cds -final1

8/2/2019 CDS -Final1

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Currency Futures

National Stock Exchange of India Limited

1


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2

Why Currency Risk emerged ???

The last few years have seen extreme volatility in USDINR and G3 currencies

Correlation to equities and oil has been high

Corporate selling of USD contributed significantly to volatility.

Not only spot, forwards have also been very volatile.

Initiatives towards stricter Accounting principles.

Translates to

Need for a sound Risk Management Policy

Analyzing the profit and loss profile and balance sheet exposures

Strict definition of treasury role

Dynamic review of applicability and execution of the risk management policy


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3

Factors affect trading decisions

Macro economic views

Monetary Policy

RBI intervention

Supply and demand of forex

Economical and political scenario

Data announcements

USD sentiment

Performance of equity markets

Performance of other Asian

currencies

Performance of key commodities

affecting trade

Policy announcements affecting

flows trade or capital


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4

Foreign exchange markets

Products

Spot

Forwards

Outright forwards = Spot + Forwards (Points)

Market participants

Market makers

Hedgers, arbitrageurs, speculators

Banks, institutions, corporate entities, individuals

Regulators


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5

Understanding Currency Quotes

Concept of Base Currency & Quoted Currency

USD / INR

Base Currency / Quoted Currency

First two letters of the code are the two letters of the Countrys code and the

third letter represents initial of the Currency name of respective Country

For example: USD - US represents United States and D represents Dollar

Except EURO as it is the official currency of Euro Zone


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6

Understanding Currency Quotes - 1

Two way quotes

Forex markets works on two way quotes

Bid rate - rate at which the bank is ready to buy dollars

Ask rate - rate at which the bank is ready to sell dollars

The difference between the Bid and the Ask is called the Spread

Quotation methods

Direct method (European Method)

Indirect method (American method)


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7


Bid Ask

USDINR 46.48/46.49

Bid Ask

Bank is ready to buy dollars, Bank is ready to sell dollars

i.e. exporters will have at this rate, i.e. importers will have

to sell at this rate to buy at this rate

Note : In case of indirect quote, one must take care of Bid Ask rate.

Also the difference between the Bid/Ask is Banks profit.


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8 8

European Method(Direct)Exchange Rate expressed inlocal currency in terms of perunit of Foreign Currency.

Bid Ask

Banks buying rate Banks selling rate

USD/INR 46.41 46.43

USD/JPY 89.32 89.34

EUR/USD 1.4000 1.4009

GBP/USD 1.6193 1.6195

AUD/USD 0.8989 0.8991

NZD/USD 0.7066 0.7067

American Method(Indirect)

Exchange Rate expressed inforeign currency in terms ofper unit of Local currency.



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9 9

Exchange rate movements European Method

USD/INR

46.50

47.50

This would mean that US dollar has appreciated against the rupee.

That Rupee has depreciated against the dollar.

E.g. - USD/INR current rate 46.50


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10

Exchange rate movements American Method

EUR/USD

1.4100

1.4500

This would mean that EURO has appreciated against the Dollar.

That US $ has depreciated against the Dollar.

E.g.

EURO/USD current rate

1.4045


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11 11

How does the exchange rate affect corporateentities?

Cost of imports

Realization on exports

Capital goods imports

Service contracts realizations

Engineering contracts offshore

Cost of capital equity / debt

Interest costs

Indirect exposures

PROFITABILITY


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1212

Usage of New Currency Futures Contract

According to estimates by market players, around 20 per cent of the currencytrades in over the counter (OTC) market is done in non-dollar currency.

Introduction of new currency pairs will help in improving the depth andbreadth of the currency market.

Directional Views

Hedging Existing Exposure

Transparency in the Cross rates on the CDS platform will help the corporateto mitigate the curtail two-currency risk


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13

Contract specification

Category Description

Trading Hours9:00 am to 5:00 pm(Monday to Friday on all business day)

Contract Months 12 near calendar months

Last Trading DayTwo business days prior to last business day of themonth (spot convention).

