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TRAINING REPORT OF SHAREKHAN Study on “ Currency Derivatives Trading In India ” Submitted to

TRAINING REPORT OF SHAREKHAN Study on Currency Derivatives Trading In India

Submitted to

MAHARSHI DAYANAND UNIVERSITY, ROHTAK,

In partial fulfillment of the requirements for the award of the degree of

BACHELOR OF BUSINESS ADMINISTRATION (INDUSTRY INTEGRATED) (V Semester)

Submitted to:- Dr. Preeti Sharma

Submitted by:- Name: Nicole Puri Regn. No.: 1130310137 Roll No.: 1190111084

JAGANNATH INSTITUTE OF MANAGEMENT SCIENCES, ROHINI (ELC CODE: 330912009) NEAR OXFORD SR. SEC. SCHOOL & PVR MULTIPLEX (OPP. DUSSHERA GROUND), VIKAS PURI, NEW DELHI-110018

ACKNOWLEDGEMENT

I would like to express my deepest appreciation to all those who provided me the possibility to complete this report. A special gratitude I give to our project mentor Dr. Preeti Sharma (jims) whose contribution in stimulating suggestions and encourage me and helped me to coordinate my project especially in writing this report.

Furthermore I would also like to acknowledge with much appreciation the crucial role of Mr. Amit Sharma (Territory Manager), who gave the permission to use all required equipment and the necessary materials to complete the task.

CONTENTS

CHAPTER 1- OVERVIEW OF THE INDUSTRY

Introduction of Capital Market

1.1 About Currency Derivatives

A. Introduction to Currency Derivatives

B. Introduction to Currency Futures

CHAPTER 2- SHAREKHAN

2.1 Company Profile

2.2 Reasons to choose Sharekhan Limited

2.3 Products of Sharekhan

2.4 Portfolio Management Services

2.5 Charge Structure

2.6 Depository Charges

2.7 Documents required for account opening

2.8 SWOT Analysis of Sharekhan

CHAPTER 3- DISCUSSION ON TRAINING

3.1 Role and Responsibilities

3.2 Key Learning

CHAPTER 4- RESEARCH METHODOLOGY

4.1 Objective of the study

4.2 Scope of the study

4.3 Research Design

4.4 Method of Data collection

4.5 Limitation to study

CHAPTER 5- DATA ANALYSIS AND INTERPRETATION CHAPTER 6- SUMMARY AND CONCLUSIONS

6.1 Summary

6.2 Findings and Reccomendations

BIBLIOGRAPHY

ANNEXURES

CHAPTER 1

OVERVIEW OF THE INDUSTRY

1.1 INTRODUCTION TO CAPITAL MARKET

The capital market is the market for securities, where Companies & governments can raise long- term funds. It is a market in which money is lent for periods longer than a year. A nation's capital market includes such financial institutions as banks, insurance companies, & stock exchanges that channel long-term investment funds to commercial & industrial borrowers. Unlike the money market, on which lending is ordinarily short term, the capital market typically finances fixed investments like those in buildings & machinery.

Nature & Constituents:

The capital market consists of number of individuals & institutions (including the government) that canalize the supply & demand for long term capital & claims on capital. The stock exchange, commercial banks, co-operative banks, saving banks, development banks, insurance companies, investment trust or companies, etc., are important constituents of the capital markets.

The capital market, like the money market, has three important Components, namely the suppliers of loan able funds, the borrowers & the Intermediaries who deal with the leaders on the one hand & the Borrowers on the other.

The demand for capital comes mostly from agriculture, industry, trade the government. The predominant form of industrial organization developed. Capital Market becomes a necessary infrastructure for fast industrialization. Capital market not concerned solely with the issue of new claims on capital, But also with dealing in existing claims.

