Abhishek Kumar

Jaipuria ,Indore

BMA Group

BMA Wealth creators Limited -

corporate membership in National Stock Exchange Ltd, Bombay Stock Exchange Ltd. and Central Depositories Securities Ltd.

BMA Commodities Limited -

corporate membership in commodities exchange of NCDEX and MCX. It is also is SEBI approved AMFI registered Mutual Fund advisory and intermediary.

A premier financial services organization providing individual and corporates with customized financial solutions.

Members

• NSE• BSE

• CDS

• NCDEX

• MCX

• Largest Financial market

• 24-hr market

• Average daily trade – over US $ 3.5 trillion

Foreign Exchange Market

World traded currency – Dollar Investment currency in capital markets.

Reserve currency of Central Banks.

Transaction currency in many commodity markets.

Invoice currency for many contracts.

Foreign Exchange Market

Demand & Supply ForcesDollar against major currencies like Euro, Pound,

YenGlobal Asian Stock marketsIndian Stock marketsEconomic factors

Government budget deficits Interest rates Inflation Fiscal and Monetary Policy BOP

Factors affecting USD/INR rates

Hedging Trading Banks

Importers & Exporters

Corporate

Individual

View on appreciation or depreciation of USD/INR

Indian rupees per currency unit averaged over the year

currency code 1996 2000 2004 2006 2009 2010 2011

U.S. dollar USD 35.444 44.952 45.340 43.954 48.76112 45.3354 51.22

Canadian dollar

CAD 26.002 30.283 34.914 41.098 42.92026 44.5915 52.1706

Euro* EUR 44.401 41.525 56.385 64.127 68.03312 60.5973 65.6987

Pound sterling GBP 55.389 68.119 83.084 80.633 76.38023 71.3313 83.6329

Swiss franc CHF 28.714 26.654 36.537 40.451 45.05846 45.9957 57.3525

Australian dollar

AUD 27.761 26.157 33.409 36.972 38.58082 43.9854 53.9759

Japanese yen JPY 0.5555 0.41711 0.41945 0.42627 0.52239 0.545447 0.6907

Singapore dollar

SGD 25.160 26.079 26.830 30.932 33.60388 34.5127 41.2737

*before Jan 1, 1999, European Currency Unit, code XEU

Contract Specification

Case 1. Exporter earns goods worth USD 1,00,000 on 10th May & payment expected in JULY 2012.

Hedging example- Exporter

Spot Rate on 10th may INR 55.41 USD

Amount payable on 10th may 55,41,000

Buy 3 months future contracts

Futures price = spot + Cost of carry

USD 55.72 (55.41+0.31)

Future price in INR Rs . 55,72,000

Spot rate on 10th July 12 INR 57.97 per USD

If not hedged payment would Rs. 57,97,000

Saving due to hedging Rs. 2,25,000

Exporter earning USD 1,00,000 for JULY 10, expecting remittance on 10 JULY 2012

Hedging example- Exporter

Spot rate on 30th may INR 53.46 per Dollar

Sell 1000 USDINR contracts JULY

Futures Price = Spot+ Cost of Carry

INR 53.46 per USD (53.46+0.25)

Rs 53,71,000

Spot Rate on 10 JULY 12 INR 54.46 per USD(54.46+0.25)

Rs 54,71,000

If not hedged receipt would be Rs 54,46,000

Loss due to hedging Rs 75,000

Derivatives are the financial instruments which derive their value from the value of the underlying asset.

The underlying asset can be equity, fixed income instruments, interest rates, foreign exchange or commodities.

The price movements of derivative products are related to that of the underlying securities.

Currency Derivatives

Types of Derivatives

Hedging:

Speculation:

Reasons to use derivatives

•Interest rate volatility •Stock price volatility •Exchage rate volatility •Commodity prices volatility

VOLATILITY

•High portion of leverage •Huge returns

EXTREMELY RISKY

A futures contract is a contract that allows the counterparties to exchange the underlying assets in future at a price agreed upon today. Following are the features of a futures contract-Contract through an exchangeTo exchange obligations on a future dateAt a price decided todayFor a quantity standardized by the exchangeSettlement guaranteed by the clearing

corporation of the exchange

Future Contract

Short Position:

Concept to understand

• Short selling is the selling of a currency that the seller does not own.

• Short sellers assume the risk that they will be able to buy the currency at a more favorable price than the price at which they sold short.

Long Position:• Long selling is the selling of a

currency that the seller does own.

• Long sellers assume the risk that that they won‘t be able to buy the currency at a more favorable price than the price at which thay sold long

If you are going to sell something in the near future but want to lock in a secured price, you take a short position.

If you are going to receive/buy something in the future but want to lock in a secured price, you take a long position.

Key Findings:

Expansion of the Market.Unawareness about the Hedging in the

market through exchange. About the business and revenue model of

brokerage companies in this field. The norms that exist in the trade between

two currencies. Number Game

Learning from the Project

Abhishek