Final Settlement Day Last working day of the month

Settlement INR cash settled at RBI reference rate

Holiday Calendar Mumbai-Interbank


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14

Features of Currency Pairs

USD-INR EUR-INR GBP-INR JPY-INR

Quotation

Rate of exchangebetween 1 USD

and INR(USDINR)

Rate of exchangebetween 1 EURO and

INR (EUR-INR)

Rate ofexchangebetween 1GBP and

INR (GBP-INR)

Rate of exchangebetween 100 JPYand INR (JPY-INR)

Contract Size USD 1000 EURO 1000 GBP 1000 JPY 100000

CalendarSpreadMargin

Rs. 400 for aspread of 1

month; Rs 500for a spreadof 2 months, Rs800 for a spread

of 3 months

Rs.700 for spreadof 1 monthRs.1000 for

spread of 2months

Rs.1500 forspread of 3

months or more


monthRs.1800 for

spread of 2months

Rs.2000 forspread of 3months or

more

Rs.600 for spreadof 1 monthRs.1000 for

spread of 2months


months or more


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15

Position Limits

USD-INR EURO-INR GBP-INR JPY-INR

Client Level

6% of theOpen Interestor

USD 10 Millionwhichever ishigher

6% of the OpenInterest or

EUR 5 Millionwhichever ishigher


GBP 5 Millionwhichever ishigher


JPY 200 Millionwhichever ishigher

Non-Bank TradingMember Level

15% of theOpen Interestor USD 50Millionwhichever ishigher

15% of theOpen Interest orEUR 25 Millionwhichever ishigher

15% of theOpen Interest orGBP 25 Millionwhichever ishigher

15% of theOpen Interest orJPY 1000 Millionwhichever ishigher

Bank

15% of theOpen Interestor USD 100Millionwhichever ishigher

15% of theOpen Interest orEUR 50 Millionwhichever ishigher

15% of theOpen Interest orGBP 50 Millionwhichever ishigher

15% of theOpen Interest orJPY 2000 Millionwhichever ishigher


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1616

Product specifications - Collaterals

Margins / collaterals

Based on previous day volatility.

Released once trade is unwound or the contract matures.

Forms of collaterals

Cash, bank guarantees, fixed deposits, GOI bonds, approved equities /mutual fund units.

Releasing collaterals

Cash next day in the bank a/c, FD and BG same day.

Approved securities to custodians on same day.


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1717

Product specifications settlement

Daily settlement Closing price of each contract last 30 minutes weighted average.

T + 1.

Through your clearing member.

Paid or received in cash.

Final settlement

RBI fixing price at 12 noon on last trading day.

Net settled in cash.


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1818

Trade explanation 1

Trade date (7 April):

USDINR 27 April contract: 44.4000Current Spot rate: 44.2500

Buy 100 April contracts: Value Rs. 44,40,000 (USD 1000 *100* 44.40)

Hold contract to expiry: RBI fixing rate on 27 April 11 45.0000

Futures return: Profit, Rupees 60,000 (45,00,000 44,40,000)

Margins:

Approx. 4.00%: Rs 1,77,600

Funding @ 12%: Rs 1780 (if margins paid in cash)

Net return: Rs. 58,220Margins (collateral) can be paid in FDs, Bank Guarantees, ApprovedSecurities

Daily Mark to Market will be received / paid in Cash


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1919

OTC and Currency futures

OTC Market Currency Futures

Pricetransparency

Low; bilateral contractswith banks

High; online real timescreen

Liquidity Subject to credit limits Margins equate allparticipants

Settlement Full notional, unlesscancelled

Net settled in INR

Credit Exposure Exposure to yourcounterparty (bank)

Clearing corporationguarantees all trades

Execution Only by AuthorizedDealer 700+ trading members,including banks

Margins / MTM Nil Margins and MTM aremandatory


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Hedging

What is a hedge

A position established in one market in an attempt

to offset exposure to the price risk of an equal but

opposite obligation in another market

Why hedge

Costs & Revenues in different currencies

Time differences in costs and revenues

Evaluating impact on net returns (profits)

Risk management is important

Not doing anything is also taking a RISK

Understanding your risk profile and appetite to

take risks, determines your risk management policy


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21

Scenario 1

Indian Co. sold a Raw Material to USA based Co. for 10,00,000 USD with an expected

remittance in Eight month.

When you enter into sell transaction of 10,00,000 USD/INR, Meaning you Sold 10,00,000

USD by buying 4,79,80,000 INR.

