Currency futures arrive

All the speculation regarding the introduction of currency futures in India ended on 6 August, with the Reserve Bank of India (RBI) publishing directions on them. Much interest has been spawned in relation to these products since they have been on the regulatory horizon for the past two years, and directions relating to them have been debated by both the Securities and Exchange Board of India (SEBI) and the RBI.

The introduction of currency futures signals the dawn of a new era in the Indian derivatives market, as until now, very limited hedging opportunities were available to traders and others aiming to hedge their currency-related risks.

Currency futures serve the purpose of regulating the exchange rate without intervention by the central bank. The advent of currency futures will lead to effective exchange rate discoveries, mitigating exchange rate volatility, which has singed importers and exporters alike with broad swings either way (the rupee appreciated against the US dollar by around 11% in a less than a year and has again depreciated close to the same percentage in less than eight months).

Sawant Singh is a partner and Arun Madhu is an associate at Trilegal in Mumbai. Trilegal is a full service law firm that advises on corporate and commercial law in India and provides commercially oriented legal advice in relation to all sectors of the economy. The firm has offices in Delhi, Mumbai, Bangalore and Hyderabad and have over 80 lawyers, some with experience at law firms in the US, the UK and Japan.