year high.
SCATTER PLOT
EURINR
78
77 y = 0.961x + 3.2169
R² = 0.9947
Forwrard rate
76
75
74
73 Series1
72 Linear (Series1)
71
70
69
68 70 72 74 76 78
Exchange rate
Graph 4.12 – showing the Scatter Plot for EURINR
INTERPRETATION
From the graph the regression equation of EURINR is derived, i.e. Y =0.961X + 3.2169,
which can be used to estimate the forward rate for next trading months.
If the exchange rate for the month of December 2018 is 78.5, then the forward rate
would be Y = 0.961 (78.5) + 3.2169, i.e. the forward rate for the month of December
2018 would be 78.6554 INR per 1 EURO.
4.4 GBPINR FUTURES CONTRACTS
Table 4.11 – Showing Exchange rate of GBP and Forward rate of GBPINR
Trade Month Exchange rate (GBP) Forward rate (GBPINR)

Jan 2013 84.2233 84.2725
Feb 2013 81.5690 83.0975
March 2013 82.3209 82.7375
April 2013 84.0015 83.4925
May 2013 86.0092 86.2750
June 2013 91.1432 91.0225
July 2013 92.9742 92.8600
Aug 2013 103.3431 103.4375
Sep 2013 101.4162 101.9525
Oct 2013 98.2867 99.1000
Nov 2013 102.0592 102.7325
Dec 2013 102.0094 102.6700
ANALYSIS
The above table shows GBP exchange rate and forward rate of GBPINR futures
contracts, exchange rate for the month of April, June and July were higher than the
forward rate which denotes that forward rate has a discount factor in it, but with
fluctuating premium between exchange rate and forward rate for rest of the year. The
exchange rate and forward rate opened at 84.2233 and 84.2725 respectively in the
month of January and closed at 102.0094 and 102.6700 respectively in the month of
December.
105 105
100 100
Exchange rate
Forward rate
95 95
90 90
85 85
80 80
Trading Months
Exchange rate (GBP) Forward rate (GBPINR)
Graph 4.13 – Showing movement of exchange rate and forward rate of GBP for
the year 2013
INTERPRETATION
The above graph shows that the forward rate is at discount in the month of April, June
and July 2013. The exchange rate and the forward rate are at year high in the month of
August at 103.3431 and 103.4375 respectively and exchange rate and forward rate is
year low in the month of February at 81.5690 and 84.2725 respectively. Due to low
demand for GBP at beginning of the year and the demand increased during the year
which resulted in the increase of the rates. The rates started at lower note after April it
saw an upward trend to end on the high note.
CORRELATION
The GBPINR futures contracts traded on NSE were at year high in the month of August
939.08 Cr. and was at year low in the month of June at 346.98 Cr. due to the demand
and supply of GBP in Foreign Exchange market.

Jan 2014 102.9493 103.7200
Feb 2014 103.6106 103.9675
March 2014 99.8498 99.9575
April 2014 101.4515 101.8650
May 2014 98.9106 99.3300
June 2014 102.3269 103.1550
July 2014 101.9242 102.7050
Aug 2014 100.3514 101.0850
Sep 2014 100.2760 100.4000
Oct 2014 98.0624 98.6600
Nov 2014 97.3667 97.7975
Dec 2014 98.5818 98.9550
ANALYSIS
contracts, exchange rate for the year was lower than the forward rate i.e. the forward
rate was at premium for the year. But with fluctuating premium between exchange rate
and forward rate. The exchange rate and forward rate opened at 102.9493 and 103.7200
105 105
104 104
103 103
102 102
Forward rate
Exchange rate
101 101
100 100
99 99
98 98
97 97
96 96
95 95
94 94
Trading Months
the year 2014
INTERPRETATION
The above graph shows that the forward rate is at premium for the entire year. The
exchange rate and the forward rate are at year high in the month of February at 103.6106
of November 97.3667 and 97.7975 respectively. Due the excess demand for the GBP
traders had to pay higher premium in the month of January, June and October. The rates
opened at higher rate in the year and ended on lower rate at the end.
CORRELATION
The correlation between exchange rate and the forward rate for the year 2014 is by
0.993792 which denotes that the variables are positively correlated. If the exchange rate
(independent variable) changes by 1 unit it would change the forward rate (dependent
variable) by 0.993792 unit.
The GBPINR futures contracts traded on NSE were at year high in the month of
February at 664.02 Cr. as a result of higher rates in the year, year low was in the month
of 242.91 Cr. due to less demand for GBP as the exchange rate came down which
impacted the forward rate as a result the contracts traded also came down.