Sold 1000 contracts of December 2011 maturity on NSE

On 28 December 2011, the contract will expire and the payment trade needs to be executed

Sold USD 10,00,000 to a bank at RBI fixing rate on 28 December 2011.Banks may charge

some spread over fixing rate

Ensuring RBI fixing rate on Payment and Contract fixing, will help to crystallize the rate

contracted on the exchange


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22

If USD will be 49.00

The above computation ignores Margin & Mark to Market Loss/Profit.

Today

Sell 1000 Contracts Dec,2011 47.98

Expected Remittance = 1000*1000*47.98 4,79,80,000

On 28 Dec ,2011

RBI fixing rate 49.00

Sold USD 10,00,000 to the bank = 10,00,000*49.00 4,90,00,000

Loss on Dec,11 Contract = 1000*1000*(49.00 -47.98) 10,20,000

Total INR Receipt = 4,90,00,000 - 10,20,000 4,79,80,000


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If USD will be 46.00

The above computation ignores Margin & Mark to Market Loss/Profit.

Today

Sell 1000 Contracts Dec,2011 47.98

Expected Remittance = 1000*1000*47.98 4,79,80,000

On 28 Dec ,2011

RBI fixing rate 46.00

Sold USD 10,00,000 to the bank = 10,00,000*46.00 4,60,00,000

Profit on Dec,11 Contract = 1000*1000*(47.98 -46.00) 19,80,000

Total INR Receipt = 4,60,00,000 + 19,80,000 4,79,80,000


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24


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CURRENCY OPTIONS

25


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26

An option is a contract which gives the right, but not the obligation, to buy

or sell the underlying at a stated date and at a stated price

Gives the rightto buy

CALL

Gives the rightto sell

PUT

Options

European


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Definition of Options

A Currency Option is a Financial Contract which gives the BUYER (Holder) theRIGHT, but not the Obligation, to exchange a specified amount of currency versusanother at a specified rate on, or up to, a specified date.

The SELLER (or Writer) of the Currency Option contract has the OBLIGATIONto deliver the specified amount of currency at the specified rate on the specifieddate.

Options offer Flexibility to not lock in rates.

Benefits over Forwards


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Classification of Options

Type

Exercise style

Settlement

Underlying


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Call Options

Buy

Sell

Long Call

Right to buy theunderlying at strike

price

Short CallObligation to sell

the underlying at

strike price

Benefit if theunderlying rises.

Profits substantial

Lose if the underlying issteady/ falling.

Loss limited to Premium

Lose if the underlying rises.Loss substantial

Benefit if theunderlying is steady/

falling. Profit limited to

Premium


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Put Options

Buy

Sell

Long PutRight to sell the

underlying at strike

price

Short PutObligation to Buy

the underlying at

strike price

Benefit if theunderlying falls. Profits

substantial

Lose if the underlying issteady/ rising.

Loss limited to Premium

Lose if the underlying falls.Loss substantial

Benefit if theunderlying is steady/

rising. Profit limited to

Premium

Cl ifi i f O i ( d)


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Classification of Options (contd)

American

Exercised any time prior to expiration

European Generally exercised on expiration date

Expiration date:Date after which the option has no value.

Cl ifi ti f O ti ( td)


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Classification of Options (contd)

Cash settled

Settled by the difference between the strikeprice and the determined value of theunderlying.


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Relationship between underlying and option

In the money

At the money

Out of the money


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Strikes - Call, an example

USDINR strike for 1ST

Month December Spot :

46.50

Strike Prices:OTM: Calls: 47.00, 47.50

Strike price > SpotATM: Calls: 46.50

Strike price = spotITM: Calls: 46.00, 45.50

Strike price < spot

47.50

47.00

46.50

46.00

45.50

IN

R

pe

r

US

D


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Strikes - Put, an example

USDINR strike for 1st

Month December Spot :

46.50

Strike Prices:ITM: Puts : 47.00, 47.50

Strike price > SpotATM: Calls: 46.50

Strike price = spotOTM: Puts : 46.00, 45.50

Strike price < spot

47.50

47.00

46.50

46.00

45.50

IN

R

pe

r

US

D

C O ti


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Currency Options

36

Category Description

Type of Option Premium Styled European Call and Put Options

Trading Hours9:00 am to 5:00 pm

(Monday to Friday on all business day)

