Currency Futures

National Stock Exchange of India Limited

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Why Currency Risk emerged ???
    

The last few years have seen extreme volatility in USDINR and G3 currencies Correlation to equities and oil has been high Corporate selling of USD contributed significantly to volatility. Not only spot, forwards have also been very volatile. Initiatives towards stricter Accounting principles.

Translates to …………
  

Need for a sound “Risk Management Policy” Analyzing the profit and loss profile and balance sheet exposures Strict definition of treasury role

Dynamic review of applicability and execution of the risk management policy

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Factors affect trading decisions
Macro economic views Monetary Policy RBI intervention Supply and demand of forex Economical and political scenario Data announcements

USD sentiment Performance of equity markets Performance of other Asian currencies Performance of key commodities affecting trade Policy announcements affecting flows – trade or capital
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Foreign exchange markets
 Products  Spot  Forwards  Outright forwards = Spot + Forwards (Points)

 Market participants  Market makers  Hedgers, arbitrageurs, speculators  Banks, institutions, corporate entities, individuals

 Regulators

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Understanding Currency Quotes
 Concept of Base Currency & Quoted Currency USD / INR Base Currency / Quoted Currency  First two letters of the code are the two letters of the Country’s code and the third letter represents initial of the Currency name of respective Country For example: USD - US represents United States and D represents Dollar  Except EURO as it is the official currency of Euro Zone

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Understanding Currency Quotes .1  Two way quotes  Forex markets works on two way quotes  Bid rate .rate at which the bank is ready to sell dollars  The difference between the Bid and the Ask is called the Spread  Quotation methods  Direct method (European Method)  Indirect method (American method) 6 .rate at which the bank is ready to buy dollars  Ask rate .

e.Understanding Currency Quotes .49 Bid Bank is ready to buy dollars. exporter’s will have to sell at this rate Ask Bank is ready to sell dollars at this rate.e. i. i. 7 . Also the difference between the Bid/Ask is Banks profit.48/46. one must take care of Bid Ask rate.2  Bid Ask  USDINR – 46. importers will have to buy at this rate Note : In case of indirect quote.

41 46.3 European Method (Direct) Bid Ask Bank’s buying rate Bank’s selling rate USD/INR USD/JPY 46.7066 1.32 89. EUR/USD 1.43 89.6195 0.6193 AUD/USD 0.34 Exchange Rate expressed in local currency in terms of per unit of Foreign Currency.4009 1.8991 0.4000 GBP/USD 1.7067 8 8 . American Method (Indirect) Exchange Rate expressed in foreign currency in terms of per unit of Local currency.8989 NZD/USD 0.Understanding Currency Quotes .

9 9 .  That Rupee has depreciated against the dollar.g.50 USD/INR 46. .USD/INR current rate – 46.50  This would mean that US dollar has appreciated against the rupee.50 47.Exchange rate movements – European Method E.

– EURO/USD current rate – 1. 10 .4500 EUR/USD 1.4045 1.g.4100  This would mean that EURO has appreciated against the Dollar.  That US $ has depreciated against the Dollar.Exchange rate movements – American Method E.

How does the exchange rate affect corporate entities? Cost of imports Realization on exports Capital goods imports Service contracts realizations Engineering contracts offshore Cost of capital – equity / debt Interest costs Indirect exposures PROFITABILITY 11 11 .

 Directional Views  Hedging Existing Exposure Transparency in the Cross rates on the CDS platform will help the corporate to mitigate the curtail two-currency risk 12 .Usage of New Currency Futures Contract  According to estimates by market players. around 20 per cent of the currency trades in over the counter (OTC) market is done in non-dollar currency.  Introduction of new currency pairs will help in improving the depth and breadth of the currency market.

Contract specification Category Trading Hours Description 9:00 am to 5:00 pm (Monday to Friday on all business day) 12 near calendar months Two business days prior to last business day of the month (spot convention). Contract Months Last Trading Day Final Settlement Day Settlement Holiday Calendar Last working day of the month INR cash settled at RBI reference rate Mumbai-Interbank 13 .

