What is currency future?
Ans- A currency forward contract that is standardized, exchange-traded and guaranteed by the clearing corporation is called currency futures.

What is a futures contract on the INR/USD exchange rate?
Ans- It is exactly like a futures contract on Nifty. A future price “F” is traded on the screen. That pertains to the INR/USD exchange rate at a future date. If the spot price goes up,the futures buyer (the long) makes a profit at the expense of the futures seller (the short)

But how the settlement takes place involving dollars while India still has capital controls and FEMA?Don’t we have to wait for full convertibility?
Ans- Exactly as with the futures on Nifty, INR/USD futures will be cash settled. The gainer will get paid in rupees by the loser. No foreign exchange will change hands. No foreign exchange will cross the boundary of India.
For eg: Suppose we are standing on 1 August and suppose the INR/USD exchange rate is at Rs.44/- a dollar. Suppose the futures price on the NSE screen is Rs.45/- The contract size is $1000. Think of this a “marketable lot”. Suppose the contract expires on 31st August. The buyer of one futures contract makes a commitment to buy $1000 on 31st August at a price of Rs.45/- per dollar.
On 31st August, suppose the INR/USD exchange rate on the spot market is Rs.43/- a dollar. In this case, the buyer has made a loss of Rs.2/-. Since the contract size is 1000, this means the buyer pays Rs.2000/- to the seller.

How do I trade the currency futures?
Ans- Send in a order to your NSE member exactly as you do with Nifty futures.

What about credit risk – what if the person who has lost money defaults?
Ans- As with all derivatives trading on NSE, the clearing corporation (NSCCL) becomes the counterparty for the net settlement obligations of all clearing members. Hence, default of a clearing member does not adversely affect the counterparty.

Who can Trade?
Ans- Anyone in India can trade on the currency futures. At present NRIs and FIIs are prohibited.

What all currency exchange rates can be traded on NSE?
Ans- The only currency permitted is INR/USD.

How does the Indian currency forward market work?
Ans- Customers, who wish to enter into a currency forward, talk to a bank. The bank quotes them a price. These contracts are bilateral contracts between two counterparties and therefore utilize credit limits.

How does a Indian currency forward market differ from the currency futures market?
Ans- The currency forward market has greater entry barriers (e.g. NSE members cannot participate) and does not have a transparent electronic order-matching screen.
The currency futures are as transparent and safe for customers as the NIFTY futures Orders are matched by price-time priority. Customers can be sure they got the best execution. The charges of the broker are transparently visible on the contract note. Customer can shop around for the lowest brokerage fee and the choice of the broker does not in any way change the execution price obtained. All these features are lacking in the forward market, which is non transparent OTC market.

What is appreciation and depreciation?
Ans- When the numeric value of the INR/USD exchange rate goes up (i.e. positive percentage changes), this is depreciation. The reason we say this is that something costing $100 will cost Rs.4000/- when INR/USD is at Rs.40/- per USD. While it will cost Rs.4500/- when INR/USD is at Rs.45/- per USD. A bigger value of exchange rate means that our purchasing power is lower. It is depreciation.

Does RBI make announcements about the date when the currency volatility changes?
Ans- No

What data about RBI trading is released to the market?
Ans- RBI trades on both the currency forward and on the spot market. Daily data is not available. Monthly data is released with a delay of two months.

Who can arbitrage?
Ans- Three kinds of arbitrage can be described:
The first arbitrage – directly looking for deviations from (Covered Interest Parity) CIP – requires the ability to move money in and out of the country.
The second arbitrage – comparison of the currency futures price against the onshore currency forward price – requires the ability to transact on the onshore currency forward.
The third arbitrage – comparison of the currency futures price against the NDF market – requires the ability to transact on the NDF market.
Different players might be able to muster the ability to do different kinds of arbitrage. This requires a careful analysis of the legal constraints that apply in each situation.

How does a non-financial firm acquire currency exposure?
Ans- Currency exposure can come abut in two ways:
Direct exposure owing to international trade:On one hand, there can be direct exposure through imported raw materials or exported finished goods. If a company imports raw materials worth $100 then when INR/USD depreciates from Rs.40/- to Rs.45/-, the imported raw materials are costlier by Rs.500/-. Some companies might import directly. Some companies might buy imported raw material from a domestic dealer or distributor. The logic applied identically regardless of the method used for import or export.
Economic exposure owing to import parity pricing:The price of many goods in India is now determined by ‘import parity pricing’. As an example, the price of steel in India is the world price of steel (measured in USD) multiplied by the INR/USD exchange rate. This is true even for a purely domestic transaction: an Indian producer of steel might be selling to any Indian consumer of steel, but the use of import parity pricing generates currency exposure for both the produce and the buyer. These exposures can naturally be hedged using the currency futures.

What should a non-financial company do?
Ans- A company should always take into the account all sources of currency exposures. These include direct imports and exports, the footprint of import parity pricing for local raw materials or local sales and borrowing in foreign currency. Once all these have been incorporated, only then can the correct hedging strategy be determined. A partial calculation can be worse than no hedging.

How do I get registered for trading in currency futures?
Ans- To open an account with a NSE trading member you will be require to completer the following documents duly signed:
a. Member constituent agreement
b. Constituent registration form
c. Risk disclosure document
The trading member will allot you unique client identification number.

What factors drive the USD/INR rates?
Ans- a. Export – Import trade
b. Investments and disinvestments by offshore institutions in India.
c. Investment by Indian companies outside India.
d. Remittances and deposits by NRI’s.
e. Remittances of trade or services and capital transactions.

What factors affect the trading decision?
Ans- a. Government’s monetory policy.
b. RBI (Reserve bank of India) interventions.
c. Performance of Equity market.
d. Macro-Economic views.
e. Performance of other world currencies.
f. Movement of key commodity prices.

How much limit does a client is offered to hold positions?
Ans- A client is offered a maximum of 6% of total interest or USD 5 million, whichever is higher

What are the different trading strategies in a currency futures?
Ans- There are mainly 3 different strategies i.e.:
• Invest: - Take a view on US $-INR if you feel rupee is going to depreciate then buy $ and vice-versa.
• Hedge:- If you are expecting $ inflow on later month then sell contract in that particular month and vice-versa if payment is to be made in future month then by in that particular month’s contract whose value is approx equivalent to the amount to minimize or exposure to US$ - INR risk.
• Arbitrage: - Trading in futures allows us to trade in interest rates implied by the foreign exchange market. If you consider other factors constant then time value of money of US$ & INR will be proportional to interest rate of corresponding currency.

Currency futures are traded in which all exchanges in India?
Ans- Presently Currency futures are traded on NSE, BSE and MCX.