A PROJECT REPORT

ON
“PROJECT ON IMPACT OF CURRENCY DERIVATIVE ON
INVESTORS IN INDIAN CAPITAL MARKET”

A REPORT SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS OF

PGDM DEGREE

Submitted By
Saroj Kumar Khadanga 21DM005
Satyabrata Nayak 21DM006
Nikita Barik 21DM036
Sonali Patnaik 21DM026
Subham Subhasish Jena 21DM034

Institute of Management & Information Science,

Bhubaneswar -751 002
UNDER THE GUIDANCE OF:

Dr. Surya Dev

(Prof. Finance, IMIS)
 EXECUTIVE SUMMARY
India has the third largest investor base in the world after USA and Japan. Over 7500
companies are listed on the Indian stock exchanges (more than the number of companies
listed in developed markets of Japan, UK, Germany, France, Australia, Switzerland, Canada
and Hong Kong.). The Indian capital market is significant in terms of the degree of
development, volume of trading, transparency and its tremendous growth potential.
India’s market capitalization was the highest among the emerging markets. Total market
capitalization of The Bombay Stock Exchange (BSE), which, as on July 31, 1997, was US$ 175
billion has grown by 37.5% percent every twelve months and was over US$ 834 billion as of
January, 2007. Bombay Stock Exchanges (BSE), one of the oldest in the world, accounts for
the largest number of listed companies transacting their shares on a nationwide online
trading system. The two major exchanges namely the National Stock Exchange (NSE) and
the Bombay Stock Exchange (BSE) ranked no. 3 & 5 in the world, calculated by the number
of daily transactions done on the exchanges.
The Total Turnover of Indian Financial Markets crossed US$ 2256 billion in 2006 – An
increase of 82% from US $ 1237 billion in 2004 in a short span of 2 years only. Turnover in
the Spot and Derivatives segment both in NSE & BSE was higher by 45% into 2006 as
compared to 2005. With daily average volume of US $ 9.4 billion, the Sensex has posted
excellent returns in the recent years. Currently the market cap of the Sensex as on July 4th,
2009 was Rs 48.4 Lakh Crore with a P/E of more than 20.
Derivatives trading in the stock market have been a subject of enthusiasm of research in the
field of finance the most desired instruments that allow market participants to manage risk
in the modern securities trading are known as derivatives. The derivatives are defined as the
future contracts whose value depends upon the underlying assets. If derivatives are
introduced in the stock market, the underlying asset may be anything as component of
stock market like, stock prices or market indices, interest rates, etc. The main logic behind
derivatives trading is that derivatives reduce the risk by providing an additional channel to
invest with lower trading cost and it facilitates the investors to extend their settlement
through the future contracts. It provides extra liquidity in the stock market.
Derivatives are assets, which derive their values from an underlying asset. These underlying
assets are of various categories like
• Commodities including grains, coffee beans, etc.
• Precious metals like gold and silver.
• Foreign exchange rate.
•Bonds of different types, including medium to long-term negotiable debt securities issued
by governments, companies, etc.
• Short-term debt securities such as T-bills.
• Over-The-Counter (OTC) money market products such as loans or deposits.

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• Equities
For example, a dollar forward is a derivative contract, which gives the buyer a right & an
obligation to buy dollars at some future date. The prices of the derivatives are driven by the
spot prices of these underlying assets.
However, the most important use of derivatives is in transferring market risk, called
Hedging, which is a protection against losses resulting from unforeseen price or volatility
changes. Thus, derivatives are a very important tool of risk management.
There are various derivative products traded. They are;
1. Forwards
2. Futures
3. Options
4. Swaps
“A Forward Contract is a transaction in which the buyer and the seller agree upon a delivery
of a specific quality and quantity of asset usually a commodity at a specified future date. The
price may be agreed on in advance or in future.”
“A Future contract is a firm contractual agreement between a buyer and seller for a
specified as on a fixed date in future. The contract price will vary according to the market
place but it is fixed when the trade is made. The contract also has a standard specification so
both parties know exactly what is being done”.
“An Options contract confers the right but not the obligation to buy (call option) or sell (put
option) a specified underlying instrument or asset at a specified price – the Strike or
Exercised price up until or an specified future date – the Expiry date. The Price is called
Premium and is paid by buyer of the option to the seller or writer of the option.”
A call option gives the holder the right to buy an underlying asset by a certain date for a
certain price. The seller is under an obligation to fulfill the contract and is paid a price of
this, which is called "the call option premium or call option price".
A put option, on the other hand gives the holder the right to sell an underlying asset by a
certain date for a certain price. The buyer is under an obligation to fulfill the contract and is
paid a price for this, which is called "the put option premium or put option price".
“Swaps are transactions which obligates the two parties to the contract to exchange a series
of cash flows at specified intervals known as payment or settlement dates. They can be
regarded as portfolios of forward's contracts. A contract whereby two parties agree to
exchange (swap) payments, based on some notional principle amount is called as a ‘SWAP’.
In case of swap, only the payment flows are exchanged and not the principle amount”

