The Reserve Bank of India (RBI) has issued guidelines for introduction of cross currency futures and exchange traded cross-currency option contracts in the currency pairs of Euro-US Dollar, Pound Sterling-US Dollar and US Dollar-Japanese Yen.
The central bank has also introduced exchange traded option contracts in the currency pairs of Euro-Rupee, Pound-Rupee and Japanese Yen-Rupee in addition to the existing Dollar-Rupee pair.
“The cross currency contracts shall enable direct hedging of exposures in foreign currencies and facilitate execution of cross-currency strategies by market participants,” the central bank said in a press release.
Market participants—residents and foreign portfolio investors—are allowed to take positions in the cross currency contracts without having to establish underlying exposure subject to the position limits as prescribed by the exchanges.
RBI also said that Authorised Dealer Category-I bank trading members may undertake trading in all permitted exchange traded currency derivatives within their Net Open Position Limit (NOPL) subject to limits stipulated by the exchanges.
This is subject to the condition that any synthetic USD-INR position created using a combination of exchange traded FCY-INR and cross-currency contracts shall have to be within the position limit prescribed by the exchange for the USD-INR contract, RBI indicated.
The central bank had announced the introduction of cross-currency futures and exchange traded option contracts during the fourth bi-monthly policy.