New Delhi, July 10
Corporates and individuals will soon have one more tool for hedging their currency risks. The Reserve Bank of India (RBI) will next week come out with the contours of the exchange-traded currency options, a top official of the central bank, said.
Very soon (a week or so) you will hear from us as far as allowing exchange traded currency options in SEBI-approved platforms (exchanges), Mr G. Jaganmohan Rao, Chief General Manger, Foreign Exchange Department, RBI, told a seminar on currency risk management, organised by the PHD Chamber of Commerce and Industry (PHDCCI) here on Saturday.
He said the RBI had been in discussions with banks and industry participants over the last one year on the issue of exchange-traded currency options. There had been 43 rounds of discussions in last one year, Mr Rao said. Currently, currency options are allowed only as over the counter (OTC) products.
The RBI Governor, Dr D. Subbarao, in the annual monetary policy statement released in April this year, had announced that the central bank had decided to permit recognised stock exchanges introduce plain vanilla currency options on spot dollar/rupee exchange rate for residents.
In India, the level of hedging as part of currency risk management is quite low. Only 3 per cent of those with forex currency exposure have gone in for hedging their risk, it was pointed out.
Convertibility
Meanwhile, Mr Jaganmohan Rao advised small and medium enterprises (SMEs) to limit themselves to simple products (forwards, options and swaps). Never go for structured products, he said.
On full convertibility of the rupee, Mr Rao said that full convertibility was required, but noted that the country was not yet ready for that.
We are still to meet certain conditions of the Tarapore Committee report (on full convertibility). But RBI Governor is the best person to answer when India will have full convertibility, he said in response to a question on full convertibility.
On how much the Indian industry had lost on account of the global financial crisis through the currency channel, Mr Rao said the RBI only had rough estimates' on how much the industry had lost.
We know about the banks and not about industry. We only have some rough estimates on how much industry lost. As and when industry had to make huge payments, we get to see the tussle between industry and bankers and thereby get some more information, he said. Already, exchange traded currency futures are permitted in two recognised stock exchanges in respect of four currency pairs.
http://www.thehindubusinessline.com/2010/07/11/stories/2010071152490300.htm