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 TABLE OF CONTENTS
S.NO CONTENT PAGE.NO

EXECUTIVE SUMMARY 1

1 ABOUT THE RESEARCH

 OBJECTIVE OF THE RESEARCH 4
 SCOPE OF THE RESEARCH 4
2 INTRODUCTION TO CURRENCY DERIVATIVES
 CURRENCY DERIVATIVES 5
 OVERVIEW OF THE FOREIGN EXCHANGE MARKET IN INDIA 8
 CURRENCY DERIVATIVE PRODUCTS 9
3 METHODOLOGY 21
4 DATA INTERPRETATION AND ANALYSIS 22
5 FINDINGS 29
6 SUGGESTIONS 30
7 CONCLUSIONS 31
8 APPENDIX 32
9 BILIOGRAPHY 35

ABOUT THE RESEARCH

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OBJECTIVE OF THE STUDY
1. To study the exchange traded currency future.

2. To study how currency derivative impact the investor market.

3. To study & analyze the impact of different Macro-Economic indicators on Indian Currency.

 Inflation
 Crude Oil Prices
 Gross Domestic product (GDP)
 S&P CNX Nifty

SCOPE OF THE STUDY

1. Study mainly concentrates on USD/INR EXHANGE RATE contracts though NSE has introduced
trading in currency futures based on
 Euro(EUR)-INR
 Pound Sterling(GBP)-INR
 Japanese Yen (JPY)-INR exchange rates
2. The main factor that affects the USD/INR EXHANGE RATE or any other currency is the
Demand/supply dynamics for the individual currencies. However the Demand/supply dynamics is
influenced by many other factors such as interest rates, inflation, money supply, trade balance,
growth in imports, exports, capital flows, and overall economic growth in the country and global
developments.

INTRODUCTION
DEFINITION OF FINANCIAL DERIVATIVES

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 Derivatives are financial contracts whose value/price is independent on the behaviour of the
price of one or more basic underlying assets. These contracts are legally binding agreements, made
on the trading screen of stock exchanges, to buy or sell an asset in future. These assets can be a
share, index, interest rate, bond, rupee dollar exchange rate, sugar, crude oil, soybeans, cotton,
coffee and what you have.

A very simple example of derivatives is curd, which is derivative of milk. The price of curd
depends upon the price of milk which in turn depends upon the demand and supply of milk.

The Underlying Securities for Derivatives are :

 Commodities: Castor seed, Grain, Pepper, Potatoes, etc.

 Precious Metal : Gold, Silver

 Short Term Debt Securities : Treasury Bills

 Interest Rates

 Common shares/stock

 Stock Index Value : NSE Nifty

 Currency : Exchange Rate

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INTRODUCTION TO CURRENCY DERIVATIVES

Each country has its own currency through which both national and international transactions are
performed. All the international business transactions involve an exchange of one currency for
another.

For Example,

If any Indian firm borrows funds from international financial market in US dollars for short or long
term then at maturity the same would be refunded in particular agreed currency along with accrued
interest on borrowed money. It means that the borrowed foreign currency brought in the country
will be converted into Indian currency, and when borrowed fund are paid to the lender then the
home currency will be converted into foreign lender’s currency. Thus, the currency units of a
country involve an exchange of one currency for another.

The price of one currency in terms of other currency is known as exchange rate.

The foreign exchange markets of a country provide the mechanism of exchanging different
currencies with one and another, and thus, facilitating transfer of purchasing power from one
country to another.

