Currency Derivatives Overview

Currency derivatives are a contract between the seller and buyer, whose value is to be derived from the underlying asset, the currency value. A derivative based on currency exchange rates is an agreement that two currencies may be exchanged at a future date at a stipulated rate.

For the first time, this segment is accessible to the retail players in the currency trading market.

About Our Company:

The Currency Derivatives seeks to create a common minimum knowledge benchmark for persons working in the market segment, in order to enable a better understanding of currency markets and exchange-traded currency future products, better quality investor service, operational process efficiency and risk controls.

  • Know the basics of currency markets and specifically Exchange Traded Currency Derivatives markets. This is the addition.
  • Understand the trading, clearing and settlement mechanisms related to Currency Derivatives markets and basic investment strategies that use currency futures and options products.
  • Know the regulatory environment in which the Currency Derivatives markets operate in India.

What are the benefits?

Currency derivatives are a bundle of opportunities for a number of players.

  • It is a new asset class for diversification of investments for all resident Indians.
  • It gives hedging opportunities to:
  • Importers and exporters, who can hedge their future payables and receivables,
  • Borrowers, who can hedge foreign currency (FCY) loans for interest and principal payments, with the need for proof of documented exposure.
  • It gives arbitrage opportunities.
  • It gives trading opportunities because of its volatility and multiplicity.
  • It provides highly transparent rates to traders as it is exchange-traded.

Who should enroll for this training?

Post Graduates.

Chapter – I : Introduction to Currency Markets
  1. History of foreign exchange markets & Major currency pairs
  2.  Overview of international currency markets
  3.  Basics and Peculiarities of currency markets in India
  4.  Settlement or value date
  5.  Over-the-Counter (OTC) forward market
  6.  Exchange rate arithmetic- cross rate
  7.  Impact of market economics on currency prices & Economic indicators
Chapter – 3 : Exchange Traded Currency Futures
  1. Currency futures,Spot price,Futures price
  2.  Contract cycle
  3.  Value date/Final settlement date
  4.  Expiry date, Contract size
  5.  Initial margin & Marking-to-market
  6.  Rationale behind currency futures
  7.  Standard items in a futures contract
  8.  Introduction of currency futures in India
  9.  Futures and forward contracts
  10.  Advantages of futures contracts
  11.  Limitations of futures contracts
  12.  Interest rate parity and pricing of currency futures
Chapter –5 : Trading in Currency Futures
  1. Contract specification for currency futures
  2. Trading parameters
  3. Tenors of futures contract & Expiry date
  4. Settlement price
  5. Entities in the trading system & Types of orders
  6. Concept of Mark-to-Market (MTM) & Position limits
  7. Allowable open position limits for members trading in currency futures
  8. Monitoring and enforcement of position limits in the currency futures market
  9. Surveillance systems and procedures of exchanges
Chapter – 7 : Exchange Traded Currency Options
  1. Options
  2. Call and put option & Bought and sold option
  3. Option premium & Futures and options
  4. European vs. American option & Moneyness of an option
  5. Option pricing and option Greeks
  6. Option pricing methodology
  7. Black-Scholes model
  8. Binomial pricing model
  9. Option pay offs & Option strategies
  10. Practical application of currency options
  11. Clearing, settlement and risk management for currency options
  12. Initial margin
  13. Extreme loss margin
  14. Net option value
  15. Calendar margin
Chapter – 9 : Regulatory Framework for Currency Derivatives
  1. Features of Securities Contracts (Regulation) Act, 1956 [SC(R)A]
  2. Features of Securities and Exchange Board of India Act, 1992
  3. Recommendations of the RBI-SEBI Standing Technical Committee on Exchange Traded Currency and Interest Rate Derivatives
  4. Provisions of Foreign Exchange Management Act, 1999
  5. Salient features of RBI notification ‘Currency Futures (Reserve Bank) Directions, 2008
  6. Salient features of RBI Circular, ‘Guidelines on trading of Currency Futures in Recognised Stock / New Exchanges’
  7. Salient features of SEBI Regulations for Currency Derivatives Exchanges
  8. Regulatory framework for clearing corporations
  9. Governing Council of the Exchange and Clearing Corporation
  10. Eligibility criteria for membership of currency derivatives exchanges
Chapter – 2 : Foreign Exchange Derivatives
  1. Evolution of derivatives & Derivative products and features
  2.  Growth drivers of derivatives
  3.  Market players in the foreign exchange market
  4.  Key economic functions of derivatives
  5.  Exchange-Traded Vs. OTC derivatives
Chapter – 4 : Strategies Using Currency Futures
  1. Role of speculation in futures markets
  2. Long position in futures & Short position in futures
  3. Hedging using currency futures &Types of hedgers
  4. Size of the hedging position
  5. Trading spreads using currency futures &Concept of arbitrage
  6. Use of arbitrage in currency futures markets
  7. Arbitrage opportunities under various conditions
Chapter- 6 : Clearing, Settlement and Risk Management in Currency Futures
  1. Clearing entities & Clearing mechanism
  2. Open positions and obligations of clearing members
  3. Settlement mechanism
  4.  MTM settlement & Final settlement
  5. Risk management measures
  6. Concept of margin requirements
  7. Initial margin
  8. Portfolio-based margin, Calendar spread margin, Extreme loss margin
  9. Liquid net worth & Liquid assets
  10. Real-time computation
  11. Process of margin collection by Clearing Corporations
Chapter – 8 : Accounting and Taxation
  1. Accounting treatment for derivative contracts
  2. Taxation of derivative transaction in securities
  3. Tax treatment of profit/loss on derivative transaction in securities
Chapter – 10 : Codes of Conduct and Investor Protection Measures
  1. Features of SEBI Codes of Conduct for brokers
  2. Features of SEBI Codes of Conduct for sub-Brokers
  3. Features of Codes of Conduct specific to Exchange Traded Currency Derivatives Segment
  4. Grievance redressal mechanism for investors & Nature of complaints considered by exchanges
  5. Arbitration mechanism at exchanges



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