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: with the bond and interest rate futures markets. “These linkages are very important in my opinion because the market will grow as a result of it,” says Venkatesh of IDBI Gilts. “One segment will be able to drive volumes to another and vice-versa.” Says Chiragra Chakravarty, principal consultant, PricewaterhouseCoopers, “Liquidity will be on the higher side as a result of this.”
What all of this implies is that companies will be better equipped to handle not only currency risk as a result of their foreign exchange exposure, but also interest rate risk via linkages between currency futures, bonds and interest rate futures. The latter, for the record, is a futures contract based on an inter-bank deposit or an underlying debt security such as bonds, treasury bills, notes and government securities. It is a hedging device used by firms to help manage their exposure to interest rate fluctuations. The value of the contract incidentally goes up and down in an inverse proportion to changes in interest rates.
All this, say experts, is a step towards a freer and more developed economy. Policy makers have had an eye on this. Currency futures is widely believed to be a precursor to full convertibility of the rupee on the capital account. If that happens, corporate India would be truly unshackled....
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