Permitted Lot Size One lot denotes $ 1000

Contracts AvailableThree serial monthly contracts followed by three quarterlycontracts of the cycle March/June/September/December

Last Trading Day Two business days prior to last business day of the month

Final Settlement Day Last working day of the contract month (Excluding Saturdays)

Settlement INR cash settled at RBI reference rate

Holiday Calendar Mumbai-Interbank

Benefits of Currency Options


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Benefits of Currency Options

Allows you to buy protection from currency

strengthening or weakening to hedge your FX risk Allows you to protect your downside without

necessarily giving up upside

Allows you to structure a set of bought and soldoptions to suit your risk profile and/or view

Allows you to earn premium by writing options, albeitwith unlimited downside


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Have a underlying FX risk by way of

Imports

USD loans

Exports

Indirect imports (Billing in INR but linked to USD exchange rate)

Service contract receivables/payables in foreign currency


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Option - an example

$ 1 Mio : Notional or principal.

Call : Right to buyunderlying.(Importer)

45.30 : Spot rate on Dec 1, 2010

45.50 : 29 Dec Futures.

Rs.45.50 : Strike price(ATMF). Rs.0.50 : Option premium.

Dec 29, 2010 : Expiration date(Outward date).

Option an example (Cont)


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Option - an example (Cont)

Of 1 Dec 2010 Buy 1 Mio Call Options : 1000*1000*0.50=5, 00,000 INR.

Once Trade Gets Executed Margin reversed to Clients A/C

Total Payment : 5, 00,000=5,00,000 INR

Break Even : 45.5000+0.5000=46.0000

On 29 Dec 2010 Spot : 47.00

Payoff On exercise date 29.12.2010 :47.00-46.00=1.00 INR(1000*1000*1.00=10, 00,000 INR)

Net Payoff On exercise date 29.12.2010 :10,00,000-5,00,000=10,00,000

(Charges Excluding Brokerage and SEBI &Stamp Duty)


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How can an exportermanage risk of rate of USD receivable ?

Sell the future

Buy a $ Put

Sell a $ Call

Buy a $ Put spread

Buy a $ Put and sell a $ Call

Collar

{Examples and payoffs of each strategy to be done in detail}

For exporter : Sell Future


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For exporter : Sell Future

View : Bearish on USD

Strategy : Sell future

Risk: Unlimited Reward : Unlimited

Breakeven : Future price

Profit, when: USD-INR goes down

Max loss, when: USD-INR goes up

Example: Sell 1 Future*

USD/INR Spot Price (`) 46.46

*Lot size1 Contract

= 1000

USD

Future Price (`) 46.00

Break Even (`) 46.00

USD/ INR on

expiry (`)Net Pay-off

(`)

45.00 100045.50 500

46.00 0

46.50 -500

47.00 -1000

-2200

-1700

-1200

-700

-200

300

800

1300

1800

43.

00

43.

50

44.

00

44.

50

45.

00

45.

50

46.

00

46.

50

47.

00

47.

50

48.

00

48.

50

49.

00

49.

50

50.

00

Net Pay-offProfit (`

Loss (` )

USD/INR

For exporter : Buy Put


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For exporter : Buy Put

View : Bearish on USD

Strategy : Buy put option

Risk: Limited to premium

Reward : Unlimited

Breakeven :Strike Price Premium

Profit, when: USD-INR goes down andoption exercised

Max loss, when: USD-INR goes up andoption not exercised

Example: Buy 1 Put Option*


*Lot size

1 Contract =

1000 USD

Strike Price (`) 46.00

Premium (`) 0.20


USD/

INR on

expiry (`)

Premium

Pay-off(`)

Exercis

e Pay-

off(`)

Net

Pay-off(`)

45.00 -200 1000 800

45.50 -200 500 300

45.80 -200 200 0

46.00 -200 0 -200

46.50 -200 0 -200

-900

-600

-300

0

300

600

900

44.

00

44.

50

45.

00

45.

50

46.

00

46.

50

47.

00

47.