With the multiple growths of international trade and finance all over the world, trading in foreign
currencies has grown tremendously over the past several decades. Since the exchange rates are
continuously changing, so the firms are exposed to the risk of exchange rate movements. As a
result the assets or liability or cash flows of a firm which are denominated in foreign currencies
undergo a change in value over a period of time due to variation in exchange rates.

This variability in the value of assets or liabilities or cash flows is referred to exchange rate risk.
Since the fixed exchange rate system has been fallen in the early 1970s, specifically in developed
countries, the currency risk has become substantial for many business firms. As a result, these firms
are increasingly turning to various risk hedging products like foreign currency futures, foreign
currency forwards, foreign currency options, and foreign currency swaps.

A futures contract is a standardized contract, traded on an exchange, to buy or sell a certain

underlying asset or an instrument at a certain date in the future, at a specified price. When the
underlying asset is a commodity, e.g. Oil or Wheat, the contract is termed a “Commodity futures
contract.

When the underlying is an exchange rate, the contract is termed a “Currency futures contract”.

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Currency Futures Contract

In other words, it is a contract to exchange one currency for another currency at a specified date
and a specified rate in the future.

Therefore, the buyer and the seller lock themselves into an exchange rate for a specific value or
delivery date. Both parties of the futures contract must fulfil their obligations on the settlement
date.

Currency futures can be cash settled or settled by delivering the respective obligation of the seller
and buyer. All settlements however, unlike in the case of OTC markets, go through the exchange.
Currency futures are a linear product, and calculating profits or losses on Currency Futures will be
similar to calculating profits or losses on Index futures. In determining profits and losses in futures
trading, it is essential to know both the contract size (the number of currency units being traded)
and also what the tick value is. A tick is the minimum trading increment or price differential at
which traders are able to enter bids and offers. Tick values differ for different currency pairs and
different underlying.

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OVERVIEW OF THE FOREIGN EXCHANGE MARKET IN INDIA

During the early 1990s, India embarked on a series of structural reforms in the foreign exchange
market. The exchange rate regime, that was earlier pegged, was partially floated in March 1992
and fully floated in March 1993. The unification of the exchange rate was instrumental in
developing a market-determined exchange rate of the rupee and was an important step in the
progress towards total current account convertibility, which was achieved in August 1994.

The following four currency futures are allowed on the Indian exchanges.

Symbol Country Currency Nickname

USD United States Dollar Geenback

EUR Euro members Euro Fiber

JYP Japan Yen Yen

GBP Great Britain Pound Cable

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 CURRENCY DERIVATIVE PRODUCTS

Derivative contracts have several variants. The most common variants are forwards,
futures, options and swaps. We take a brief look at various derivatives contracts that have
come to be used.

 FORWARD:
A forward contract is customized contract between two entities, where settlement takes
place on a specific date in the future at today’s pre-agreed price. The exchange rate is the
time the contract is entered into. This is known as forward exchange rate or simply forward
rate.

 FUTURE :
A currency futures contract provides a simultaneous right and obligation to buy and
sell a particular currency at a specified future date, a specified price and a standard quantity.
Future contracts are special types of forward contracts in the sense that they are
standardized exchange-traded contracts.

o
Swap is private agreements between two parties to exchange cash flows in the future
according to a prearranged formula.

 OPTIONS:
In other words, a foreign currency option is a contract for future delivery of a specified
currency in exchange for another in which buyer of the option has to right to buy (call) or
sell (put) a particular currency at an agreed price for or within specified period.

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 FUTURE TERMINOLOGY

SPOT PRICE:

The price at which an asset trades in the spot market. The transaction in which securities and
foreign exchange get traded for immediate delivery. Since the exchange of securities and cash is
virtually immediate, the term, cash market, has also been used to refer to spot dealing. In the case
of USD/INR, spot value is T + 2.

FUTURE PRICE:

The price at which the future contract traded in the future market.

CONTRACT CYCLE:

The period over which a contract trades. The currency future contracts in Indian market have one
month, two month, and three month up to twelve month expiry cycles. In NSE/BSE will have 12
contracts outstanding at any given point in time.

VALUE DATE / FINAL SETTELMENT DATE:

The last business day of the month will be termed the value date /final settlement date of each
contract. The last business day would be taken to the same as that for inter bank settlements in
Mumbai. The rules for inter bank settlements, including those for ‘known holidays’ and would be
those as laid down by Foreign Exchange Dealers Association of India (FEDAI).

