1AN EMPIRICAL ANALYSIS OF THE RELATIONSHIP BETWEEN CURRENCY FUTURES AND EXCHANGE RATES VOLATILITY IN INDIA Somnath Sharma1

Abstract India moved away from pegged exchange rate to the Liberalized Exchange Rate Management System (LERMS) in 1992 and the market determined exchange rate regime in 1993 which is considered as an important structural change in the exchange rate market. With increased volatility in exchange rate and to mitigate the risk arising out of excess volatility, currency futures were introduced in India in 2008 which is considered as second important structural change. It is believed that the currency futures will help in hedging the exposures of exchange rate to unfavorable movements in exchange rate. The role of derivatives for risk taking and risk management cannot be understated by any means and it has increased significantly in recent times. This paper focuses at the relation between volatility in the exchange rate in the spot market and trading activity in the currency futures. The results show that there is a two-way causality between the volatility in the spot exchange rate and the trading activity in the currency futures market. Keywords: Currency futures, exchange rate volatility, trading

Effect of futures trading on the stability of stock index returns: a case of BSE Sensex
Sathya Swaroop Debasish1 Abstract

This paper attempts an to investigate the effect of futures trading on the stability of returns on BSE Sensex by using daily observations from January 1996 to December 2007. Three statistical tests namely, Kolmogorov Smirnov 2-sample test, Wilcoxon Rank Sum test and Goldfeld Quandt tests are used. The study found that higher volatility of daily returns in post-futures period than in the pre-futures period but the volatility of monthly returns remained unchanged. Apart from the months May 2004 and May 2006, there is no evidence that monthly BSE Sensex volatility has increased after inception of the Futures trading. Keywords stock markets, BSE Sensex, India, conditional volatility, futures trading, parametric tests, stability, stock index returns, Bombay Stock Exchange CURRENCY FUTURES TRADING IN INDIA
ABSTRACT

Currency futures are new forex risk management instrument. It is one of the better tool to hedge the foreign risk for the companies who have an exposure to foreign exchange either because of export or import. As these days Indian export as well as import are booming with huge volume so it is risky for the companies to keep an huge open positions, which can result into huge losses

so forex futures is a better hedging tool where one can book the profit even before the receivables has arrived. While the process for introduction of contracts in other currencies such as rupee-euro, or rupee-yen may soon be available, the government wants the product basket to be akin to the OTC markets. Indian financial sector regulators are set to launch currency options shortly. Introduction of options will be good development as it will lead to diversification. Futures with non-dollar currencies can minimize the risk also. The extension of working hours will also helpful in increasing the volume of currency futures trading. All residents Indians are allowed to participate in currency futures, but this is expected to change once the local market has reached a maturity level than NRIs and FIIs will also participate in currency futures in India. It is feasible to shift trading to other currencies to exchange platform as volumes have grown apparently. Greater trade and financial flows from Euro Zone and Japan can make standardized contracts possible. KEYWORDS Currency, Management, Foreign Exchange, Import, Export, Forex.