50


Loss (` )

USD/INR

For exporter : Short Call


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For exporter : Short Call View : Very bearish on USD

Strategy : Sell Call option

Risk: Unlimited Reward : Limited to premium

Breakeven :Strike Price + Premium

Max Profits, when: USD-INR goesdown and option not exercised

Loss, when: USD-INR goes up andoption exercised

Example: Sell 1 Call Option*


*Lot size

1 Contract

= 1000

USD


Premium (`) 0.33


USD/

INR on

expiry (`)

Premiu

m Pay-

off(`)

Exercise

Pay-off(`)

Net Pay-

off(`)

46.50 330 0 33047.00 330 0 330

47.33 330 -330 0

48.00 330 -1000 -670

48.50 330 -1500 -1170

-900

-600

-300

0

300

600

900

45.

00

45.

50

46.

00

46.

50

47.

00

47.

50

48.

00

48.

50

49.

00

49.

50

50.

00


Loss (` )

USD/INR

For exporter : Put Spread


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For exporter : Put Spread View : Moderately Bearish on USD Strategy : Buy ITM Put and sell OTM Put option

to reduce cost and breakeven of ITM Put Risk: Limited to net premium paid

Reward : Limited to the difference between thetwo strikes minus net premium paid

Breakeven :Strike price of long Put -Netpremium paid

Max profit, when: USD-INR goes down and bothoptions exercised

Max loss, when: USD-INR goes up and bothoptions unexercised

Example: Buy 1 ITM Put Option and Sell 1 OTM Put

Option*


*Lot size1 Contract

= 1000

USD

Buy ITM Put Strike Price (`) 46.50

Put Premium (`) 0.38

Sell OTM Put Strike Price(`) 45.50



USD/

INR on

expiry

(`)

Pay-off

from ITM

Put

purchased(`)

Pay-off

from

OTM

Put sold(`)

Net

Pay-off(`)

45.00 1120 -410 710

45.50 620 90 710

46.00 120 90 210

46.21 -90 90 0

47.00 -380 90 -290

47.50 -380 90 -290

-1500

-1000

-500

0

500

1000

1500

43.

00

43.

50

44.

00

44.

50

45.

00

45.

50

46.

00

46.

50

47.

00

47.

50

48.

00

48.

50

49.

00

49.

50

50.

00

Pay-off from Put purchased

Pay-off from Put sold

Net Pay-off

Loss (` )

Profit (`

USD/INR

For exporter : Buy Put Sell Call


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For exporter : Buy Put, Sell Call

View : Bearish on USD Strategy : Buy Put and sell Call option to

reduce cost and breakeven of Put

Risk: Unlimited Reward : Unlimited Breakeven :Strike price of long Put -Net

premium paid Max profit, when: USD-INR goes down and

put option is exercised

Max loss, when: USD-INR goes up and calloptions is exercised

Example: Buy 1 Put Option and Sell 1 Call Option*


*Lot size1 Contract

= 1000

USD

Buy Put Strike Price (`) 46.00


Sell Call Strike Price(`) 47.50

Call Premium (`) 0.12


USD/

INR on

expiry

(`)

Pay-off

from Put

purchase

d (`)

Pay-off

from

Call sold

(`)

Net

Pay-off(`)

44.50 1250 120 1370

45.00 750 120 870

45.87 -120 120 0

46.50 -250 120 -130

48.00 -250 -380 -630

48.50 -250 -880 -1130

-1000

-700

-400

-100

200

500

800

45.

00

45.

50

46.

00

46.

50

47.

00

47.

50

48.

00

48.

50

Pay off from Put purchased

Pay-off from Call sold

Net Pay-off

Profit `

Loss (` )

USD/INR

For exporter : Collar


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For exporter : Collar View : Conservatively bearish

Strategy : Sell Future, buy Call to insuredownside, sell Put option to partly finance

Call Risk: Limited

Reward : Limited

Breakeven :Purchase price of futures Netpremium paid

Max profit, when: USD-INR goes down andput option exercised

Max loss, when: USD-INR goes up and calloption exercised

USD/

INR on

expiry (`)

Pay-off

from

Futures

sold (`)

Pay-off

from Call

purchase

d (`)

Pay-

off

from

Put

sold

(`)

Net

Pay-off

(`)

44.50 2500 -80 -460 1960

45.00 2000 -80 40 1960

46.50 500 -80 40 460

46.96 40 -80 40 0

47.50 -500 -80 40 -54048.00 -1000 -80 40 -1040

48.50 -1500 420 40 -1040

Example: Sell 1 Future and 1 put Option Contract

and Buy 1 Call Option Contract*

USD/INR Future Price (`) 47.00

*Lot size

1 Contract =

1000 USD

Put Strike Price (`) 45.00


Call Strike Price (`) 48.00


Breakeven (`) 46.96-2200

-1700

-1200

-700

-200

300

800

1300

1800

43.