EXPIRY DATE:

It is the date specified in the futures contract. This is the last day on which the contract will be
traded, at the end of which it will cease to exist. The last trading day will be two business days
prior to the value date / final settlement date.

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CONTRACT SIZE:

The amount of asset that has to be delivered under one contract, also called as lot size. In case of
USD/INR it is USD 1000.

COST OF CARRY :

The relationship between futures prices and spot prices can be summarized in terms of what is known
as the cost of carry. This measures the storage cost plus the interest that is paid to finance or ‘carry’
the asset till delivery less the income earned on the asset. For equity derivatives carry cost is the rate
of interest.

INITIAL MARGIN:

When the position is opened, the member has to deposit the margin with the clearing house as per
the rate fixed by the exchange which may vary asset to asset. Or in another words, the amount that
must be deposited in the margin account at the time a future contract is first entered into is known as
initial margin.

MARKING TO MARKET:

At the end of trading session, all the outstanding contracts are reprised at the settlement price of that
session. It means that all the futures contracts are daily settled, and profit and loss is determined on
each transaction. This procedure, called marking to market, requires that funds charge every day. The
funds are added or subtracted from a mandatory margin (initial margin) that traders are required to
maintain the balance in the account. Due to this adjustment, futures contract is also called as daily
reconnected forwards.

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 MAINTENANCE MARGIN:

Member’s account are debited or credited on a daily basis. In turn customers’ account are also
required to be maintained at a certain level, usually about 75 percent of the initial margin, is called
the maintenance margin. This is somewhat lower than the initial margin.This is set to ensure that the
balance in the margin account never becomes negative. If the balance in the margin account falls
below the maintenance margin, the investor receives a margin call and is expected to top up the
margin account to the initial margin level before trading commences on the next day.

TICK SIZE/PIP & TICK VALUE

Tick Size is the minimum tradable price movement that an exchange makes in a currency pair. For
example, 1 pip=one hundredth of 1%=0.0001.

Tick value is the change in value of 1 lot of the future contract for every tick movement.

For example; If a trader takes long position in 1lot of USD/INR currency future contract at 53.3020 &
if future price increased by 1 paisa to 53.3125, then the trader would make a profit of Rs 10 i.e. 1
pip = 0.0001 100pips = INR0.01 per USD Hence profit is 0.01*1000 = INR 10

BID PRICE & ASK PRICE:

The Bid price is the highest or the best among all prices that the buyers are willing to pay to
the seller at that particular period of time.

The Ask price is the price at which seller at the exchange are ready to sell their currency to
the buyers.

LONG POSITION & SHORT POSITION:

Taking a long position in currency futures means a trader will “buy” a futures contract with
the expectation that the price will rise in the future.

On the other hand taking a short position means that a trader will “sell” a futures contract
with the expectation that the price will decrease in the future.

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BASIS: Basis refers to difference between the spot rate & the future contract price

BASE CURRENCY & QUOTE CURRENCY:

The first currency in the currency pair is referred to as the base currency & the second
currency in a currency pair is called the quote currency. In USD/INR currency pair USD- Base
currency & INR-Quote currency.

FOREIGN EXCHANGE QUOTATIONS

Foreign exchange quotations can be confusing because currencies are quoted in terms of
other currencies. It means exchange rate is relative price.

For Example,

If one US dollar is worth of Rs. 81.8 in Indian rupees then it implies that 53 Indian rupees will
buy one dollar of USA, or that one rupee is worth of 0.0122 US dollar which is simply reciprocal of
the former dollar exchange rate.

Direct- $1 = Rs. 81.8001 Indirect. Re 1 = 0.01222

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HEDGING:

Exchange-traded currency futures are used to hedge against the risk of rate volatilities in the
foreign exchange markets. Here, we give two examples to illustrate the concept and mechanism of
hedging

SPECULATION:

Take the case of a speculator who has a view on the direction of the market. He would like to
trade based on this view. He expects that the USD/INR rate presently at Rs.53, is to go up in the
next two-three months. How can he trade based on this belief? In case he can buy dollars and hold
it, by investing the necessary capital, he can profit if say the Rupee depreciates to Rs.53.50.
Assuming he buys USD 10000, it would require an investment of Rs.5,30,000. If the exchange rate
moves as he expected in the next three months, then he shall make a profit of around Rs.5000. This
works out to an annual return of around 4.76%. It may please be noted that the cost of funds
invested is not considered in computing this return.