HISTORY OF CAPITAL MARKET

Established in 1875, the Bombay Stock Exchange (BSE) is Asia's first stock exchange. In 12th century France the courratiers de change were concerned with managing & regulating the debts of agricultural communities on behalf of the banks. Because these men also traded with debts, they could be called the first brokers. A common misbelief is that in late 13th century Bruges

commodity traders gathered inside the house of a man called Van der Beurze, & in 1309 they became the "Brugse Beurse", institutionalizing what had been, until then, an informal meeting, but actually, the family Van der Beurze had a building in Antwerp where those gatherings occurred; the Van der Beurze had Antwerp, as most of the merchants of that period, as their primary place for trading. The idea quickly spread around Flanders & neighboring counties & "Beurzen" soon opened in Ghent & Amsterdam. In the middle of the 13th century, Venetian bankers began to trade in government securities. In 1351 the Venetian government outlawed spreading rumors intended to lower the price of government funds. Bankers in Pisa, Verona, Genoa & Florence also began trading in government securities during the 14th century. This was only possible because these were independent city states not ruled by a duke but a council of influential citizens. The Dutch later started joint stock companies, which let shareholders invest in business ventures & get a share of their profits - or losses. In 1602, the Dutch East India Company issued the first share on the Amsterdam Stock Exchange. It was the first company to issue stocks & bonds.

The Amsterdam Stock Exchange (or Amsterdam Beurs) is also said to have been the first stock exchange to introduce continuous trade in the early 17th century. The Dutch "pioneered short selling, option trading, debt-equity swaps, merchant banking, unit trusts & other speculative instruments, much as we know them" There are now stock markets in virtually every developed & most developing economies, with the world's biggest markets being in the United States, United Kingdom, Japan, India, China, Canada, Germany, France, South Korea & the Netherlands.

IMPORTANCE OF STOCK MARKET

Function and purpose The stock market is one of the most important sources for companies to raise money. This allows businesses to be publicly traded, or raise additional capital for expansion by selling shares of ownership of the company in a public market. The liquidity that an exchange provides affords investors the ability to quickly & easily sell securities. This is an attractive feature of investing in stocks, compared to other less liquid investments such as real estate.

History has shown that the price of shares & other assets is an important part of the dynamics of economic activity, & can influence or be an indicator of social mood. An economy where the stock market is on the rise is considered to be an up-and-coming economy. In fact, the stock market is often considered the primary indicator of a country's economic strength & development. Rising share prices, for instance, tend to be associated with increased business investment & vice versa. Share prices also affect the wealth of households & their consumption. Therefore, central banks tend to keep an eye on the control & behavior of the stock market &, in general, on the smooth operation of financial system functions. Financial stability is the raison d'être of central banks.

Exchanges also act as the clearinghouse for each transaction, meaning that they collect & deliver the shares, & guarantee payment to the seller of a security. This eliminates the risk to an individual buyer or seller that the counterparty could default on the transaction. The smooth functioning of all these activities facilitates economic growth in that lower costs & enterprise risks promote the production of goods & services as well as employment. In this way the financial system contributes to increased prosperity. An important aspect of modern financial markets, however, including the stock markets, is absolute discretion. For example, American stock markets see more unrestrained acceptance of any firm than in smaller markets. For example, Chinese firms that possess little or no perceived value to American society profit American bankers on Wall Street, as they reap large commissions from the placement, as well as the Chinese company which yields funds to invest in China. However, these companies accrue no intrinsic value to the long-term stability of the American economy, but rather only short-term profits to American business men & the Chinese; although, when the foreign company has a presence in the new market, this can benefit the market's citizens. Conversely, there are very few large foreign corporations listed on the Toronto Stock Exchange TSX, Canada's largest stock exchange. This discretion has insulated Canada to some degree to worldwide financial conditions. In order for the stock markets to truly facilitate economic growth via lower costs & better employment, great attention must be given to the foreign participants being allowed in.Relation of the stock market to the modern financial system The financial systems in most western countries has undergone a remarkable transformation. One feature of this development is disintermediation. A portion of the funds involved in saving

& financing, flows directly to the financial markets instead of being routed via the traditional bank lending & deposit operations. The general public's heightened interest in investing in the stock market, either directly or through mutual funds, has been an important component of this process.

Statistics show that in recent decades shares have made up an increasingly large proportion of households' financial assets in many countries. In the 1970s, in Sweden, deposit accounts & other very liquid assets with little risk made up almost 60 percent of households' financial wealth, compared to less than 20 percent in the 2000s. The major part of this adjustment in financial portfolios has gone directly to shares but a good deal now takes the form of various kinds of institutional investment for groups of individuals, e.g., pension funds, mutual funds, hedge funds, insurance investment of premiums, etc. The trend towards forms of saving with a higher risk has been accentuated by new rules for most funds & insurance, permitting a higher proportion of shares to bonds. Similar tendencies are to be found in other industrialized countries. In all developed economic systems, such as the European Union, the United States, Japan & other developed nations, the trend has been the same: saving has moved away from traditional (government insured) bank deposits to more risky securities of one sort or another.