Jan 2015 93.1303 93.8125
Feb 2015 95.4235 95.8275
March 2015 92.4591 93.0125
April 2015 97.9864 98.1825
May 2015 97.7974 97.8225
June 2015 100.1207 100.5175
July 2015 99.8356 100.3175
Aug 2015 102.3105 103.0075
Sep 2015 99.5331 100.1000
Oct 2015 99.9348 100.6275
Nov 2015 100.3692 100.5275
Dec 2015 98.3482 98.4350
ANALYSIS
contracts, exchange rate for the year was lower than the forward rate i.e. the forward
rate was at premium for the year. But with fluctuating premium between exchange rate
and forward rate. The exchange rate and forward rate opened at 93.1303 and 93.8125
104 104
102 102
100 100
Forward rate
Exchange rate
98 98
96 96
94 94
92 92
90 90
88 88
Trading Months
the year 2015
INTERPRETATION
The above graph shows that the forward rate is at premium for the entire year. The
exchange rate and the forward rate are at year high in the month of August at 102.3105
of March at 92.4591 and 93.0125 respectively. The rates opened at lower note, as a
result of continuous demand, the rates closed at a higher note.
CORRELATION
The futures contracts traded on NSE were at year low in the month of 696.97 Cr. and
year low in the month of December 253.46 Cr. due to the demand and supply of GBP
in Foreign Exchange Market, which impacted the exchange rates and resulted in the
fluctuations of contracts traded on the Exchange.

Jan 2016 97.7554 97.5000
Feb 2016 95.1978 95.2625
March 2016 95.0882 95.8675
April 2016 97.4017 97.4225
May 2016 98.6540 98.8050
June 2016 90.5183 91.4750
July 2016 88.2972 88.7225
Aug 2016 87.6852 88.4025
Sep 2016 86.4242 86.8650
Oct 2016 81.2976 81.6875
Nov 2016 85.5342 85.3075
Dec 2016 83.4212 83.8250
ANALYSIS
contracts, exchange rate is higher than the forward rate in the month of January and
November i.e. the forward rate is at discount for those two months. But with fluctuating
premium between exchange rate and forward rate for rest of the year. The exchange
rate and forward rate opened at 97.7554 and 97.5000 respectively in the month of
January and closed at 83.4212 and 83.8250 respectively in the month of December.
100 100
98 98
96 96
Forward rate
94 94
Exchange rate
92 92
90 90
88 88
86 86
84 84
82 82
80 80
Trading Months
the year 2016
INTERPRETATION
The above graph shows that the forward rate is at discount for the months of January
and November, and at premium for rest of the year. The exchange rate and the forward
rate are at year high in the month of May at 98.6540 and 98.8050 respectively and
exchange rate and forward rate is year low in the month of October at 81.2976 and
81.6875 respectively. As a result of fluctuations in demand and supply in the Foreign
Exchange Markets. The rates opened at a higher note during the beginning of the year
and ended at a lower rate at the end of the year. Which shows that the demand for GBP
decreased gradually and effected the exchange rate and the forward rate.
CORRELATION
The GBPINR futures contract traded on NSE were at year high in the month of 873.36
Cr. due to the expectation of rise in the exchange rates and year low in the month of
October at 184.61 Cr., due to the year low rates in the month.

Jan 2017 84.8470 84.7025
Feb 2017 83.0548 83.3250
March 2017 80.8797 81.2000
April 2017 82.8271 83.5925
May 2017 82.6446 83.1925
June 2017 84.2564 84.1275
July 2017 84.1591 84.5725
Aug 2017 82.6951 82.5275
Sep 2017 87.7067 87.7850
Oct 2017 85.5995 85.9225
Nov 2017 86.798 86.9775
Dec 2017 86.0653 86.5475
ANALYSIS
contracts, exchange rate is higher than the forward rate in the month of January, June
and August i.e. the forward rate is at discount for those three months. But with
fluctuating premium between exchange rate and forward rate for rest of the year. The
exchange rate and forward rate opened at 84.8470 and 84.7025 respectively in the
month of January and closed at 86.0653 and 86.5475 respectively in the month of
December.
89 89
88 88
Exchange rate 87 87
Forward rate
86 86
85 85
84 84
83 83
82 82
81 81
80 80
Trading Months
the year 2017
INTERPRETATION
The above graph shows that the forward rate is at discount for the months of January,
June and August, and at premium for rest of the year. The exchange rate and the forward
rate are at year high in the month of September at 87.7067 and 87.7850 respectively
and exchange rate and forward rate is year low in the month of March at 80.8797 and
81.2000 respectively. The rates opened at a moderate note and ended on the higher note
compared to the opening of the year.
CORRELATION
The futures contracts traded in NSE were at year high in the month of November at
1302.94 Cr., due to demand of GBP in the Foreign Exchange Market which impacted
the trading of contracts in NSE and year low in the month of January at 269.5 Cr.
SCATTER PLOT
GBPINR
89
88 y = 0.9696x + 2.8035
R² = 0.9783
87
Forward rate
86
85
84 Series1
83 Linear (Series1)
82
81
80
80 82 84 86 88 90
Exchange rate
Graph 4.18 – Showing Scatter plot for GBPINR
INTERPRETATION
From the graph the regression equation of GBPINR is derived, i.e. Y = 0.9696X +
2.8035, which can be used to estimate the forward rate for next trading months.
If the exchange rate for the month of December 2018 is 88.5, then the forward rate
would be Y = 0.9696 (88.5) + 2.8035, i.e. the forward rate for the month of December
2018 would be 88.6131 INR per 1 GBP.
CHAPTER – 5
SUMMARY OF FINDINGS, CONCLUSION AND SUGGESTIONS
5.1 FINDINGS
OBJECTIVE 1 – To Measure the fluctuations in USD, EURO and GBP exchange