A speculator can take exactly the same position on the exchange rate by using futures
contracts. Let us see how this works. If the INR/USD is Rs.52 and the three month futures trade at
Rs.52.40. The minimum contract size is USD 1000. Therefore the speculator may buy 10 contracts.
The exposure shall be the same as above USD 10000. Presumably, the margin may be around Rs.21,
000. Three months later if the Rupee depreciates to Rs. 52.50 against USD, (on the day of
expiration of the contract), the futures price shall converge to the spot price (Rs. 52.50) and he
makes a profit of Rs.1000 on an investment of Rs.21, 000. This works out to an annual return of 19
%. Because of the leverage they provide, futures form an attractive option for speculators.

ARBITRAGE:

Arbitrage is the strategy of taking advantage of difference in price of the same or similar
product between two or more markets. That is, arbitrage is striking a combination of matching
deals that capitalize upon the imbalance, the profit being the difference between the market
prices..

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 One of the methods of arbitrage with regard to USD-INR could be a trading strategy between
forwards and futures market. As we discussed earlier, the futures price and forward prices are
arrived at using the principle of cost of carry. Such of those entities who can trade both forwards
and futures shall be able to identify any mis-pricing between forwards and futures. If one of them is
priced higher, the same shall be sold while simultaneously buying the other which is priced lower. If
the tenor of both the contracts is same, since both forwards and futures shall be settled at the
same RBI reference rate, the transaction shall result in a risk less profit.

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COMPARISION OF FORWARD AND FUTURES CURRENCY CONTRACT

BASIS FORWARD FUTURES

Structured as per requirement of

Size Standardized
the parties

DeliveryDate Tailored on individual needs Standardized

Open auction among buyers

Method of Established by the bank or broker
and seller on the floor of
transaction through electronic media
recognized exchange.

Banks, brokers, forex dealers, Banks, brokers, multinational

multinational companies, companies, institutional
Participants
institutional investors, arbitrageurs, investors, small traders,
traders, etc. speculators, arbitrageurs, etc.

None as such, but compensating

Margins Margin deposit required
bank balanced may be required

Maturity From one week to 10 years Standardized

Actual delivery or offset with cash Daily settlement to the market

Settlement settlement. No separate clearing and variation margin
house requirements

At recognized exchange floor

Over the telephone worldwide and
Market place with worldwide
computer networks
communications

Limited to large customers banks, hedging facilities or has risk

Accessibility
institutions, etc. capital to speculate

More than 90 percent settled by Actual delivery has very less

Delivery
actual delivery even below one percent

Highly secured through margin

Secured Risk is high being less secured
deposit.

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Symbol USD/INR

Instrument Type FUTCUR

Unit of trading 1 (1 unit denotes 1000 USD)

Underlying USD

Quotation/Price Quote Rs. per USD

Tick size 0.25 paise or INR 0.0025

Monday to Friday
Trading hours
9:00 a.m. to 5:00 p.m.

Contract trading cycle 12 month trading cycle.

Two working days prior to the last business day of the expiry
Last trading day
month at 12 noon.

Last working day (excluding Saturdays) of the expiry month.

Final settlement day The last working day will be the same as that for Interbank
Settlements in Mumbai.

Theoretical price on the 1st day of the contract. On all other

Base price
days, DSP of the contract.

Minimum initial margin 1.75% on first day & 1% thereafter.

Extreme loss margin 1% of MTM value of gross open position.

Daily settlement : T + 1
Settlement
Final settlement : T + 2

Mode of settlement Cash settled in Indian Rupees

DSP shall be calculated on the basis of the last half an hour

Daily settlement price
weighted average price of such contract or such other price as
(DSP)
may be decided by the relevant authority from time to time.

Final settlement price RBI reference rate

(FSP)

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BENEFITS OF CURRENCY FUTURES

 Greater accessibility to potential participants (Online / Offline platforms).

