FUTURE FOR "RUPEE FUTURES" IN INDIA?

• It's no exaggeration that the recent episode of phenomenal rise in the value of Indian rupee has sent positive reverberations across the world about the growing strength of Indian economy as well as its underlying currency, the rupee.
  The rupee appreciation has significantly boosted the demand for rupee -denominated assets across the globe. However exporters started to feel the pinch as it began to erode the country's competitiveness and became the threat to its buoyant export growth .If India is to sustain its momentum over long term, the need of hour is to develop an effective mechanism which will take care of currency related risks. This underlines the pressing need to kick-start a domestic currency future market wherein Indian businessmen can effectively hedge forex risks that they encounter.

WHAT IS CURRENCY FURURE?

Currency future is a futures contract, which exchanges one currency with another at specified price and date in future with one of currencies being US dollar. Except for a few contracts that are held back till the expiry date when the payments are made in each currency, most of the contracts are squared off before the expiry date.

CURRENCY FLUCTUATION RISKS

• Companies, which export and import through long term contracts will encounter currency risks
• Companies, which borrow in foreign currency also, face currency risks.
• The currency risk, which comes through import parity pricing, impinges on all firms.
• Householders who invest in companies that are exposed to currency risks also have to suffer from this risk.

CURRENT SCENARIO

• Indian firms hedge their currency risks using over the counter (OTC), currency options, swaps and forwards.
• But turnover is small with the stringent capital account restrictions imposed on rupee convertibility.
• Till recently, rupee exposure risks can be typically hedged either through Non-Deliverable Forwards(NDF) in east Asia or rupee forwards in India.
• But the forward market in India are small and the access to NDF overseas markets is limited.
• The fact that $1 bn turnover a day of derivatives trading has been occurring outside India on Indian rupees, signifies domestic future market in india to cash in on this growing demand fro the currency.

GROWING CLAMOR

• Currency future concept was pioneered by international monetary market, a division of Chicago mercantile exchange in year 1972
• To leverage on the surging demand for Indian rupee Dubai Gold & Commodities Exchange (DGCX) launched the world's first non deliverable rupee futures contract on June 7,2007
• According to terms, at DGCX, each rupee dollar contract would represent two million rupees. Typically ,prices will be quoted in US cents per RS.100 with minimum fluctuation of $2 per contract
  Further trading price list for the current and subsequent two months will be made available publicly in addition to next three calendar quarterly months.

THE WAY AHEAD

• The more such kind of products exits outside India, the more anomalous it seems that India doesn't have any such kind of product
• As, a consequence, the RBI has formed an internal committee headed by its chief General Manager Salim Gangadharan, to explore the feasibility of launching currency futures in Indian scenario
• The introduction of rupee futures also put another instruments in the hands of hedgers to better hedge their exposure risks.
• It does help in reducing the monopoly of banks in the area of hedging instruments and thus increase transparency.
• Indian stock and commodity exchanges have the essential infrastructure & surveillance monitoring & hence are well placed to embark on the commencement of currency futures market in India
  
  Thus rupee futures provide more flexibility, liquidity and are more transparent than forward contracts Therefore, it's high time to effectively tap the untapped potential of currency futures