Benefits of Currency Trading
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The Currency Derivatives product is a bundle of opportunities for a number of players.
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It is a new asset class for diversification of investments for all Resident Indians |
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It gives hedging opportunities to:
a) Importers and exporters, who can hedge their future payables and receivables
b)Borrowers, who can hedge foreign currency (FCY) loans for interest and
principal payments
c)Resident Indians, who can hedge their offshore investments
d)Commodity traders can hedge against unfavourable movements of gold, crude
etc.
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It gives arbitrage opportunities
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It gives trading opportunities because of its volatility and multiplicity
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It provides highly transparent rates to traders as it is exchange-traded |
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Unlike currency forwards offered by banks, currency futures trading does not have
to be backed by an underlying merchant transaction exposure
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Tight bid ask spreads; usually 0.25 paisa wide
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Margin requirements less than 5% to take exposure on a lot size of $1000, €1000,
£1000 and ¥1,00,000 respectively
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For exporters and importers, no credit line required from their Banker as is the
case with forwards
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Ideal tool for those with smaller exposures, as in the case of travel needs, educational
payments etc.
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