rates and forward rates over a period of 5 years.
 The Forex Market and the Currency Derivatives markets are highly volatile as any
event across the globe would impact the currency exchange rate which would
impact the forward rate.
 Currency derivative of USDINR was introduced for trading over the exchange in
2008 and in 2012 other three currency pairs were introduced i.e. EURINR, GBPINR
and JPYINR.
 It is observed that when the currency exchange rate changes, the forward rate
changes accordingly.
 In case of USD, exchange rates were moving between 53 and 69, lowest in the
month of January 2013 i.e. 53.2890 INR per 1 USD, highest in the month of
February 2016 i.e. 68.6160 INR per 1 USD. In case of Forward rate, it was moving
between 53 and 69, lowest in the month of January 2013 i.e. 53.3975 INR per 1
USD and highest in the month of February 2016 i.e. 68.7675 INR per 1 USD.
 In case of EURO, exchange rates were moving between 67 and 89, lowest in the
month of March 2015 i.e. 67.5104 INR per 1 EURO, highest in the month of August
2013 i.e. 88.1605 INR per 1 EURO. In case of Forward rate, it was moving between
67 and 89, lowest in the month of March 2015 i.e. 67.5325 INR per 1 EURO and
highest in the month of August 2013 i.e. 88.2250 INR per 1 EURO.
 In case of GBP, exchange rates were moving between 80 and 104, lowest in the
month of March 2017 i.e. 808797 INR per 1 GBP, highest in the month of February
2014 i.e. 103.6106 INR per 1 GBP. In case of Forward rate, it was moving between
81 and 104, lowest in the month of March 2017 i.e. 81.2000 INR per 1 GBP and
highest in the month of February 2014 i.e. 103.9675 INR per 1 GBP.
 It is observed that the forward rates were at premium for majority of the time i.e.
exchange rates were lower than the forward rates for the majority of the time.
 The main factor for the changes in exchange rates is demand and supply of that
currency, any event affecting the demand and supply of the currency would result
in change of exchange rate.
OBJECTIVE 2 – To Analyse the correlation between,
a) The USD rate (spot rate) and USDINR forward rates.
For the year 2013, the correlation between USD exchange rate (Independent Variable)
and Forward rate (Dependent Variable) was at 0.997450156, for 2014 it was at
0.987522305, for 2015 it was at 0.996561994, for 2016 it was at 0.993688179, for 2017
it was at 0.997670647. For entire 5 years it was at 0.998717 which shows that the
exchange rate and forward rate of USDINR currency pair in positively correlated i.e.
both rates move in the same direction, which means if the exchange rate increases
forward rate will also increase proportionately.
b) The Euro rate (spot rate) and EURINR forward rates.
For the year 2013, the correlation between EURO exchange rate (Independent Variable)
and Forward rate (Dependent Variable) was at 0.9984137, for 2014 it was at 0.9966255,
for 2015 it was at 0.9905501, for 2016 it was at 0.972376, for 2017 it was at 0.9973521.
For entire 5 years it was at 0.9983179 which shows that the exchange rate and forward
rate of EURINR currency pair in positively correlated i.e. both rates move in the same
direction, which means if the exchange rate increases forward rate will also increase
proportionately.
c) The GBP rate (spot rate) and GPBINR forward rates.
For the year 2013, the correlation between GBP exchange rate (Independent Variable)
and Forward rate (Dependent Variable) was at 0.9981063, for 2014 it was at 0.993792,
for 2015 it was at 0.9967268, for 2016 it was at 0.9980559, for 2017 it was at
0.9890711. For entire 5 years it was at 0.9983179 which shows that the exchange rate
and forward rate of GBPINR currency pair in positively correlated i.e. both rates move
in the same direction, which means if the exchange rate increases forward rate will also
increase proportionately.
OBJECTIVE 3 – To measure the impact of fluctuations in,

