1. What is currency trading?
While trade is international, currencies are national. As international transactions are settled in global currencies, usually they are brought/sold for one another and this constitutes ‘currency trading’.

2. What are the factors that affect the exchange rate of currency?
A country's currency exchange rate is typically affected by the supply and demand for the country's currency in the international foreign exchange market. The demand and supply dynamics is principally influenced by factor like interest rates, inflation, trade balance and economic & political scenarios in the country. The level of confidence in the economy of a particular country also influences the currency of that country.

3. How and why does the demand and supply of a currency increase and decrease?
There are several reasons. A rise in export earnings of a country increases foreign exchange supply. A rise in imports increases demand. These are the objective reasons, but there are many subjective reasons too. Some of the subjective reasons are: directional viewpoints of market participants, expectations of national economic performance, confidence in a country's economy and so on.

4. What is currency future contract?
A currency futures contracts is a standardized version of a forward contract that is traded on a regulated exchange. It is an agreement to buy or sell a specified quantity of an underlying currency on a specified date in future at a specified rate (e.g., USD 1 = INR 44.00). (Note: USD is abbreviation for the US Dollar and INR for the Indian Rupee).

5. Why do we need currency futures?
We need currency futures if our business is influenced by fluctuations in currency exchange rates. If you are in India and are importing something, you have done the costing of your imports on the basis of a certain exchange rate between the Indian Rupee and the relevant foreign currency (usually, the US dollar or the Euro). By the time you actually import, the value of the Indian Rupee may have gone down and you may lose out on your income in terms of Indian Rupees by paying higher. On the contrary, if you are exporting something and the value of the Indian Rupee has gone up, you earn less in terms of rupees than you had anticipated. Currency futures help you hedge against these exchange rate risks.

6. Does the national economy of India need currency futures?
Every business exposed to foreign exchange risk needs to have a facility to hedge against such risk. Exchange-traded currency futures, as on MCX-SX, are a superior tool for such hedging because of greater transparency, liquidity, counterparty guarantee and accessibility. Since the economy is made up of businesses of all sizes, anything that is good for business is also good for the national economy.

7. What is OTC market?
OTC is abbreviation of "Over the Counter”. It has no central marketplace and is linked to a network of dealers/traders who do not physically meet but instead communicate through a network of phones & computers. OTC contracts are typically customized based on negotiation between counterparties. The counterparty default risk depends on the counterparty credit-worthiness and other factors.

8. Why exchange-traded futures? What's wrong with the currency forward market that has been existing in India for a long time?
The exchange-traded futures, as compared to OTC forwards, serve the same economic purpose, yet differ in fundamental ways. Exchange-traded contracts are standardized.
In an exchange-traded scenario where the market lot is fixed at a much lesser size than the OTC market, equitable opportunity is provided to all classes of investors whether large or small participate in the futures market. The other advantage of an exchange-traded market would be greater transparency, efficiency and accessibility.
The counterparty risk (credit risk) in a futures contract is eliminated by the presence of a clearing house/corporation, which by assuming counterparty guarantee, eliminates default risk.
Thus, introduction of exchange-traded futures help in overall development of the forex market in the country.

9.  Who can participate in the currency futures market?
Any resident Indian or company including banks and financial institutions can participate in the futures market. However, at present, Foreign Institutional Investors (FIIs) and Non-Resident Indians (NRIs) are not permitted to participate in currency futures market.

10. What are the terms and conditions set by RBI for banks to participate in exchange traded fx futures?
RBI has allowed banks to participate in currency futures market. The AD Category I banks which fulfill stipulated prudential requirements are eligible to become a clearing member and /or trading member of the currency derivatives segments of MCX-SX. All other banks, including Urban & State Co-operative banks, can participate in the currency futures market only as clients.