400 for a spread of 1 month.1000 for spread of 2 months Rs.2000 for Rs.Features of Currency Pairs USD-INR Rate of exchange between 1 USD and INR (USDINR) EUR-INR GBP-INR Rate of exchange between 1 GBP and INR (GBPINR) GBP 1000 JPY-INR Quotation Rate of exchange between 1 EURO and INR (EUR-INR) Rate of exchange between 100 JPY and INR (JPY-INR) Contract Size USD 1000 EURO 1000 JPY 100000 Calendar Spread Margin Rs. Rs 500 for a spread of 2 months.1000 for spread of 2 spread of 2 months months Rs.600 for spread month of 1 month Rs.1500 for spread of 1 Rs. Rs 800 for a spread of 3 months Rs.1500 for spread of 3 months or more Rs.1500 for spread of 3 spread of 3 months or months or more more 14 .1800 for Rs.700 for spread of 1 month Rs.

Position Limits USD-INR 6% of the Open Interest or USD 10 Million whichever is higher 15% of the Open Interest or USD 50 Million whichever is higher 15% of the Open Interest or USD 100 Million whichever is higher EURO-INR 6% of the Open Interest or EUR 5 Million whichever is higher GBP-INR 6% of the Open Interest or GBP 5 Million whichever is higher JPY-INR 6% of the Open Interest or JPY 200 Million whichever is higher Client Level Non-Bank Trading Member Level 15% of the Open Interest or EUR 25 Million whichever is higher 15% of the Open Interest or EUR 50 Million whichever is higher 15% of the Open Interest or GBP 25 Million whichever is higher 15% of the Open Interest or GBP 50 Million whichever is higher 15% of the Open Interest or JPY 1000 Million whichever is higher 15% of the Open Interest or JPY 2000 Million whichever is higher 15 Bank .

Approved securities to custodians on same day.  Releasing collaterals   Cash – next day in the bank a/c. fixed deposits. 16 . Released once trade is unwound or the contract matures. GOI bonds.  Forms of collaterals  Cash.Collaterals  Margins / collaterals   Based on previous day volatility.Product specifications . FD and BG same day. approved equities / mutual fund units. bank guarantees.

 Final settlement   RBI fixing price at 12 noon on last trading day.    T + 1.Product specifications – settlement  Daily settlement  Closing price of each contract – last 30 minutes weighted average. 17 . Net settled in cash. Through your clearing member. Paid or received in cash.

00.4000 44. 44.77.0000 Futures return: Profit.40.000 (45. Rupees 60.Trade explanation 1 Trade date (7 April): USDINR 27 April contract: Current Spot rate: Buy 100 April contracts: Hold contract to expiry: 44. Bank Guarantees.40.220 Margins (collateral) can be paid in FDs.000 – 44.000) Margins: Approx. 58. 4.000 (USD 1000 *100* 44. Approved Securities Daily Mark to Market will be received / paid in Cash 18 .00%: Rs 1.40) RBI fixing rate on 27 April 11– 45.600 Funding @ 12%: Rs 1780 (if margins paid in cash) Net return: Rs.2500 Value Rs.

including banks Margins and MTM are mandatory 19 Credit Exposure Exposure to your counterparty (bank) Execution Margins / MTM Only by Authorized Dealer Nil . unless cancelled Currency Futures High. bilateral contracts with banks Subject to credit limits Full notional. online real time screen Margins equate all participants Net settled in INR Clearing corporation guarantees all trades 700+ trading members.OTC and Currency futures OTC Market Price transparency Liquidity Settlement Low.

Hedging What is a hedge “A position established in one market in an attempt to offset exposure to the price risk of an equal but opposite obligation in another market” Why hedge Costs & Revenues in different currencies Time differences in costs and revenues Evaluating impact on net returns (profits) Risk management is important Not doing anything is also taking a RISK Understanding your risk profile and appetite to take risks. determines your risk management policy 20 .

000 INR.00.00.Banks may charge some spread over fixing rate Ensuring RBI fixing rate on Payment and Contract fixing.000 to a bank at RBI fixing rate on 28 December 2011.000 USD with an expected remittance in Eight month. sold a Raw Material to USA based Co. Sold 1000 contracts of December 2011 maturity on NSE On 28 December 2011. for 10. will help to crystallize the rate contracted on the exchange 21 . When you enter into sell transaction of 10. Meaning you Sold 10.79.000 USD/INR.Scenario 1 Indian Co.80.00.00. the contract will expire and the payment trade needs to be executed Sold USD 10.000 USD by buying 4.

