Study of currency derivatives markets and foreign exchange regulations in India

Abstract

The report is broadly organized into four main sections : 1) Foreign Exchange Policy of India. 2) Currency Derivative Market in India. 3) Test for Covered Interest Parity in Indian Markets. 4) Liquidity of Indian Currency markets. The first part of the repot traces the development of Indian currency from Independence. It focuses on the global issues of pegging currencies to a fixed currency and the issues associated with it. The second part of the report focuses on the development of currency markets in India viz. the features, legal framework and the product offered. This report looks into the currency products offered at NSE more closely and tests the covered interest parity for the futures offered in NSE. The thrust is to identify any arbitrage opportunities that are present in the market. Lastly, we look into the liquidity of Indian currency markets by comparing the volumes traded in India and some of other exchanges of the world.