 Standardized Contracts, small lot size – US$ 1,000. Encourages retail and SME
participation
 Electronic Settlement of MTM Profits / Losses: Control and track losses.
 No counterparty default risk.
 Large number of market participants.
 High Transparency – Real time dissemination of prices.
 No requirement of underlying document to book the FCY.
 Cost efficient: Low brokerage thus lower transaction cost.
 Intraday volatility (43 Bps): Short term profits for the traders.
 Lower margins: 3- 3.5% of the contract value compared to average of 10- 15% on
index/stock futures.

Major Events in International and Indian Monetary System

1. Free float of currencies - 1973.

2. Oil crisis in 1973 - quadrupling of oil prices
3. European Currencies float against US$ - 1978
4. Post emergency years
5. Majority Govt. formed - 1984-85
6. Liberalization of Indian Economy: devaluation of INR - 1991
7. East and South East Asian Currency crisis - 1997
8. Nuclear tests by India - 1998
9. Robust economic growth in India
10. High crude oil and commodity prices

Currency Movement Impact

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 Importer Exporter

Imports Goods & Services Exports Goods & Services

Payments in foreign currency Receivables in foreign currency

Buys currency from the bank Sells currency to the bank

Re - STRONG → Gain Re - STRONG → Loss

Re - WEAK → Loss Re - WEAK → Gain

Factors: Appreciation of INR

Events likely to impact General trend for

Impact on USD Impact on INR
USD/INR rate demand/supply of USD

Excess inflow of USD in

Increase in exports of India Depreciates Appreciates
the country

RBI is selling USD to meet

Supply of USD increases Depreciates Appreciates
demand for the dollar

NRI Forex remittance is

Increase in USD inflow Depreciates Appreciates
increasing

Positive trade balance Increase in USD inflow Depreciates Appreciates

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Factors: Depreciation of INR

Events likely to impact General trend for Impact on

Impact on INR
USD/INR rate demand/supply of USD USD

Increase in imports of
Demand for USD increases Appreciates Depreciates
India

Rise in global prices of Demand for USD rises due to

Appreciates Depreciates
commodities costlier imports

FIIs buying back USD Excessive USD outflow Appreciates Depreciates

RBI is buying USD to

Absorption of excess USD
absorb excess USD due Appreciates Depreciates
liquidity
to forex inflows

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 METHODOLOGY
Source of the Data Collection:- The data is colleceted through both the means of primary
and secondary data collection

 In primary data collection- Questionnaires are prepared, whereas

 In secondary data collection-information is collected from various
 sites and books

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DATA INTERPRETATION AND ANALYSIS
Ques. Are you an active investor?

Interpretation:-
in our study we came to know that 47% of the people were active investor, whereas 53%
of the people were generally students and were not active investor

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Ques. what kind of investment you prefer the most?

Interpretation:-
From the study we can make out that, most of the people prefer secured investment like
gold/silver or fixed deposit , which can provide them sort of fixed returns and few
people investment in highly flexible market with high risk.

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Ques. What is your profit margin?

what Is your profit margin?

15-20%
7%

10-15%
20%

below 10%
73%

Interpretation:- the profit margin of our respondents were not that high , most of them
were below 10% , hence it is beneficial for them to invest into currency , as with low
profit margin , they can invest into something with good and secured returns

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Ques. Do you know about currency derivative as an investment option?

Interpretation:- In the whole research process, we derived that, 47% of the people were
aware about currency derivative as an investment option whereas, 53% of the people
were unaware…it means currency derivative as an investment option is growing at high
rate in terms of awareness.

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Ques. What factors that attract you to invest in currency?

what factors that attract you to invest in

currency?
high leverages
20%

good re-
turns
80%

Interpretation:-
From past 5 years currency has shown high depreciation in indian rupee vis a vis usd,
hence most of the importers and exporters have preferred currency derivative as an
option of investment as it has shown high returns & good leverages.

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Ques. where do you find yourself as currency derivative investor?

where do you find yourself as currency

derivative investor?
fully aware
7%

unaware
47%
partially aware
47%

Interpretation:-
Not many of our investor, were quite aware about currency derivative. Hence they were
unaware about the good returns associated with this investment option. Hence it gve us a
varied market to tap those customers too

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Ques. Do You Know About the Current Scenario Of Returns In Currency
Derivative?

