Currency Futures is a standardised foreign exchange derivative contract traded on a recognized stock exchange to buy or sell one currency against another on a specified future date, at a price specified on the date of contract, but does not include a forward contract.
Currency Futures are permitted in US Dollar – Indian Rupee (USD INR), Euro – Rupee (EUR INR), Great Britain Pound – Indian Rupee (GBP INR) and Japanese Yen – Indian Rupee (JPY INR). Currency Futures can be traded through MCX SX, NSE and USE.
Foreign exchange (FX) options are contracts that give the buyer the right, but not the obligation, to buy or sell one currency against the other, at a predetermined price and on or before a predetermined date.
The buyer of a call (put) FX option has the right to buy (sell) a currency against another at a specified rate. If this right can only be exercised on a specific date, the option is said to be European, whereas if the option can be exercised on any date till a specific date, the option is said to be American. Currently only USD INR options are permitted for trading in India and the clients can trade currency options through NSE and USE.
What are currency options?
A currency option is a contract that allows the buyer the right but not the obligation to buy or sell the underlying at a stated date and at a stated price. A call option gives the right to buy and put option gives the right to sell. In every currency transaction, one currency is bought and another sold. For example an option to buy US dollars (USD) for Indian Rupees (INR) is an USD Call and INR put. Conversely, an option to sell USD for INR is an USD put and INR call. The other basic likes strike price, expiration period, American style or European style are similar to stock options.
Exchange traded currency options
Exchange traded currency options are standardized products with pre-defined maturities. They are easily accessible with OTC derivatives contracts. Now individuals and corporate can reap benefit out of the currency options. Options are like insurance contracts, they protect you from the downside at the same time allowing you to reap the benefits of any upside. Rupee options would introduce greater flexibility in risk management of corporate and cost control.