Currency Derivatives

What are Currency Derivatives?
Currency Derivatives are financial contracts that derive their value from an underlying asset, such as equities, bonds, commodities, or currencies. In simple terms, when the cost of raw materials for a product rises, the product’s price also increases. The same concept applies to derivatives.

Currency Derivatives Explained
Currency derivatives are exchange-traded contracts based on underlying currency values. Investors can buy or sell specific amounts of a currency at a pre-agreed rate on a future date. These contracts are mainly used by businesses, such as importers and exporters, to hedge against currency fluctuations. As they are traded on regulated exchanges, currency derivatives eliminate counterparty risk.

Popular Currency Pairs in Currency Derivatives

• USD/INR
• EUR/INR
• JPY/INR
• GBP/INR

Types of Currency Derivatives

1. Currency Futures: Similar to stock futures, these contracts let you lock in the exchange rate at the time of the agreement, minimizing the risk of currency depreciation. They are widely used by banks, importers, and exporters.
2. Currency Options: These allow more flexibility than futures. Investors have the right, but not the obligation, to buy or sell the currency at a specified rate and date. They are further divided into:
   • Call Option: The buyer has the right but no obligation to buy the currency.
   • Put Option: The buyer has the right but no obligation to sell the currency.
3. Currency Swap: This involves exchanging interest rates or principal payments between two different currencies at an agreed rate. It’s used to hedge against exchange rate fluctuations.

Why Choose Currency Derivatives?
Currency derivatives are powerful tools for managing currency risk. By using both futures and options, traders can protect themselves against fluctuating exchange rates, gaining access to larger capital with minimal margin.

For more information on how Prathmesh Venture can help you with currency derivatives, contact us today.