000*49.90.11 Contract Total INR Receipt = 10.80.10.00 = 1000*1000*(49.00.98 47.000 The above computation ignores Margin & Mark to Market Loss/Profit.000 = 1000*1000*47.00.00.80.If USD will be 49.20.00 -47.000 4.000 10.2011 Expected Remittance On 28 Dec .98 4.000 49.79.98) = 4.000 to the bank Loss on Dec.000 .20.90.2011 RBI fixing rate Sold USD 10.79.00.00 Today Sell 1000 Contracts Dec. 22 .00 4.

00 Today Sell 1000 Contracts Dec.000 RBI fixing rate Sold USD 10.If USD will be 46.60.00 = 1000*1000*(47.00) = 4.00.2011 Expected Remittance On 28 Dec .98 4.000*46.80.79.000 The above computation ignores Margin & Mark to Market Loss/Profit.98 -46.00 4.80.000 19.000 4.60.80.00.79.00.11 Contract Total INR Receipt = 10.98 47. 23 .2011 = 1000*1000*47.000 to the bank Profit on Dec.000 + 19.80.000 46.00.

24 .

CURRENCY OPTIONS 25 .

but not the obligation. to buy or sell the underlying at a stated date and at a stated price • Gives the right CALL to buy • Gives the right PUT to sell European 26 .Options An option is a contract which gives the right.

Definition of Options  A Currency Option is a Financial Contract which gives the BUYER (Holder) the RIGHT. .  The SELLER (or Writer) of the Currency Option contract has the OBLIGATION to deliver the specified amount of currency at the specified rate on the specified date. but not the Obligation. or up to. to exchange a specified amount of currency versus another at a specified rate on. a specified date. Benefits over Forwards  Options offer Flexibility to not lock in rates.

Classification of Options • Type • Exercise style • Settlement • Underlying .

Profits substantial Lose if the underlying is steady/ falling. Loss limited to Premium Call Options Benefit if the underlying is steady/ falling. Profit limited to Premium Sell Short Call Obligation to sell the underlying at strike price Lose if the underlying rises. Loss substantial .Benefit if the Long Call Buy Right to buy the underlying at strike price underlying rises.

Profits substantial Lose if the underlying is steady/ rising. Loss limited to Premium Put Options Sell Benefit if the Short Put Obligation to Buy the underlying at strike price underlying is steady/ rising. Profit limited to Premium Lose if the underlying falls.Benefit if the Long Put Buy Right to sell the underlying at strike price underlying falls. Loss substantial .

.Classification of Options (contd) • American – Exercised any time prior to expiration • European – Generally exercised on expiration date Expiration date: Date after which the option has no value.

Classification of Options (contd) • Cash settled – Settled by the difference between the strike price and the determined value of the underlying. .

Relationship between underlying and option • In the money • At the money • Out of the money .

00 46.Strikes .50 • Strike Prices: OTM: Calls: 47.50 • Strike price < spot .00. 45.50 • Strike price = spot ITM: Calls: 46.00 45.50 • Strike price > Spot ATM: Calls: 46.50 46.Call.00. 47.50 47. an example I N R p e r U S D 47.50 USDINR strike for 1ST Month • December Spot : 46.

47.00 45.50 • Strike price > Spot ATM: Calls: 46.50 47.Put. 45. an example I N R p e r U S D 47.50 • Strike Prices: ITM: Puts : 47.00.00 46.50 USDINR strike for 1st Month • December Spot : 46.50 46.50 • Strike price < spot .00.Strikes .50 • Strike price = spot OTM: Puts : 46.