a) USD rate over USDINR futures contracts.
The exchange rate has impact on the forward rate, as seen earlier. Forward rate is one
of the main factors influencing the futures contracts. The members enter into the
contracts in order to safeguard (Hedge) Exchange rate risk. The fluctuations in the
exchange rate would indirectly influence the trading of futures contracts.
b) EURO rate over EURINR futures contracts.
c) GBP rate over GBPINR futures contracts.
5.2 CONCLUSION
In the modern world, where one country is dependent on another for resources,
international trade plays an important role. The trading currencies of different countries
are different. The most liquid currencies or hard currencies are USD, EURO, GBP,
JPY, CAD, Australian Dollar etc. The purchasing power of different currencies are
different due to various factors. Various factors influence the exchange rate, major
factors are the GDP, inflation rate, interest rate, forex reserves of the country etc.
In order to protect themselves from the adverse impact of the exchange rate the
importers and exporters would hedge their risk with the help of the derivatives like
Swaps, Futures, Forwards and Options. The trading of currency derivative of USDINR
was introduced in NSE on 29th August 2008. On 17th October 2012 other three currency
derivatives were introduced for trading i.e. EURINR, GBPINR and JPYINR were
introduced. After the introduction of the currency derivatives the market for currency
derivatives market has grown extensively over the period of ten years. The exchange
i.e. NSE would collect a minimum amount as the initial margin so that the parties to the
contracts would not default. In case of default the exchange would take the position in
case of default.
From the above study, it is evident that spot rate has direct impact on the forward rate.
As the futures contracts derive its value from the underlying asset that is currency in
this case, if the value of the underlying asset change would impact the futures contracts.
So, the changes in spot rate would have an indirect impact on the futures contracts.
The spot rate and the forward rate of different currency pairs of USDINR, EURINR
and GBPINR have a positive correlation that indicates, if the spot rate changes then the
forward rate would change proportionately in the same direction.
5.3 SUGGESTIONS
 From the above study it is suggestable for exporters and importers to use regression
analysis to estimate the forward rate.
 In order to find out the risk involved in trading of currency futures contracts the
tools like Delphi Techniques, Sensitivity analysis can be used.
 In case of investors, it can be said that the foreign currency markets might look
attractive to make investments and anticipate profits but at the same time it requires
skill to anticipate the movement of the exchange rates.
5.4 SCOPE FOR FURTHER STUDY
Further research can be conducted considering the growth rate of GDP for correlating
exchange rate volatility. And, to estimate forward rate and exchange rate for next
trading months the tools like Moving Average Convergence Divergence (MACD),
GARCH model, can be used.
BIBLIOGRAPHY
Articles –
Anupam Kumar, (26 Oct 2016). “Diversifying Investment Risk in India's Currency
Derivative Market: Does Currency – Equity Linkage Perform Better than Currency –
Bullion Linkage?”.
Baldeaux, Jan, (4 Jan 2015). “Pricing currency derivatives under the benchmark
approach”.
Belghitar, Yacine, (9 Jan 2013). “Foreign currency derivative use and shareholder
value”.
Golak Nath & Manoel Pacheco, (29 Jun 2017). “Currency futures market in India: an
empirical analysis of market efficiency and volatility”.
Praveen Bhagawan, M (07/01/2017). “The determinants of currency derivatives usage

among Indian non-financial firms”.
Report of the RBI-SEBI Standing Technical Committee on Exchange Traded Currency

Futures (2008).
Saurabh Singh & L. K. Tripathi, (10 May 2016) “A Critical Evaluation of Volatility in
Indian Currency Market”.
Saurabh Singh & L. K. Tripathi, (15 Sep 2014). “A Study of Currency Market Volatility
in India During Its Pre and Post Derivative Period”.
Tulsi Lingareddy, (6 Oct 2013). “Hedging Effectiveness of Currency Derivatives in

India”.
Websites –
https://dbie.rbi.org.in/DBIE/dbie.rbi?site=home
https://www.nseindia.com/products/content/derivatives/currency/historical_contract_c
d.htm
ANNEXURES
Calculations of Correlation
The formula used is
𝑁(∑ 𝑥𝑦) − (∑ 𝑥)(∑ 𝑦)

𝑟=
√(𝑁 ∑ 𝑥 2 − (∑ 𝑥)2 )(𝑁 ∑ 𝑦 2 − (∑ 𝑦)2 )
7.1 USDINR futures contracts
Annexure 1 – Table showing calculation of correlation for 2013
Month Exchange rate (X) Forward rate (Y) 𝐗𝟐 𝐘𝟐 XY

Jan-13 53.289 53.3975 2839.7175 2851.293 2845.4994
Feb-13 53.7735 54.7275 2891.5893 2995.0993 2942.8892
Mar-13 54.3893 54.675 2958.196 2989.3556 2973.735
Apr-13 54.219 53.9475 2939.7 2910.3328 2924.9795
May-13 56.4958 56.7975 3191.7754 3225.956 3208.8202
Jun-13 59.6995 59.7475 3564.0303 3569.7638 3566.8959
Jul-13 61.115 61.035 3735.0432 3725.2712 3730.154
Aug-13 66.5742 66.7125 4432.1241 4450.5577 4441.3313
Sep-13 62.777 63.22 3940.9517 3996.7684 3968.7619
Oct-13 61.41 61.815 3771.1881 3821.0942 3796.0592
Nov-13 62.3948 62.9125 3893.1111 3957.9827 3925.4129
Dec-13 61.897 62.155 3831.2386 3863.244 3847.208
Total 708.0341 711.1425 41988.665 42356.719 42171.746
Correlation for 2013 r = 0.997450156

Where, ∑X = 708.0341, ∑Y = 711.1425, ∑𝑋 2 = 41988.665, ∑Y 2 = 42356.719, ∑XY=
42171.746, N=12
85

