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FAQ - Currency

What does Currency appreciation and depreciation mean?
Let’s assume that the current exchange rate of the USD to the INR is INR45. When the value of the Rupee moves up to INR44/USD, we would say that the Rupee has appreciated in value against the USD. It means we can buy USD1 for INR44 instead of INR45.
Similarly, when the value of the Rupee moves down to INR46/USD, we would say that the Rupee has depreciated in value against the USD. It means we can buy USD1 for INR46 instead of INR45.
What is a Currency Forward contract?
A Currency Forward contract is traded in the over-the-counter (OTC) market, usually between two financial institutions or between a financial institution and its client.
What is a Currency Futures Contract?
A Currency Futures contract 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 the future at a specified rate.
Who can participate in the Currency Futures market?
Any Indian resident or company, including banks and financial institutions, can participate in the Currency Futures market. At present, Foreign Institutional Investors (FIIs) and Non-Resident Indians (NRIs) are not permitted to participate in the Currency Futures market in India.
Why trade Currency Futures?
Currency Futures allow investors to take a view on the movement of the Indian Rupee against other Currencies. This can be used to protect one’s business from Currency risks due to fluctuation of the exchange rates.
I do not have any exposure to Foreign exchange risk. Does a Currency Futures exchange mean anything to me?
Yes. You can benefit from the exchange rate fluctuations just as you can benefit by investing in Commodities and/or Equities. However, you also stand to lose money if price movements are not in line with your expectations. Trading Currency Futures is risky, just as Commodities and/or Equities. You should, therefore, be knowledgeable about the Currency market and the economic factors which impact the movement if you want to participate in it.
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 an importer, you can buy Futures to 'lock in' a price for your purchases at a future date. You thus avoid exchange rate risk. If you are an exporter, you sell Currency Futures on an exchange platform and 'lock in' a sale price at a future date.
What are the risks involved in the Currency Futures market?
Risks in Currency Futures relate to movements in Currency exchange rates.

What are the factors that affect the exchange rate of Currencies?
A country’s exchange rate is typically affected by the supply and demand for the country’s Currency in the international Forex market. The demand-and-supply dynamics is principally influenced by factors such as interest rates, inflation, trade balance and political and economic scenarios in the country.
What Currencies can be traded on the Exchanges?
In India, currently only USD/INR, EUR/INR, GBP/INR and JPY/INR are available for trading on various Exchanges.
What is the contract trading cycle?
Currency Futures contract has 12 month trading cycle.

Which is the last trading day for the currency futures contract?
The expiry/last trading day for the Options contract is two working days prior to the last working day of the expiry month at 12 noon.

When does a Currency Futures contract expire?
A Currency Futures contract expires on the last working day (excluding Saturdays and FEDAI holidays) of any given month.
What is the settlement price?
As per established norms, the Reserve Bank Reference Rate, on the date of expiry, will be the settlement price.
What are the trading hours and the size of USD/INR Currency trading?
The trading hours are from 9.00 am to 5.00 pm Monday to Friday; and the contract size is USD 1,000.
What types of margins are levied on trades?
There are four types of margins mandated by SEBI and they are as follows:
• Initial Margin,
• Extreme Loss Margin,
• Calendar Spread Margin and
• Mark-to-Market Margin.
What is the Initial Margin?
The Initial Margin is 1.75% on the first day of Currency Futures trading and 1% thereafter.
What is the Extreme Loss Margin?
The Extreme Loss Margin is 1% of the Mark-to-Market value of the gross open positions.
What is the Calendar Spread Margin?
The Calendar Spread Margin is INR250 for all months of the spread. The benefit for a Calendar Spread will continue until the contract expires.
What is the Mark-to-Market Margin?
Mark-to-Market is an accounting calculation tracking the current market value of an asset. The calculations are done daily. Mark-to-Market is based on the current market value of the assets in question (i.e. Commodities, Securities, Derivatives, etc). It reflects how much such assets would be sold for if they were put on the market today.

CURRENCY OPTIONS
What are Currency Options?
Currency Options are contracts that grant the buyer of the Option the right, but not the obligation, to buy or sell underlying Currencies at a specified exchange rate during a specified period of time. For this right, the buyer pays a premium to the seller of the Option.
What is the need for Exchange Traded Currency Options?
Options have the comparative advantage of maintaining a certain degree of flexibility in hedging because, while protecting against a downside risk, they allow the investor to benefit from profiting from favorable movements of the Forex rates by simply not exercising the Option.

What is the underlying asset for USD-INR Options?
Underlying is the US Dollar-Indian Rupee (USD-INR) Spot rate
What is the type of Option?
USD/INR Option contracts are premium-styled European Call and Put Options.
What are the trading hours and the size of USD/INR Currency trading?
The trading hours are from 9.00 am to 5.00 pm Monday to Friday; and the contract size is USD 1,000.
What is the contract cycle for USD/INR Options?
The contract cycle consists of three monthly contracts, followed by three quarterly contracts for the cycles ending March/June/September/December.
What is the settlement mechanism for USD/INR Options?
USD/INR Options contracts are settled in cash in Indian Rupees.
Which day is the expiry/last trading day?
The expiry/last trading day for the Options contract is two working days prior to the last working day of the expiry month.
How is the settlement price determined?
The final settlement price is the Reserve Bank of India USD-INR Reference Rate on the date of expiry of the contract
Which day is the final settlement day?
The Options contract expires on the last working day (excluding Saturdays) of the contract month. The last working day will be the same as that for Interbank Settlements in Mumbai.
How are contracts settled at expiry?
On the last trading day of the Futures contracts, at 12:00 noon, the NSCCL (National Securities Clearing Corporation Limited) marks all positions of a CM (Clearing Member) to the final settlement price as published by RBI and the resulting profit/loss is settled in cash.
The final settlement loss/profit amount is debited/credited from/to the relevant CM’s clearing bank account on T+2 working days following the last trading day of the contract (contract expiry day
How is the premium paid by the buyer settled?
The premium is paid by the buyer in cash and paid out to the seller in cash on T+1 day. Until the buyer pays the premium, the premium due is deducted from the available Liquid Net Worth on a real-time basis.
Do I need to open a separate account for trading in Currency Derivatives?
No. No separate trading account is required to trade in Currency
How do I start trading at IFM?
The client is expected to provide the documents required to open a trading account. In addition to this, you need to provide your Bank Statement for the last 6 months.