Currency Options Category Type of Option Description Premium Styled European Call and Put Options 9:00 am to 5:00 pm Trading Hours Permitted Lot Size (Monday to Friday on all business day) One lot denotes $ 1000 Three serial monthly contracts followed by three quarterly contracts of the cycle March/June/September/December Two business days prior to last business day of the month Last working day of the contract month (Excluding Saturdays) INR cash settled at RBI reference rate Mumbai-Interbank 36 Contracts Available Last Trading Day Final Settlement Day Settlement Holiday Calendar .

albeit with unlimited downside .Benefits of Currency Options • Allows you to buy protection from currency strengthening or weakening to hedge your FX risk • Allows you to protect your downside without necessarily giving up upside • Allows you to structure a set of bought and sold options to suit your risk profile and/or view • Allows you to earn premium by writing options.

Have a underlying FX risk by way of… • Imports • USD loans • Exports • Indirect imports (Billing in INR but linked to USD exchange rate) • Service contract receivables/payables in foreign currency .

: Right to buy underlying.45.(Importer) : Spot rate on Dec 1. .0.30 45.Option .50 Rs. 2010 : Notional or principal.50 Dec 29. : Strike price(ATMF). 2010 : 29 Dec Futures. : Expiration date(Outward date).an example • $ 1 Mio • Call • • • • • 45.50 Rs. : Option premium.

00-46. 00.50=5.Option .12.5000+0.000 (Charges Excluding Brokerage and SEBI &Stamp Duty) .12.00 :47.00 INR (1000*1000*1. 00.00=10.an example (Cont) • Of 1 Dec 2010 Buy 1 Mio Call Options : 1000*1000*0.000 INR.00.5000=46.00.000=10.00=1.000 INR : 45.2010 :10. Once Trade Gets Executed Margin reversed to Clients A/C • • • • • Total Payment Break Even On 29 Dec 2010 Spot Payoff On exercise date 29.000 INR) Net Payoff On exercise date 29.00.000=5.2010 : 5.000-5. 00.00.0000 : 47.

How can an exporter manage risk of rate of USD receivable ? • Sell the future • Buy a $ Put • Sell a $ Call • Buy a $ Put spread • Buy a $ Put and sell a $ Call • Collar {Examples and payoffs of each strategy to be done in detail} .

00 45.50 48.50 Break Even (`) 46.00 -200 .00 48.For exporter : Sell Future • • • • • • • View : Bearish on USD Strategy : Sell future Risk: Unlimited Reward : Unlimited Breakeven : Future price Profit. when: USD-INR goes down Max loss.00 -700 -1200 -1700 -2200 Loss (` ) 50.50 49.50 44. when: USD-INR goes up Example: Sell 1 Future* USD/ INR on expiry (`) Net Pay-off (`) 45.50 47.50 47.00 1800 1300 800 300 Profit (` ) Net Pay-off USD/INR 43.00 47.00 43.00 49.50 46.50 46.00 46.00 45.46 46.00 1000 500 0 -500 -1000 USD/INR *Lot size 1 Contract = 1000 USD Spot Price (`) Future Price (`) 46.50 45.00 44.00 46.

80 -300 -600 -900 Loss (` ) 47.50 46.00 -200 -200 -200 -200 1000 500 200 0 800 300 0 -200 46.00 600 300 USD/INR 0 44.50 47.46 46.80 46.For exporter : Buy Put • • • • • • View : Bearish on USD Strategy : Buy put option Risk: Limited to premium Reward : Unlimited Breakeven :Strike Price – Premium Profit.00 45.00 44. when: USD-INR goes down and option exercised • Max loss.00 45.20 45.00 Premium (`) Break Even (`) 0. when: USD-INR goes up and option not exercised Example: Buy 1 Put Option* 900 Profit (` ) Net Pay-off USD/ INR on expiry (`) Premium Pay-off (`) Exercis e Payoff (`) Net Pay-off (`) 45.00 46.50 45.50 .50 45.50 -200 0 -200 USD/INR *Lot size 1 Contract = 1000 USD Spot Price (`) Strike Price (`) 46.