Jan-14 62.4768 63.0875 3903.3505 3980.0327 3941.5051
Feb-14 62.072 62.2175 3852.9332 3871.0173 3861.9647
Mar-14 60.0998 60.1625 3611.986 3619.5264 3615.7542
Apr-14 60.3375 60.555 3640.6139 3666.908 3653.7373
May-14 59.0335 59.315 3484.9541 3518.2692 3501.5721
Jun-14 60.0933 60.5625 3611.2047 3667.8164 3639.4005
Jul-14 60.246 60.85 3629.5805 3702.7225 3665.9691
Aug-14 60.4745 60.955 3657.1652 3715.512 3686.2231
Sep-14 61.6135 61.7125 3796.2234 3808.4327 3802.3231
Oct-14 61.408 61.64 3770.9425 3799.4896 3785.1891
Nov-14 61.9736 62.3875 3840.7271 3892.2002 3866.378
Dec-14 63.3315 63.4675 4010.8789 4028.1236 4019.492
Total 733.16 736.9125 44810.56 45270.051 45039.508
Where, ∑X = 733.16
∑Y = 736.9125
∑𝑋 2 = 44810.56
∑Y 2 = 45270.051
∑XY= 45039.508
N = 12
86

Jan-15 61.7575 62.235 3813.9888 3873.1952 3843.478
Feb-15 61.7908 62.2175 3818.103 3871.0173 3844.4691
Mar-15 62.5908 62.83 3917.6082 3947.6089 3932.58
Apr-15 63.578 63.805 4042.1621 4071.078 4056.5943
May-15 63.7615 64.2 4065.5289 4121.64 4093.4883
Jun-15 63.7549 64.0075 4064.6873 4096.9601 4080.7918
Jul-15 64.0054 64.4875 4096.6912 4158.6377 4127.5482
Aug-15 66.3062 66.835 4396.5122 4466.9172 4431.5749
Sep-15 65.7418 65.8975 4321.9843 4342.4805 4332.2203
Oct-15 65.2231 65.61 4254.0528 4304.6721 4279.2876
Nov-15 66.8148 66.975 4464.2175 4485.6506 4474.9212
Dec-15 66.326 66.3875 4399.1383 4407.3002 4403.2173
Total 771.6508 775.4875 49654.674 50147.158 49900.171
Where, ∑X = 771.6508
∑Y = 775.4875
∑𝑋 2 = 49654.674
∑Y 2 = 50147.158
∑XY= 49900.171
N = 12
87

Jan-16 67.8763 68.1025 4607.1921 4637.9505 4622.5457
Feb-16 68.6160 68.7675 4708.1555 4728.9691 4718.5508
Mar-16 66.3329 66.505 4400.0536 4422.915 4411.4695
Apr-16 66.5176 66.665 4424.5911 4444.2222 4434.3958
May-16 67.2030 67.6 4516.2432 4569.76 4542.9228
Jun-16 67.6166 67.7725 4572.0046 4593.1118 4582.546
Jul-16 67.0340 67.29 4493.5572 4527.9441 4510.7179
Aug-16 66.9813 67.2725 4486.4945 4525.5893 4505.9995
Sep-16 66.6596 66.8775 4443.5023 4472.6 4458.0274
Oct-16 66.8566 67.06 4469.805 4497.0436 4483.4036
Nov-16 68.5260 68.5625 4695.8127 4700.8164 4698.3139
Dec-16 67.9547 68.1025 4617.8413 4637.9505 4627.885
Total 808.1746 810.5775 54435.2530 54758.8724 54596.7778
Where, ∑X = 808.1746
∑Y = 810.5775
∑𝑋 2 = 54435.2530
∑Y 2 = 54758.8724
∑XY= 54596.7778
N = 12
88

Jan-17 67.8125 68.065 4598.5352 4632.8442 4615.6578
Feb-17 66.7375 66.9375 4453.8939 4480.6289 4467.2414
Mar-17 64.8386 65.085 4204.044 4236.0572 4220.0203
Apr-17 64.217 64.53 4123.8231 4164.1209 4143.923
May-17 64.5459 64.73 4166.1732 4189.9729 4178.0561
Jun-17 64.7379 64.8175 4190.9957 4201.3083 4196.1488
Jul-17 64.0773 64.4075 4105.9004 4148.3261 4127.0587
Aug-17 64.0154 64.0825 4097.9714 4106.5668 4102.2669
Sep-17 65.3552 65.51 4271.3022 4291.5601 4281.4192
Oct-17 64.7745 64.9875 4195.7359 4223.3752 4209.5328
Nov-17 64.4332 64.6475 4151.6373 4179.2993 4165.4453
Dec-17 63.9273 64.0575 4086.6997 4103.3633 4095.023
Total 779.4723 781.8575 50646.712 50957.423 50801.793
Where, ∑X = 779.4723
∑Y = 781.8575
∑𝑋 2 = 50646.712
∑Y 2 = 50957.423
∑XY= 50801.793
N = 12
89
7.2 EURINR Futures contracts

