Growth of Currency Derivatives Traded on the NSE

The futures market holds a great importance in the economy, and, therefore, it becomes imperative that we analyse this important market and seek answers to a few basic questions. The main theme of this paper is to assess the growth of currency derivatives in India. It also aims at examining the volatility of the currency derivatives. In order to study the growth of the currency futures and options, the number of contracts traded and open interest at NSE has been inclusively compared. Attempt has been made to check whether the daily returns of the NSE on currency futures are normally distributed. For this purpose the changes in the daily value of Rupee as compared to Dollar, Yen, Euro and Pound have been calculated for the period and the data have been used for the ANOVA Test to test the hypothesis that the returns are normally distributed. The currency futures have received a good response from the investors as well as the hedgers. Initially, currency futures were started for USD-INR contracts but trading in Euro-INR, Yen-INR and Pound-INR contracts have been introduced in January 2010. Currency Options on US Dollars was introduced on October 29, 2010. A comparison between the currency futures and options on USD-INR has also been done. The risk involved is comparatively low in this case and currency futures and options have proved to be a good tool for hedging the risk involved in the currency of a country (currency risk)