For exporter : Short Call • View : Very bearish on USD • Strategy : Sell Call option • Risk: Unlimited • Reward : Limited to premium • Breakeven :Strike Price + Premium • Max Profits.33 -900 Loss (` ) 50. when: USD-INR goes up and option exercised 900 Profit (` ) USD/ INR on expiry (`) 46.00 0.00 47.50 -300 -600 Break Even (`) 47.33 48.50 Premiu m Payoff (`) 330 330 330 330 330 Exercise Pay-off (`) Net Payoff (`) 330 330 0 -670 -1170 0 0 -330 -1000 -1500 Net Pay-off Example: Sell 1 Call Option* 600 USD/INR Spot Price (`) 46.50 46.00 45.00 46.00 49.00 48.00 47.33 USD/INR 0 45.46 300 *Lot size 1 Contract = 1000 USD Strike Price (`) Premium (`) 47.00 48.50 47. when: USD-INR goes down and option not exercised • Loss.50 49.50 48.50 47.00 .

50 46.50 47. when: USD-INR goes up and both options unexercised Example: Buy 1 ITM Put Option and Sell 1 OTM Put Option* USD/INR Spot Price (`) Buy ITM Put Strike Price (`) Put Premium (`) Sell OTM Put Strike Price(`) Put Premium (`) Break Even (`) 46.00 46.50 49.00 45.00 47.50 48.00 46.50 0.00 1120 620 120 -90 -380 -410 90 90 90 90 710 710 210 0 -290 47.00 43.For exporter : Put Spread • View : Moderately Bearish on USD • Strategy : Buy ITM Put and sell OTM Put option to reduce cost and breakeven of ITM Put • Risk: Limited to net premium paid • Reward : Limited to the difference between the two strikes minus net premium paid • Breakeven :Strike price of long Put -Net premium paid • Max profit.50 -380 90 -290 Pay-off from Put purchased Pay-off from Put sold Net Pay-off 43.21 -1000 -1500 Loss (` ) 50.50 -500 0.09 46.00 45.50 1000 500 0 USD/INR .00 *Lot size 1 Contract = 1000 USD 46.00 49.50 44.00 44.38 45.50 45.21 47.50 46.00 48.46 1500 Profit (` ) USD/ INR on expiry (`) Pay-off from ITM Put purchased (`) Pay-off from OTM Put sold (`) Net Pay-off (`) 45. when: USD-INR goes down and both options exercised • Max loss.

50 47.50 46.50 120 120 120 120 -380 -880 1370 870 0 -130 -630 -1130 Profit (` ) Pay off from Put purchased Pay-off from Call sold Net Pay-off USD/INR *Lot size 1 Contract = 1000 USD Spot Price (`) Buy Put Strike Price (`) Put Premium (`) Sell Call Strike Price(`) Call Premium (`) Break Even (`) 46.For exporter : Buy Put.00 -400 0.25 47. when: USD-INR goes down and put option is exercised • Max loss.00 47.50 45.00 45. when: USD-INR goes up and call options is exercised Example: Buy 1 Put Option and Sell 1 Call Option* 800 USD/ INR on expiry (`) Pay-off from Put purchase d (`) 1250 750 -120 -250 -250 -250 Pay-off from Call sold (`) Net Pay-off (`) 44.12 45.50 -100 .00 48.50 48.87 46.00 46.50 200 USD/INR 45.00 0.00 45.46 500 46. Sell Call • View : Bearish on USD • Strategy : Buy Put and sell Call option to reduce cost and breakeven of Put • Risk: Unlimited • Reward : Unlimited • Breakeven :Strike price of long Put -Net premium paid • Max profit.87 -700 -1000 Loss (` ) 48.50 48.

00 0.50 46.50 44.50 1960 1960 460 0 -540 -1040 -1040 Profit (` ) Pay-off from Future sold Pay-off from Call purchased Pay-off from Put sold Net Pay-off 49.00 48.50 45.08 46.00 46. sell Put option to partly finance Call • Risk: Limited • Reward : Limited • Breakeven :Purchase price of futures – Net premium paid • Max profit.00 0.50 48.50 -700 -1200 -1700 -2200 Loss (` ) 50.00 48.00 47.00 43.04 48. when: USD-INR goes down and put option exercised • Max loss.For exporter : Collar • View : Conservatively bearish • Strategy : Sell Future.00 45.50 47.96 47.50 46.96 1800 1300 800 300 43.00 -200 .00 45.50 45.00 46.00 USD/INR USD/ INR on expiry (`) Pay-off from Futures sold (`) 2500 2000 500 40 -500 -1000 -1500 Pay-off from Call purchase d (`) -80 -80 -80 -80 -80 -80 420 Payoff from Put sold (`) -460 40 40 40 40 40 40 Net Pay-off (`) 44. buy Call to insure downside. when: USD-INR goes up and call option exercised Example: Sell 1 Future and 1 put Option Contract and Buy 1 Call Option Contract* USD/INR *Lot size 1 Contract = 1000 USD Future Price (`) Put Strike Price (`) Put Premium (`) Call Strike Price (`) Call Premium (`) Breakeven (`) 47.50 49.50 48.00 44.