Jan-13 72.2325 72.275 5217.53 5223.68 5220.6
Feb-13 70.6805 71.735 4995.73 5145.91 5070.27
Mar-13 69.5438 70.0275 4836.34 4903.85 4869.98
Apr-13 70.9775 70.545 5037.81 4976.6 5007.11
May-13 73.6807 73.715 5428.85 5433.9 5431.37
Jun-13 77.976 78.025 6080.26 6087.9 6084.08
Jul-13 80.9535 80.94 6553.47 6551.28 6552.38
Aug-13 88.1605 88.225 7772.27 7783.65 7777.96
Sep-13 84.6745 85.245 7169.77 7266.71 7218.08
Oct-13 84.1245 84.4175 7076.93 7126.31 7101.58
Nov-13 84.9755 85.61 7220.84 7329.07 7274.75
Dec-13 85.3635 85.5475 7286.93 7318.37 7302.63
Total 943.343 946.3075 74676.7 75147.2 74910.8
Where, ∑X = 943.343
∑Y = 946.3075
∑𝑋 2 = 74676.7
∑Y 2 = 75147.2
∑XY= 74910.8
N = 12
90

Jan-14 84.6022 85.3525 7157.53 7285.05 7221.01
Feb-14 85.0285 85.8025 7229.85 7362.07 7295.66
Mar-14 82.5765 82.59 6818.88 6821.11 6819.99
Apr-14 83.306 83.835 6939.89 7028.31 6983.96
May-14 80.335 80.745 6453.71 6519.76 6486.65
Jun-14 82.0094 82.6625 6725.54 6833.09 6779.1
Jul-14 80.6985 81.4525 6512.25 6634.51 6573.09
Aug-14 79.862 80.39 6377.94 6462.55 6420.11
Sep-14 78.206 78.125 6116.18 6103.52 6109.84
Oct-14 77.1899 77.57 5958.28 6017.1 5987.62
Nov-14 77.1633 77.6775 5954.17 6033.79 5993.85
Dec-14 77.0048 77.13 5929.74 5949.04 5939.38
Total 967.9821 973.3325 78174 79049.9 78610.3
Where, ∑X = 967.9821
∑Y = 973.3325
∑𝑋 2 = 78174
∑Y 2 = 79049.9
∑XY= 78610.3
N = 12
91

Jan-15 70.0268 70.625 4903.75 4987.89 4945.64
Feb-15 69.286 69.91 4800.55 4887.41 4843.78
Mar-15 67.5104 67.5325 4557.65 4560.64 4559.15
Apr-15 70.5334 71.3025 4974.96 5084.05 5029.21
May-15 69.9081 70.3825 4887.14 4953.7 4920.31
Jun-15 71.2015 71.525 5069.65 5115.83 5092.69
Jul-15 70.1627 70.74 4922.8 5004.15 4963.31
Aug-15 74.495 74.89 5549.51 5608.51 5578.93
Sep-15 73.7952 73.895 5445.73 5460.47 5453.1
Oct-15 71.6671 72.2775 5136.17 5224.04 5179.92
Nov-15 70.6834 70.8425 4996.14 5018.66 5007.39
Dec-15 72.501 72.4875 5256.4 5254.44 5255.42
Total 851.7706 856.41 60500.5 61159.8 60828.8
Where, ∑X = 851.7706
∑Y = 856.41
∑𝑋 2 = 62500.5
∑Y 2 = 61159.8
∑XY= 60828.8
N = 12
92

Jan-16 74.0666 74.29 5485.86 5519 5502.41
Feb-16 75.0796 74.92 5636.95 5613.01 5624.96
Mar-16 75.0955 75.72 5639.33 5733.52 5686.23
Apr-16 75.7303 75.97 5735.08 5771.44 5753.23
May-16 74.7902 75.555 5593.57 5708.56 5650.77
Jun-16 75.0071 75.525 5626.07 5704.03 5664.91
Jul-16 74.2737 74.8325 5516.58 5599.9 5558.09
Aug-16 74.6239 74.985 5568.73 5622.75 5595.67
Sep-16 74.7521 74.7925 5587.88 5593.92 5590.9
Oct-16 72.9071 73.66 5315.45 5425.8 5370.34
Nov-16 72.8431 73.165 5306.12 5353.12 5329.57
Dec-16 71.6175 71.9275 5129.07 5173.57 5151.27
Total 890.7867 895.3425 66140.7 66818.6 66478.3
Where, ∑X = 890.7867
∑Y = 895.3245
∑𝑋 2 = 66140.7
∑Y 2 = 66818.6
∑XY= 66478.3
N = 12
93