00

43.

50

44.

00

44.

50

45.

00

45.

50

46.

00

46.

50

47.

00

47.

50

48.

00

48.

50

49.

00

49.

50

50.

00

Pay-off from Future sold

Pay-off from Call purchased

Pay-off from Put soldNet Pay-off

Profit (`

Loss (` )

USD/INR


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How can an importermanage risk of rate of USD payable ?

Buy the future

Buy a $ Call

Sell a $ Put

Buy a $ Call spread

Buy a $ Call and sell a $ Put

Collar

{Examples and payoffs of each strategy to be done in detail}

For importer : Buy Future


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For importer : Buy Future View : Bullish on USD

Strategy : Buy future

Risk: Unlimited Reward : Unlimited

Breakeven : Future price

Profit, when: USD-INR goes up

Max loss, when: USD-INR goes down

Example: Buy 1 Future*


*Lot size

1 Contract

= 1000

USD

Future Price (`) 46.00


USD/ INR on

expiry (`)Net Pay-off

(`)

45.00 -1000

45.50 -500

46.00 0

46.50 500

47.00 1000

-2200

-1700

-1200

-700

-200

300

800

1300

1800

43.

00

43.

50

44.

00

44.

50

45.

00

45.

50

46.

00

46.

50

47.

00

47.

50

48.

00

48.

50

49.

00

49.

50

50.

00


Loss (` )

USD/INR

For importer : Long Call


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For importer : Long Call

View : Very bullish on USD Strategy : Buy call option

Risk: Limited to premium Reward : Unlimited Breakeven :Strike price + Premium Profit, when: USD/INR goes up and

option exercised Loss, when: USD/INR does not go up

and option expires unexercised

Example: Buy 1 Call Option*


*Lot size

1 Contract

= 1000

USD


Premium (`) 0.33


USD/ INR

on expiry (`)

Premium

Pay-off(`)

Exercise

Pay-off(`)

Net Pay-

off(`)

46.50 -330 0 -330

47.00 -330 0 -330

47.33 -330 330 0

48.00 -330 1000 670

48.50 -330 1500 1170

-900

-600

-300

0

300

600

900

45.

00

45.

50

46.

00

46.

50

47.

00

47.

50

48.

00

48.

50

49.

00

49.

50

50.

00


Loss (` )

USD/INR

For importer : Short Put


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For importer : Short Put

View : Bullish on USD

Strategy : Sell put option

Risk: Unlimited Reward : Limited to premium

Breakeven :Strike price Premium

Profit, when: USD-INR does not godown and option expires unexercised

Loss, when: USD-INR goes down andoption exercised

Example: Sell 1 Put Option*


*Lot size

1 Contract

= 1000

USD


Premium (`) 0.20


USD/

INR on

expiry (`)

Premiu

m Pay-

off(`)

Exercise

Pay-off(`)

Net Pay-

off(`)

45.00 200 -1000 -800

45.50 200 -500 -300

45.80 200 -200 0

46.00 200 0 200

46.50 200 0 200

-900

-600

-300

0

300

600

900

44.

00

44.

50

45.

00

45.

50

46.

00

46.

50

47.

00

47.

