Forex Derivatives Market: New RBI Challenges

By: Geetanjali

RBI has postponed the last date to implement new rules for exchange traded forex derivatives to May 3, 2024, which were scheduled to come into effect from April 5, 2024 as per the circular notified on January 5, 2024. This has resulted in a confrontation from the traders end.

In the circular notified on Jan 5, 2024, has retained most of the previous rules, including a proof of exposure for a trade over $100 million. Earlier,some interpreted that those with no exposure could trade in lower value transaction, however the circular on Jan 5 mandated all traders to ensure to have exposure for all kind of trades.

In its circular RBI said that traders with an underlying forex exposure can trade in currency derivatives.

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Exchange traded currency derivatives are financial contracts used in the organized trade exchange, linking their value to different currencies like INR-USD, INR-EUR, INR-JPY, etc.. Exchange traded derivatives like future contracts to protect traders against currency risks. For Example, if an Indian trader is expected to pay X amount in the next three months for the trade, using currency futures contract will allow the trader to fix a specific exchange rate for the future payments. It will save them from any losses happening due to changing exchange rates.

This delay has resulted in a confrontation from the traders end. They believe that RBI’s move is aimed to control the market.

Dealers believe that the RBI’s action to limit speculation aims to control the markets tightly. However, speculation is essential if we want to make the rupee stronger worldwide, prevent investors from going to unregulated areas like cryptocurrency, and eventually make it easier to move money across borders.

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Forex Derivatives Market: New RBI Challenges