Jan-17 72.5526 72.9225 5263.88 5317.69 5290.72
Feb-17 70.7151 71.06 5000.63 5049.52 5025.02
Mar-17 69.2476 69.6575 4795.23 4852.17 4823.61
Apr-17 69.8809 70.6425 4883.34 4990.36 4936.56
May-17 72.143 72.655 5204.61 5278.75 5241.55
Jun-17 74.0019 74.01 5476.28 5477.48 5476.88
Jul-17 75.2203 75.6375 5658.09 5721.03 5689.48
Aug-17 76.0439 76.0125 5782.67 5777.9 5780.29
Sep-17 77.0603 77.4775 5938.29 6002.76 5970.44
Oct-17 75.4234 75.7125 5688.69 5732.38 5710.49
Nov-17 76.4887 76.595 5850.52 5866.79 5858.65
Dec-17 76.3867 76.8325 5834.93 5903.23 5868.98
Total 885.1644 889.215 65377.2 65970.1 65672.7
Where, ∑X = 885.1644
∑Y = 889.215
∑𝑋 2 = 65377.2
∑Y 2 = 65970.1
∑XY= 65672.7
N = 12
94
7.3 GBPINR Futures Contracts

Jan-13 84.2233 84.2725 7093.56 7101.85 7097.71
Feb-13 81.569 83.0975 6653.5 6905.19 6778.18
Mar-13 82.3209 82.7375 6776.73 6845.49 6811.03
Apr-13 84.0015 83.4925 7056.25 6971 7013.5
May-13 86.0092 86.275 7397.58 7443.38 7420.44
Jun-13 91.1432 91.0225 8307.08 8285.1 8296.08
Jul-13 92.9742 92.86 8644.2 8622.98 8633.58
Aug-13 103.3431 103.4375 10679.8 10699.3 10689.6
Sep-13 101.4162 101.9525 10285.2 10394.3 10339.6
Oct-13 98.2867 99.1 9660.28 9820.81 9740.21
Nov-13 102.0592 102.7325 10416.1 10554 10484.8
Dec-13 102.0094 102.67 10405.9 10541.1 10473.3
Total 1109.3559 1113.65 103376 104185 103778
Where, ∑X = 1109.3559
∑Y = 1113.65
∑𝑋 2 = 103376
∑Y 2 = 104185
∑XY= 103778
N = 12
95

Jan-14 102.9493 103.72 10598.6 10757.8 10677.9
Feb-14 103.6106 103.9675 10735.2 10809.2 10772.1
Mar-14 99.8498 99.9575 9969.98 9991.5 9980.74
Apr-14 101.4515 101.865 10292.4 10376.5 10334.4
May-14 98.9106 99.33 9783.31 9866.45 9824.79
Jun-14 102.3269 103.155 10470.8 10641 10555.5
Jul-14 101.9242 102.705 10388.5 10548.3 10468.1
Aug-14 100.3514 101.085 10070.4 10218.2 10144
Sep-14 100.276 100.4 10055.3 10080.2 10067.7
Oct-14 98.0624 98.66 9616.23 9733.8 9674.84
Nov-14 97.3667 97.7975 9480.27 9564.35 9522.22
Dec-14 98.5818 98.955 9718.37 9792.09 9755.16
Total 1205.6612 1211.5975 121179 122379 121778
Where, ∑X = 1205.6612
∑Y = 1211.5975
∑𝑋 2 = 121179
∑Y 2 = 122379
∑XY= 121778
N = 12
96

Jan-15 93.1303 93.8125 8673.25 8800.79 8736.79
Feb-15 95.4235 95.8275 9105.64 9182.91 9144.2
Mar-15 92.4591 93.0125 8548.69 8651.33 8599.85
Apr-15 97.9864 98.1825 9601.33 9639.8 9620.55
May-15 97.7974 97.8225 9564.33 9569.24 9566.79
Jun-15 100.1207 100.5175 10024.2 10103.8 10063.9
Jul-15 99.8356 100.3175 9967.15 10063.6 10015.3
Aug-15 102.3105 103.0075 10467.4 10610.5 10538.7
Sep-15 99.5331 100.1 9906.84 10020 9963.26
Oct-15 99.9348 100.6275 9986.96 10125.9 10056.2
Nov-15 100.3692 100.5275 10074 10105.8 10089.9
Dec-15 98.3482 98.435 9672.37 9689.45 9680.91
Total 1177.2488 1182.19 115592 116563 116076
Where, ∑X = 1177.2488
∑Y = 1182.19
∑𝑋 2 = 115592
∑Y 2 = 116563
∑XY= 116076
N = 12
97

Jan-16 97.7554 97.5 9556.12 9506.25 9531.15
Feb-16 95.1978 95.2625 9062.62 9074.94 9068.78
Mar-16 95.0882 95.8675 9041.77 9190.58 9115.87
Apr-16 97.4017 97.4225 9487.09 9491.14 9489.12
May-16 98.654 98.805 9732.61 9762.43 9747.51
Jun-16 90.5183 91.475 8193.56 8367.68 8280.16
Jul-16 88.2972 88.7225 7796.4 7871.68 7833.95
Aug-16 87.6852 88.4025 7688.69 7815 7751.59
Sep-16 86.4242 86.865 7469.14 7545.53 7507.24
Oct-16 81.2976 81.6875 6609.3 6672.85 6641
Nov-16 85.5342 85.3075 7316.1 7277.37 7296.71
Dec-16 83.4212 83.825 6959.1 7026.63 6992.78
Total 1087.275 1091.1425 98912.5 99602.1 99255.9
Where, ∑X = 1087.275
∑Y = 1091.1425
∑𝑋 2 = 98912.5
∑Y 2 = 99602.1
∑XY= 99255.9
N = 12
98