50


Loss (` )

USD/INR

For importer : Call Spread


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For importer : Call Spread View : Moderately bullish on USD

Strategy : Buying ITM Call and selling OTMcall thereby reducing cost and breakeven of

ITM call

Risk: Limited to net premium paid

Reward : Limited to the difference betweenthe two strikes minus net premium paid

Breakeven :Strike price of purchased call +

Net premium paid Max profit, when: both options exercised

Max loss, when: both options unexercised

Example: Buy 1 ITM Call Option and Sell 1 OTM

Call Option *

USD/INR Spot Price (`) 46.46*Lot size

1 Contract

= 1000

USD

ITM Call Strike Price (`) 46.00


OTM Call Strike Price(`) 47.00



USD/

INR on

expiry (`)

Pay-off

from ITM

Call

purchased(`)

Pay-off

from OTM

Call sold (`)

Net

Pay-

off(`)

44.50 -880 330 -550

45.50 -880 330 -550

46.55 -330 330 0

47.50 620 -170 450

48.50 1620 -1170 450

49.00 2120 -1670 450

-1500

-1000

-500

0

500

1000

1500

43.

00

43.

50

44.

00

44.

50

45.

00

45.

50

46.

00

46.

50

47.

00

47.

50

48.

00

48.

50

49.

00

49.

50

50.

00

Pay-off from ITM Call purchased

Pay-off from OTM Call sold

Net Pay-off

Loss (` )

Profit (`

USD/INR

For importer : Buy Call, Sell Put


53/57

For importer : Buy Call, Sell Put View : Bullish on USD Strategy : Buy Call and sell Put option to

reduce cost and breakeven of Call

Risk: Unlimited Reward : Unlimited Breakeven :Strike price of long Call + Net

premium paid Max profit, when: USD-INR goes up and call

option is exercised

Max loss, when: USD-INR goes down and putoptions is exercised

Example: Buy 1 Call Option and Sell 1 Put Option*


*Lot size

1 Contract

= 1000

USD

Buy Call Strike Price (`) 47.00


Sell Put Strike Price(`) 45.50



USD/

INR on

expiry

(`)

Pay-off

from Call

purchased

(`)

Pay-off

from Put

sold (`)

Net

Pay-off(`)

45.00 -330 -410 -740

46.00 -330 90 -240

47.00 -330 90 -240

47.24 -90 90 0

47.50 170 90 26048.00 670 90 760

-1000

-700

-400

-100

200

500

800

44.

50

45.

00

45.

50

46.

00

46.

50

47.

00

47.

50

48.

00

Pay-off from Call purchased

Pay off from Put sold

Net Pay-off

Profit (`

Loss (` )

USD/INR

For importer : Collar


54/57

For importer : Collar View : Conservatively bullish

Strategy : Buy futures, buy put to insuredownside, sell call option to partly finance

put Risk: Limited

Reward : Limited

Breakeven :Purchase price of futuresCall premium + Put premium

Max profit, when: USD-INR goes up and

call option exercised Max loss, when: USD-INR goes down

and put option exercised

USD/ INR

on expiry

(`)

Pay-off

from

Futures

purchased

(`)

Pay-off

from Put

purchased

(`)

Pay-off

from

Call

sold (`)

Net

Pay-off

(`)

45.00 -2000 800 80 -1120

45.50 -1500 300 80 -1120

47.12 120 -200 80 0

47.50 500 -200 80 380

48.00 1000 -200 80 880

48.50 1500 -200 -420 880

Example: Buy 1 Future and 1Put Option Contract

and Sell 1 Call Option Contract*

USD/INR Future Price (`) 47.00

*Lot size

1 Contract =

1000 USD

Put Strike Price (`) 46.00


Call Strike Price (`) 48.00


Breakeven (`) 47.12

-1500

-1000

-500

0

500

1000

1500

43.

00

43.

50

44.

00

44.

50

45.

00

45.

50

46.

00

46.

50

47.

00

47.

50

48.

00

48.

50

49.

00

49.

50

50.

00

Pay-off from Future purchased

Pay-off from Put purchased

Pay-off from Call sold


Loss (` )

USD/INR


55/57

55

Why National Stock Exchange


56/57

5656

Pioneer of online trading in India

Access to investors from over 150,000 terminals, 1400 locations

NSCCL first Clearing Corporation in India; first to provide settlement

guarantee, rated CCR - AAA by CRISIL

NSDLFirst depository dematerialization

3rd largest exchange - cash market

Largest exchange in the world - stock futures

One of the top global derivatives exchanges

First in India to introduce DMA (Direct Market Access)

First in the world to setup and operate STP central HUB

Innovation, invention and world class infrastructure

First to launchCurrency Derivatives.

Why National Stock Exchange


57/57

5757

cds -final1

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