Interpretation:-
33% of our respondents knew about current scenario of returns in currency derivative ,
whereas 67% of our respondents are unaware.., so we could derive that there is huge
scope for our organization to tap these unaware respondents , and tell them about the
high and secured returns in currency derivative market.

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 FINDINGS
 Thus higher Inflation leads to weakening of Domestic Currency.

 INR has appreciated with every upward movement shown by Nifty Index over a period

of time.

 People are not much aware about currency derivative as an investment option, hence
there is scope for a wider market , by creating awareness

 Higher GDP leads to appreciation of Domestic Currency.

 Higher contribution of currency derivative leads to better returns, which strengthens

the investor market (i.e. b.s.e & n.s.e)

 Currency derivative is an secure investment , and from our study we could derive that

people generally prefer those investment option which has low risk and better returns

 There is a limit of USD 100 million on open interest applicable to trading member who

are banks. And the USD 25 million limit for other trading members so larger exporter

and importer might continue to deal in the OTC market where there is no limit on

hedges.

 In India RBI and SEBI has restricted other currency derivatives except Currency future,

at this time if any person wants to use other instrument of currency derivatives in this

case he has to use OTC.

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 SUGGESTIONS

 Currency Future need to change some restrictions it imposed such as cut off limit of 5

million USD, Ban on NRI’s and FII’s and Mutual Funds from Participating.

 In OTC there is no limit for trader to buy or short Currency futures so there demand

arises that in Exchange traded currency future should have increase limit for Trading

Members and also at client level, in result OTC users will divert to Exchange traded

currency Futures.

 In India the regulatory of Financial and Securities market (SEBI) has Ban on other

Currency Derivatives except Currency Futures, so this restriction seem unreasonable to

exporters and importers. And according to Indian financial growth now it’s become

necessary to introducing other currency derivatives in Exchange traded currency

derivative segment.

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 CONCLUSION

Our research shows that , there is huge scope for new investor to invest in currency
derivative , as it provide good returns , and have safeguard investors’ money , in case of high price
fluctuations .a derivative contract makes investor secure and risk free in future , when he has to
enter into contract in near future, and price movement of currency , does not affect his business.

The currency future gives the safe and standardized contract to its investors and individuals
who are aware about the forex market or predict the movement of exchange rate so they will get
the right platform for the trading in currency future. Because of exchange traded future contract
and its standardized nature gives counter party risk minimized.

Initially only NSE had the permission but now MCX has also started currency future. It is
shows that how currency future covers ground in the compare of other available derivatives
instruments. Not only big businessmen and exporter and importers use this but individual who are
interested and having knowledge about forex market they can also invest in currency future.

Exchange between USD-INR markets in India is very big and these exchange traded contract
will give more awareness in market and attract the investors.

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 APPENDICES
QUESTIONNAIRE ON INDIVIDUALS PERCEPTION TOWARDS CURRENCY DERIVATIVE

1.Name __________

2.Address _____________________________

3.E-Mail Id ____________________________

4.Contact No.____________

5.Age ________

6.occupation

Business.

Profession

service

student

Other: ______

7.IF Business

business type_________

8.Are you an active investor?

YES

NO

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9.what kind of investment you prefer the most?

Fixed Deposit

Insurance

Mutual Fund

Equity Commodity

Real Estate

Currency derivative

Gold/ Silver

PPF/PF

10. How Do you rate your risk taking ability?

Low

Medium

High

11.While investing your money ,which factors you prefer the most?

Liquidity

Low Risk

High Return

Other: (specify)__________

12. what is your annual income?

below -200000

200000-500000

500000-1000000

1000000 & above

13. what Is your profit margin?

Below 10%
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 10-15%

15-25%

above 25%

14.Do You Know About Currency Derivative as an Investment option? *

YES

NO

15.what factors that attract you to invest in currency?

High Leverage

Good Returns

Professional Management

Other:

16.Do You Know about "IIFL"?

YES

NO

17.where do you find yourself as currency derivative investor?

Unaware

partially aware

fully aware

aware of only specific schemes

18.Do You Know About the Current Scenario Of Returns In Currency Derivative?

yes

N No

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 BIBLOGRAPHY
WEBSITE:-

www.sebi.gov.in

www.mcx-sx.com

www.nseindia.com

www.investopedia.com

www.worldbank.org

www.indiainfoline.com

www.indexmundi.com

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