The Reserve Bank of India has raised the exposure limit under exchange traded currency derivatives (ETCD) trading for residents and foreign portfolio investors (FPIs) to $100 million across all currency pairs involving the Indian rupee. Earlier, the RBI had imposed a limit of $15 million for USD-INR and $5 million for other currency pairs of Indian rupee with Euro, Japanese Yen and British Pound. Experts said the RBI’s latest move will add some lustre to Indian exchanges (as enhanced position limits may make hedging in currency segment easier and bring more volumes), which have less leverage compared to offshore destinations like  DGCX of Dubai and SGX of Singapore due to tax arbitrage.

An exchange traded derivative is a financial instrument that trades on a regulated exchange, and whose value is based on the value of another asset. These are derivatives that are traded in a regulated fashion. These derivatives can be used to hedge exposure or speculate on a wide range of financial assets like commodities, equities, currencies, and even interest rates.

March 12th, 2018