Indian Forex Market
The Reserve Bank of India permitted Exchange Traded Currency Futures in 2008, in order to facilitate the cross-border transfer of funds for business purposes. The rapid integration of the global financial markets was another reason for the move. The National Stock Exchange of India (NSE) was the first to launch Currency Futures on 29 August 2008. The Bombay Stock Exchange (BSE) and MCX Stock Exchange (MCX-SX) started offering Currency Futures trading in September and October 2008 respectively.
Since then, the Forex market in India has seen significant growth, gaining depth and volume. As the Indian Forex market evolves, new Derivatives instruments are being added for trading and hedging against price risk.
Policy-makers in India are keeping a close eye on Currency Futures. The obvious reasons are to keep a tab on the speculative activities by traders and arbitragers who do not have any underlying physical exposure in this market and trade purely for speculation.
With speculation increasing, there are concerns that excessive speculation may adversely affect both Futures and the underlying Spot markets. Considering these developments, attempts need to be made to study the pattern of trade and the impact of Futures on Forwards and Spot.