Picture for representational purpose only.   Currency derivatives are considered to be one of the best options to manage any risk against foreign currency exchange rate volatility.

Here is a low-down on this hedging instrument: Currency derivatives are exchange-based futures and options contracts that allow one to hedge against currency movements. Simply put, one can use a currency future contract to exchange one currency for an another at a future date at a price decided on the day of the purchase of the contract.

In India, one can use such derivative contracts to hedge against currencies like dollar, euro, U.K. pound and yen.

Corporates, especially those with a significant exposure to imports or exports, use these contracts to hedge against their exposure to a certain currency. While all such currency contracts are cash-settled in rupees, the Securities and Exchange Board of India (SEBI), early this year, gave a go-ahead to start cross currency contracts as well on euro-dollar, pound-dollar and dollar-yen.

The two national-level stock exchanges, BSE and the National Stock Exchange (NSE), have currency derivatives segments. The Metropolitan Stock Exchange of India (MSEI) also has such a segment but the volumes are a fraction of that witnessed on the BSE or the NSE. Read more from thehindu.com…

thumbnail courtesy of thehindu.com