How can an importer manage risk of rate of USD payable ? • Buy the future • Buy a $ Call • Sell a $ Put • Buy a $ Call spread • Buy a $ Call and sell a $ Put • Collar • {Examples and payoffs of each strategy to be done in detail} .

00 43.50 *Lot size 1 Contract = 1000 USD -700 -1200 Break Even (`) 46. when: USD-INR goes down USD/ INR on expiry (`) 45.00 49.For importer : Buy Future • • • • • • • View : Bullish on USD Strategy : Buy future Risk: Unlimited Reward : Unlimited Breakeven : Future price Profit.50 47.50 47.00 45.50 46.00 44.00 USD/INR -200 .50 46.00 46.00 -1700 -2200 Loss (` ) 50.00 48.00 Net Pay-off (`) -1000 -500 0 500 1000 Example: Buy 1 Future* USD/INR Spot Price (`) 46.00 45.50 49. when: USD-INR goes up Max loss.00 Future Price (`) 46.00 46.00 47.50 45.50 44.46 1800 1300 800 300 Profit (` ) Net Pay-off 43.50 48.

50 49. when: USD/INR does not go up and option expires unexercised Example: Buy 1 Call Option* 900 Profit (` ) Net Pay-off USD/ INR on expiry (`) Premium Pay-off (`) Exercise Pay-off (`) Net Payoff (`) 46.00 0.00 48.00 47.50 Premium (`) Break Even (`) -300 -600 -900 Loss (` ) 50.50 48.33 48.00 49.50 46.33 600 300 USD/INR *Lot size 1 Contract = 1000 USD 0 45.00 45.For importer : Long Call • • • • • • View : Very bullish on USD Strategy : Buy call option Risk: Limited to premium Reward : Unlimited Breakeven :Strike price + Premium Profit.00 46.00 47.00 .33 47.50 47.46 47.00 48.50 -330 -330 -330 -330 -330 0 0 330 1000 1500 -330 -330 0 670 1170 USD/INR Spot Price (`) Strike Price (`) 46. when: USD/INR goes up and option exercised • Loss.50 47.

00 46.For importer : Short Put • • • • • • View : Bullish on USD Strategy : Sell put option Risk: Unlimited Reward : Limited to premium Breakeven :Strike price – Premium Profit.00 46. when: USD-INR goes down and option exercised 900 USD/ INR on expiry (`) 45.00 44.50 46.50 45.46 46.50 45.50 .80 600 300 USD/INR 0 44.00 0.50 47. when: USD-INR does not go down and option expires unexercised • Loss.00 -300 -600 -900 Loss (` ) 47.50 Premiu m Payoff (`) 200 200 200 200 200 Exercise Pay-off (`) Net Payoff (`) -800 -300 0 200 200 -1000 -500 -200 0 0 Profit (` ) Net Pay-off Example: Sell 1 Put Option* USD/INR *Lot size 1 Contract = 1000 USD Spot Price (`) Strike Price (`) Premium (`) Break Even (`) 46.00 45.00 45.80 46.20 45.

