Currency derivatives are a contract between the seller and buyer, whose value is to be derived from the underlying asset, the currency value. A derivative based on currency exchange rates is an agreement that two currencies may be exchanged at a future date at a stipulated rate.
ATON advices on benefits of currency derivatives
Currency derivatives are a bundle of opportunities for a number of players.
- It is a new asset class for diversification of investments for all resident Indians.
- It gives hedging opportunities to: Importers and exporters, who can hedge their future payables and receivables,Borrowers, who can hedge foreign currency loans for interest and principal payments, with the need for proof of documented exposure.
- It gives arbitrage opportunities.
- It gives trading opportunities because of its volatility and multiplicity.
- It provides highly transparent rates to traders as it is exchange-traded.