11. If I am an AD Category I bank, why should I become a member of a currency futures exchange ? I have the interbank market,anyway.
The interbank market is a market for banks. Small and Medium-sized clients of banks cannot directly participate in the interbank market. If a bank is a member of a currency futures exchange, it can trade on behalf of its small and medium-sized clients, who otherwise would not have been able to benefit from fluctuations in currency exchange rates. Thus, banks can increase their customer base if they become a member of a currency futures exchange. Also, banks themselves can benefit from a currency futures exchange by arbitraging between the existing interbank market and the currency futures exchange. Larger participation in a currency futures exchange gives the exchange platform a greater vibrancy than the interbank market, which is limited to banks.

12.   Can currency futures help small traders?
Yes. The minimum size of the USD-INR futures contract is USD 1,000. This is well within the reach of most small traders. All transaction on the Exchange are anonymous and are executed on a price time priority ensuring that the best price is available to all categories of market participant irrespective of their size. Also, since the profits or losses in the futures market are collected/paid on a daily basis, the scope of accumulation of losses for participants gets limited.

13.  If I am an individual with no exposure to foreign exchange risks, does a currency futures exchange mean anything to me?
Yes, it does, if you want to invest purely as an investor. You can benefit from exchange rate fluctuations just as you can benefit by investing equity in the stock market. However, as in the stock markets, you also stand to lose money if the price movements are not in keeping with what you had anticipated. Participating in the currency future exchange is risky, just as the stock market is. You should therefore be knowledgeable about the currency market if you want to participate as an investor.

14.  How do exchange-traded currency futures enable hedging against currency risk?
On a currency exchange platform, you can buy or sell currency futures. If you are in importer, you can buy futures to "lock in" a price for purchase of actual foreign currency at a future date. You thus avoid exchange rate risk that you would otherwise have faced. On the other hand, if you are an exporter, you sell currency futures on the exchange platform and "lock in" a sale price at a future date.

15.  What are the risks involved in currency futures market?
Risks in currency futures pertain to movements in the currency exchange rate. There is no rule of thumb to determine whether a currency rate will rise or fall or remain unchanged. A judgment on this is a domain of experts with deep knowledge and understanding of the variables that affect currency rates.

16.  Which are the Global exchanges that trade in currency futures?
Internationally, exchanges such as Chicago Merchantile Exchange (CME), Johannesburg Stock Exchange, Euronext.liffe, BM & F and Tokyo Financial Exchange trade in currency futures.

17.  Why should one trade in Indian exchanges as compare to International exchanges?
Indian currency futures enable individuals and companies in India to hedge and trade their Indian Rupee risk. Most international exchanges offer contracts denominated in other currencies.

18.  What is the minimum trading unit (i.e. contact size) and tenure of the USD/INR futures contracts?
The contract size of the USD/INR futures contract is USD 1,000. The contract shall have a minimum maturity of twelve months. All monthly maturities from 1 to 12 months are available.

19. What is the last trading day of the USD/INR futures contract?
The last trading day of  a futures contract on MCX-SX shall be two working days prior to the last working day (excluding Saturday) of the month. The settlement price is the Reserve Bank of India’s reference rate on the last trading day.

20. In which currency are the USD/INR contracts settled?
They are settled in cash in Indian Rupees.

21. What are the risk management measures offer clearing house / corporation?
The trading of currency futures is subject to maintenance of initial, extreme loss, and calendar spread margins with the clearing house/corporation. The initial margin is subject to a minimum of 1.75% on the first day of currency futures and 1% thereafter. The margins shall be deducted from the liquid net worth of the clearing member on an online and real-time basis.

22. What are the currencies traded on MCX-SX?
In the first phase of operations, only the USD/INR currency pair will be traded on MCX-SX. In course of time, other currency pairs will be introduced, as and when allowed by the regulatory authorities.

23. What are the trading hours on MCX-SX?
Trading in currency futures is on all working days from Monday to Friday and is between 9.00 A.M. to 5.00 P.M.

24. What are the contract specifications for currency futures on MCX-SX?