A Seminar on 'Interest Rates and Currency Derivatives'

Date: 28th November 09 
Speaker – Mr. Rishi Mehra, CFA 
CEO- Corporate Partners  

Venue: IMA Convention Centre, Indraprastha Marg (Near ITO Building)
Time: 6:00 p.m

An evening seminar is being organized on the topic “Interest Rates and Currency Derivatives”. The speaker is Mr. Rishi Mehra, CEO- Corporate Partners.

Derivatives, the financial buzz of 21st century has turned more popular after its disasters. The Sub-prime crisis has created an apprehension for the traders as to derivatives would add bounty or make them bankrupt…  

Derivatives are financial innovation for the sole purpose of hedging the exposures arising out of various assets and contingencies. Misinterpretation and misuse of derivatives can lead to disasters like sub-prime crises.  

As derivatives are traded in the open market and their value fluctuates with market forces they can be used for Speculation (short-term trades), Arbitrage (risk-less trades), Spreads (less risky trades) and last but not the least Hedging (risk mitigation).  

Currency Derivatives:  

Currency market where trades exceed $4 Trillion a day poses high degree of risk for exporters, importers and those having currency exposures for any other reason. Derivatives like forwards, futures, options and swaps can reduce the exposure and risk if taken with the correct strategy.  

With 12 consecutive month forward contracts already existing in the OTC market Indian markets introduced 12 consecutive month exchange traded currency futures. NSE, BSE, MCX-SX platforms took the initiative as a launch pad for these derivative products.  

Rupee dollar options (introduced in 2003) and swaps already existed in the OTC markets. Together these derivatives now give a gamut of risk covers for exporters and importers, but ironically these instruments are used more for speculation and less for hedging. The reasons for the same are lack of information and dominance of greed.

Interest Rate Derivatives:  

Interest rate derivatives are instruments that can be used to minimize the interest rate risk. Interest rate risk is taken by borrowers, lenders and those corporates and institutions that invest their surplus in interest rate sensitive assets like Bonds and Money market instruments.  

According to the statistics of BIS, the outstanding exposure of global interest rate derivative contracts ($ 17833 Billion) are; nearly 30 times of equity index derivatives ($ 592 Billion). In the Indian perspective the government alone turns out to be a borrower nearly Rs. 1,70,000 crores in the year 2008-09. Apart from this figure the corporate borrowings would make the figure breathtaking.  

NSE initiated to launch interest rate derivatives in the year 2003, but lack of participation and knowledge of the market made the product flop. The re-issue of interest rate contracts was done in august 2009 with a better preparation to give it a success story this time.

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