InvestorQ : So currency is a risk; but how do I hedge the currency risk in the market?
Maniish Lofar made post

So currency is a risk; but how do I hedge the currency risk in the market?

Answer
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Nisha Chandani answered.
2 years ago


Till the year 2008, the only way Indian businesses could hedge their currency exposure was to approach their banks for buying a forward cover in the OTC forward market. The OTC market was a closed market for forex risk hedging, which was a telephone market between banks, large financial institutions and mutual funds. With the launch of currency derivatives on the NSE and the BSE, it is now much easier to cover your currency risk by just opening a trading account with your broker. These currency futures and currency options can be bought and sold from the comfort of your home through the internet trading platform itself.

The currency derivatives permit you to take a hedge against hard currencies like the US Dollar, Euro, UK Pound and the Japanese Yen. However, since most of India’s trade and commerce continues to be denominated in USD, the INR-USD pair has become the most popular pair in the currency derivatives market. One can participate in the currency derivatives market for trading and speculation purposes as well as for managing your underlying exposure to the currency. But first let us understand the benefits of trading in currency derivatives, especially the USD-INR pair. They also offer you the added benefit of good liquidity and also the advantage of counter party risk eliminated.