Jan-17 84.847 84.7025 7199.01 7174.51 7186.75
Feb-17 83.0548 83.325 6898.1 6943.06 6920.54
Mar-17 80.8797 81.2 6541.53 6593.44 6567.43
Apr-17 82.8271 83.5925 6860.33 6987.71 6923.72
May-17 82.6446 83.1925 6830.13 6920.99 6875.41
Jun-17 84.2564 84.1275 7099.14 7077.44 7088.28
Jul-17 84.1591 84.5725 7082.75 7152.51 7117.55
Aug-17 82.6951 82.5275 6838.48 6810.79 6824.62
Sep-17 87.7067 87.785 7692.47 7706.21 7699.33
Oct-17 85.5995 85.9225 7327.27 7382.68 7354.92
Nov-17 86.798 86.9775 7533.89 7565.09 7549.47
Dec-17 86.0653 86.5475 7407.24 7490.47 7448.74
Total 1011.5333 1014.4725 85310.3 85804.9 85556.8
Where, ∑X = 1011.5333
∑Y = 1014.4725
∑𝑋 2 = 85310.3
∑Y 2 = 85804.9
∑XY= 85556.8
N = 12
99

Nagarjun S. J. (16BTCFC008) PDF

Transféré par

Informations du document

Titre original

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Nagarjun S. J. (16BTCFC008) PDF

Transféré par

Droits d'auteur :

Formats disponibles

“A STUDY ON IMPACT OF FLUCTUATIONS IN USD, EURO, GBP RATES

ON USDINR, EURINR, GBPINR FUTURES CONTRACTS.’’

Dissertation submitted in partial fulfilment of the requirement for the award of

MASTER OF COMMERCE (FINANCIAL ANALYSIS)

Chartered Accountant (CA)

I hereby declare that “A STUDY ON IMPACT OF FLUCTUATIONS IN USD,

Place: Bangalore Name: Nagarjun S. J.

Date: Register Number: 16BTCFC008

FLUCTUATIONS IN USD, EURO, GBP RATES ON USDINR,

EURINR, GBPINR FUTURES CONTRACTS.” is an original work of

Mr. Nagarjun S.J. bearing University Register Number 16BTCFC008 and

is being submitted in partial fulfilment for the award of the Master of

Commerce degree at Bangalore University. The report has not been

requirement of a course of study.

SIGNATURE OF PRINCIPAL SIGNATURE OF DIRECTOR

Dr Anuradha Roy Dr Bhargavi V.R.

This is to certify that Mr. NAGARJUN S. J. bearing university register number

Place: Bengaluru Signature of the Guide

Date: CA S. LAKSHMI NARAYANAN

I take this as an opportunity to express my profound gratitude to who has been a

I express my deepest sense of gratitude to my guide, CA S. Lakshmi Narayanan

I heartily thank Dr. Bhargavi V. R., Director, Post Graduate Department of

I am grateful to Dr. Anuradha Roy, Principal Seshadripuram College,

Reg. No: 16BTCFC008

Sl. No. Particulars Page No.

1.2 Introduction to Derivative market 1

1.3 Types of Derivatives 2

1.4 Emergence of Financial Derivatives 3

1.5 Players in Derivatives Market 4

1.6 Significance of Derivative Market 6

1.7 International Derivatives Market 7

1.8 Derivatives Market in India 7

1.9 India’s Experience in Futures and Options 8

1.10 Introduction to Currency Markets 10

1.11 Major Currency Pairs 12

1.12 Basics of Currency Market and Peculiarities in India 15

1.13 Settlement Date or Value Date 18

1.14 Economic Indicators of Currency Market 20

1.15 Terminologies used in Futures 21

1.16 Distinction between Forward and Futures Contracts 22

1.17 Interest rate parity 22

1.18 Using Currency Futures for hedging various kinds of Forex 23

1.20 Currency Futures contract Specifications 23

1.21 Terminologies with respect to Contract Specifications 25

1.22 Entities in the trading system 25

1.23 Types of Orders 26

1.24 Clearing entities 27

1.25 Clearing Mechanism 28

1.26 Regulatory guidelines on Open Position Limits 28

1.27 Settlement of Currency futures contracts 30

1.28 Margin requirements 31

1.29 Mark to Market Settlement 33

1.30 Unique Client Code 33

2.1 Title of the Study 34

2.2 Need for Study 34

2.3 Statement of Problem 34

2.4 Objectives of the Study 34

2.5 Scope of the Study 35

2.6 Literature review 35

2.7 Limitations of the Study 38

2.8 Research Methodology 38

2.9 Plan of Analysis 39

2.10 Operational Definitions 39