What currency derivatives are
Currency derivatives are exchange-traded futures and options whose value tracks an exchange rate. In India, the main contracts are on four rupee pairs, USD-INR, EUR-INR, GBP-INR and JPY-INR, traded on NSE and BSE. They are cash-settled in rupees, so no foreign currency actually changes hands.
Their purpose is to fix, or put a limit on, the rupee value of a future foreign-currency payment or receipt.
How they work in India
Two regulators are involved. RBI decides who may use these contracts and why, while SEBI regulates the exchanges and brokers. RBI's rules, tightened in 2024, require anyone trading rupee pairs to have an actual underlying exposure. This is a market for hedging, not for betting on the rupee.
An illustrative example: an exporter expects $10,000 in three months. If the rupee strengthens from ₹85 to ₹83 per dollar before then, the receipt is worth ₹20,000 less. By selling USD-INR futures for $10,000 (ten lots), the exporter's futures position gains roughly what the receipt loses. If the rupee weakens instead, the extra rupees from the receipt are offset by a loss on the futures. Either way, the rupee amount is broadly fixed.
Options work differently. An exporter can buy a put, or an importer a call, to set a worst-case rate in exchange for the premium, while keeping the benefit if the rate moves their way.
Who should consider it
| Situation | The worry |
|---|---|
| Importer paying a supplier in dollars or euros | Rupee weakening before payment |
| Exporter or freelancer billing in foreign currency | Rupee strengthening before receipt |
| Parent paying overseas tuition | Rupee weakening before fees are due |
| Borrower with a foreign-currency loan | Repayments rising in rupee terms |
If none of these describe you, rupee-pair derivatives are probably not for you, and trading them without an underlying exposure is not permitted.
Things to check before you hedge
- The exact amount, currency and date of your exposure
- Whether available expiry dates line up with your payment or receipt date
- The total cost: brokerage, charges and, for options, the premium
- How your accountant will record hedge gains and losses
- Documents you keep on file to show the exposure exists
Our team sets up the segment, explains the mechanics using your numbers and handles the paperwork. Whether to hedge, and how much, remains your decision.
