Forex Market Essay

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INDIAN FOREX MARKET: STRENGTHENING India’s OTC market is currently estimated at US$33bn in turnover per day, while the market for exchange-traded currency derivatives stands at US$1bn. It is estimated hat OTC market is attain US$40bn in size in the next five years. Following the global average of 5:1 between OTC and currency derivatives, the potential of the Indian currency derivative industry is pegged at US$8bn (8x growth from here). However in view of the nascent stage of the industry, we expect currency derivatives to reach a US$4bn of daily turnover by FY14. OTC v/s Currency derivatives Exchange-traded currency futures are used as a hedge against the risk of rate volatilities in the foreign exchange markets. With regulatory approval of SEBI and RBI in August 2008, currency futures were introduced in India by NSE, MCX-SX and BSE. Within a short span of six months, the average daily turnover in currency futures has reached US$1bn. We expect the industry to reach an average daily turnover of US$4bn by FY14. The Indian currency futures market has registered an impressive 6x growth from US$175m in October 2008 to US$1bn of daily turnover currently. This US$1bn industry is shared equally by NSE and MCX-SX with each doing an average daily turnover of US$500m. While NSE has been the leading equity exchange in India with a 90% market share, MCX-SX – a subsidiary of MCX – has shown exemplary performance to match that of NSE. Recently, BSE has also launched its currency derivatives segment. In addition, an exchange named called United Stock Exchange of India (USEIL) promoted by Jaypee Group is looking to enter the currency derivatives segment. Retail participation The key differentiator between OTC and currency futures market is permissibility for retail investors to trade on the latter. RBI regulations do not allow retail participation in

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