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