The exchange-traded currency futures will now be expanded to the euro, pound and yen pairing with the rupee, giving the investors more flexibility to hedge their risks against volatility in exchange rates.
Currently, currency futures are allowed only in the dollar-rupee contracts and analysts say the American greenback will continue to be the dominant currency in this market, and will only expand due to three more pairs.
Both the market regulator the Securities and Exchange Board of India (Sebi) and banking watchdog Reserve Bank of India (RBI) today came out with separate circulars to permit currency futures in three more pairs. It will be now up to the stock exchanges to decide on the launch date.
"It has now been decided to permit eligible stock exchanges to introduce currency futures on euro-INR (Indian Rupee), pound sterling-INR and yen-INR," the Sebi said in a circular today.
The RBI also said the bourses are permitted, with immediate effect, to offer currency futures contracts in the three pairs in addition to the US dollar-rupee contracts.
"Trading volumes are bound to go up. However, the relevance and significance of the dollar-rupee contracts would be multiple times more than all the other currency pairs put together," pointed out SMC Capitals Equity Head Jagannadham Thunuguntla.
Because of the global financial crisis, currency futures traded on exchanges are considered much safer than those traded in the open market. Currency futures refers to a contract to exchange one currency for another at a specified date and price.
