The introduction of currency derivatives in India is a landmark decision which is likely to be a boon for importers, exporters and companies with foreign exchange exposure. These derivative products have a wide range with their special features suiting to the needs and requirements of the individuals. As currency derivative is new to India, it is time to have a broad understanding of them which are mostly couched in jargons and technical terms. Thus the very subject raises a kind of aversion for the common people. The currency derivatives are contracts just like any other derivatives viz., Stock, Index etc. Unlike the stock, the underlying in this case is currencies. The value of the currencies determines the values of the currency derivatives.
As it is universally accepted that market risks are ones which can not eliminated in absolute terms. But their management is perfectly possible. The currency derivatives are efficient tools for management of risks in money and forex markets. The need to protect the exposure against unforeseen and unpredictable movement in currency and interest rates has led to the emergence of these kinds of derivatives. Thus external borrowings or receivables or payments in foreign currencies come within the purview of management under it. As we all know the exporters and importers incur huge obligations in terms of foreign currencies and they can guard their interest by buying appropriate products.
The present project attempts to study the basic concepts of Currency futures, different factors that affect currency price changes, practical considerations and ways of considering currency future price and analyze different currency derivatives products.