Currency Derivatives

Currency derivatives are contracts between the sellers and buyers, whose values are to be derived from the underlying assets, the currency amounts.

These are basically risk management tools in foreign exchange and money markets used for hedging risks and act as insurance against unforeseen and unpredictable currency and interest rate movements.

Any individual or corporate expecting to receive or pay certain amounts in foreign currencies at future date can use these products to opt for a fixed rate - at which the currencies can be exchanged now itself. Risks arising out of borrowings, in foreign currency, due to currency rate and interest rate movements can be contained.

If receivables/payments/expenditure are denominated or to be incurred in multiple currencies then derivatives can be used for matching the inflows and outflows. Presently only USD contracts are available. Other currencies are expected to be added in due course.