Currency futures in India: An introduction

The introduction of currency futures in India has passed a journey of almost one and a half year and many changes have been implemented in the trading system in this regard. The main theme of this paper is to assess the speed in which the growth of currency futures in India has accelerated. It also aims at analysing the volatility of the currency futures. In order to study the growth of the currency futures, the number of contracts traded and open interest at NSE and MCX have been inclusively compared. Attempt has been made to check whether the daily returns of the NSE and MCX on currency futures are normally distributed. For this purpose the changes in the daily value of Rupee as compared to Dollar has been calculated for every month seperately and the data have been used for the Kolmogorov Smirnov Test to test the hypothesis that the returns are normally distributed. With the measure of skewness and kurtosis it has been found that the returns are normally distributed and, thus, the null hypothesis is accepted. 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 recently trading in Euro-INR, Yen-INR and Pound-INR contracts have been introduced in January 2010. Average turnover of these instruments in the National Stock Exchange and MCX Stock Exchange (MCX–SX) in December was nine times higher than a year earlier. These exchanges are currently clocking an average daily turnover of over Rs 20,000 crore in currency products while it was just Rs 2,400 crore in January last year. The risk involved is comparatively low in this case and currency futures has proved to be a good tool for hedging the risk involved in the currency of a country (currency risk). It is hoped that the currency futures market will develop more faster and it will be a good choice for all the market participants in the near future and it will find its way in the Indian economy