India's central banking institution, the Reserve Bank of India, has raised the exposure limit under exchange traded currency derivatives (ETCD) trading for all residents and foreign portfolio investors (FPIs) to $100 million across all currency pairs involving the Indian rupee.
The Official Notification said
RBI has been liberalising the norms for ETCD markets. Steps taken for the same are:
- This decision will help the entities indulged in forex transaction to maintain their currency risk in a more efficient manner.
- Earlier, a limit of $15 million for USD-INR and $5 million for other currency pairs of Indian rupee with Euro, Japanese Yen and British Pound was imposed by RBI
The Official Notification said
“It has now been decided to permit persons resident in India and FPIs to take positions (long or short), without having to establish existence of underlying exposure, up to a single limit of $100 million equivalent across all currency pairs involving INR, put together, and combined across all exchanges...These limits shall also be monitored by the exchanges, and breaches, if any, may be reported to the Reserve Bank of India”In the case of any violation, the participant shall be liable to any action that may be warranted as per the provisions of Foreign Exchange Management Act, 1999.
RBI has been liberalising the norms for ETCD markets. Steps taken for the same are:
- Instead of the statutory auditor’s certificate, a signed undertaking to the effect from the Chief Financial Officer (CFO) or the senior most functionary responsible for the company’s finance and accounts and the Company Secretary (CS) may be produced.
- In the absence of a CS, the Chief Executive Officer (CEO) or the Chief Operating Officer (COO) can co-sign the undertaking along with the CFO.
- Importers were allowed to take appropriate hedging positions up to 100 per cent of the eligible limit.
What is an exchange traded derivative?
It is a financial instrument that trades on a regulated exchange, and whose value is based on the value of another asset. These are derivatives that are traded in a regulated fashion. These derivatives can be used to hedge exposure or speculate on a wide range of financial assets like commodities, equities, currencies, and even interest rates.Expected Questions
Bank of India, has raised the exposure limit under exchange traded currency derivatives (ETCD) trading for all residents and foreign portfolio investors (FPIs) to
a. $25 millions
b. $100 millions
c. $50 millions
d. None of the above
