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Globalization and integration of financial market, coupled with progressive increase of cross-border flow of capital, have transformed the dynamics of Indian financial markets. This has increase the need for dynamic currency risk management. The steady rise in India’s foreign trade alone with liberalization in foreign exchange regime has led to large inflow of foreign currency into the system in the form of FDI and Fll's investments.
In order to provide a liquid, transparent and vibrant market for foreign exchange rate risk management, Securities & Exchange Board of India (SEBI) and Reserve Bank Of India (RBI) have allowed trading in currency futures for the first time in India, based on the USD-INR exchange rate.
Given the market needs, MCX Stock Exchange Limited (MCX-SX) would launch USD-INR futures initially. This would give Indian corporates another tool for hedging their foreign exchange risk effectively and flexibly at transparent rates on an electronic trading platform.
Historical USD-INR Exchange Rate Movements. The primary purpose of exchange-traded derivatives like futures and options is to provide a mechanism for price risk management and consequently provide price curve of expected futures prices to enable the industry to protect its foreign currency exposure. The need for such instruments increases with increase of foreign exchange volatility.
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