50 -500 -1000 -1500 Loss (` ) 50.50 49.88 47.For importer : Call Spread • View : Moderately bullish on USD • Strategy : Buying ITM Call and selling OTM call thereby reducing cost and breakeven of ITM call • Risk: Limited to net premium paid • Reward : Limited to the difference between the two strikes minus net premium paid • Breakeven :Strike price of purchased call + Net premium paid • Max profit. when: both options unexercised Example: Buy 1 ITM Call Option and Sell 1 OTM Call Option * USD/INR *Lot size 1 Contract = 1000 USD Spot Price (`) ITM Call Strike Price (`) Call Premium (`) OTM Call Strike Price(`) Call Premium (`) Break Even (`) 46.50 45.50 45.00 45.50 48.33 46. when: both options exercised • Max loss.50 46.50 46.50 47.50 44.00 48.00 0.00 0.00 -880 -880 -330 620 1620 2120 330 330 330 -170 -1170 -1670 -550 -550 0 450 450 450 Pay-off from ITM Call purchased Pay-off from OTM Call sold Profit (` ) Net Pay-off 49.00 43.00 47.55 1500 1000 500 0 43.46 46.00 44.00 46.55 47.00 USD/INR USD/ INR on expiry (`) Pay-off from ITM Call purchased (`) Pay-off from OTM Call sold (`) Net Payoff (`) 44.00 .50 49.50 48.

when: USD-INR goes down and put 47.24 option is exercised • Max loss.09 47.00 46.33 .00 premium paid 47. Sell Put • View : Bullish on USD USD/ • Strategy : Buy Call and sell Put option to INR on reduce cost and breakeven of Call expiry (`) • Risk: Unlimited • Reward : Unlimited 45.50 45.For importer : Buy Call.50 48.00 45.00 • Breakeven :Strike price of long Call + Net 46.00 options is exercised Example: Buy 1 Call Option and Sell 1 Put Option* USD/INR Spot Price (`) Buy Call Strike Price (`) Call Premium (`) Sell Put Strike Price(`) Put Premium (`) Break Even (`) 46.50 -400 0.50 47.00 *Lot size 1 Contract = 1000 USD 0.46 47. when: USD-INR goes up and call 47.50 46.00 • Max profit.24 -700 -1000 Loss (` ) 48.00 200 USD/INR Pay-off from Call purchased (`) Pay-off from Put sold (`) -410 90 90 90 90 Net Pay-off (`) -330 -330 -330 -90 170 -740 -240 -240 0 260 670 90 760 800 Profit (` ) Pay-off from Call purchased Pay off from Put sold Net Pay-off 500 44.50 -100 45.00 47.

when: USD-INR goes up and call option exercised • Max loss.00 45.00 0. buy put to insure downside.00 44.00 48.00 USD/INR 49.20 48.00 0 43.50 47.For importer : Collar • View : Conservatively bullish • Strategy : Buy futures.50 0.50 46.50 47.50 48.12 47.00 .08 -500 -1000 -1500 Loss (` ) Breakeven (`) 47.00 46.00 45.50 45.50 48. when: USD-INR goes down and put option exercised Example: Buy 1 Future and 1Put Option Contract and Sell 1 Call Option Contract* USD/INR *Lot size 1 Contract = 1000 USD Future Price (`) Put Strike Price (`) Put Premium (`) Call Strike Price (`) Call Premium (`) 47.00 47.00 43.50 Pay-off from Futures purchased (`) -2000 -1500 120 500 1000 1500 Pay-off from Put purchased (`) 800 300 -200 -200 -200 -200 Pay-off from Call sold (`) 80 80 80 80 80 -420 Net Pay-off (`) -1120 -1120 0 380 880 880 Profit (` ) Pay-off from Future purchased Pay-off from Put purchased Pay-off from Call sold Net Pay-off 46.00 48. sell call option to partly finance put • Risk: Limited • Reward : Limited • Breakeven :Purchase price of futures – Call premium + Put premium • Max profit.50 49.50 44.00 500 1500 1000 USD/ INR on expiry (`) 45.12 50.

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000 terminals. first to provide settlement guarantee.AAA by CRISIL NSDL – First depository – dematerialization 3rd largest exchange . 1400 locations NSCCL – first Clearing Corporation in India.stock futures One of the top global derivatives exchanges First in India to introduce DMA (Direct Market Access) First in the world to setup and operate STP central HUB         Innovation. rated CCR . invention and world class infrastructure First to launch Currency Derivatives.cash market Largest exchange in the world . 56 .Why National Stock Exchange    Pioneer of online trading in India Access to investors from over 150.

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