The stock market, individual investors, and financial risk Riskier long-term saving requires that an individual possess the ability to manage the associated increased risks. Stock prices fluctuate widely, in marked contrast to the stability of (government insured) bank deposits or bonds. This is something that could affect not only the individual investor or household, but also the economy on a large scale. The following deals with some of the risks of the financial sector in general and the stock market in particular. This is certainly more important now that so many newcomers have entered the stock market, or have acquired other 'risky' investments (such as 'investment' property, i.e., real estate and collectables).

With each passing year, the noise level in the stock market rises. Television commentators, financial writers, analysts,& market strategists are all overtaking each other to get investors' attention. At the same time, individual investors, immersed in chat rooms & message boards, are

exchanging questionable & often misleading tips. Yet, despite all this available information, investors find it increasingly difficult to profit. Stock prices skyrocket with little reason, then plummet just as quickly, & people who have turned to investing for their children's education & their own retirement become frightened. Sometimes there appears to be no rhyme or reason to the market, only folly.

This is a quote from the preface to a published biography about the long-term value-oriented stock investor Warren Buffett. Buffett began his career with $100, and $100,000 from seven limited partners consisting of Buffett's family and friends. Over the years he has built himself a multi-billion-dollar fortune.

ROLE OF CAPITAL MARKET

The primary role of the capital market is to raise long-term funds for governments, banks, & corporations while providing a platform for the trading of securities. This fundraising is regulated by the performance of the stock & bond markets within the capital market. The member organizations of the capital market may issue stocks & bonds in order to raise funds. Investors can then invest in the capital market by purchasing those stocks & bonds.

The capital market, however, is not without risk. It is important for investors to understand market trends before fully investing in the capital market. To that end, there are various market indices available to investors that reflect the present performance of the market.

Regulation of the Capital Market Every capital market in the world is monitored by financial regulators & their respective governance organization. The purpose of such regulation is to protect investors from fraud & deception. Financial regulatory bodies are also charged with minimizing financial losses, issuing licenses to financial service providers, and enforcing applicable laws.

The Primary and Secondary Markets The capital market is also dependent on two sub-markets the primary market & the secondary market. The primary market deals with newly issued securities & is responsible for generating

new long-term capital. The secondary market handles the trading of previously-issued securities, & must remain highly liquid in nature because most of the securities are sold by investors. A capital market with high liquidity & high transparency is predicated upon a secondary market with the same qualities.

1.2 ABOUT CURRENCY DERIVATIVES

DEFINITION OF FINANCIAL DERIVATIVES Derivatives are financial contracts whose value/price is independent on the behaviour of the price of one or more basic underlying assets. These contracts are legally binding agreements, made on the trading screen of stock exchanges, to buy or sell an asset in future. These assets can be a share, index, interest rate, bond, rupee dollar exchange rate, sugar, crude oil, soybeans, cotton, coffee and what you have. A very simple example of derivatives is curd, which is derivative of milk. The price of curd depends upon the price of milk which in turn depends upon the demand and supply of milk.

The Underlying Securities for Derivatives are :

Commodities: Castor seed, Grain, Pepper, Potatoes, etc.

Precious Metal : Gold, Silver

Short Term Debt Securities : Treasury Bills

Interest Rates

Common shares/stock

Stock Index Value : NSE Nifty

Currency : Exchange Rate

A. INTRODUCTION TO CURRENCY DERIVATIVES

Each country has its own currency through which both national and international transactions are performed. All the international business transactions involve an exchange of one currency for another. For Example, If any Indian firm borrows funds from international financial market in US dollars for short or long term then at maturity the same would be refunded in particular agreed currency along with accrued interest on borrowed money. It means that the borrowed foreign currency brought in the country will be converted into Indian currency, and when borrowed fund are paid to the lender then the home currency will be converted into foreign lender’s currency. Thus, the currency units of a country involve an exchange of one currency for another. The price of one currency in terms of other currency is known as exchange rate. The foreign exchange markets of a country provide the mechanism of exchanging different currencies with one and another, and thus, facilitating transfer of purchasing power from one country to another. With the multiple growths of international trade and finance all over the world, trading in foreign currencies has grown tremendously over the past several decades. Since the exchange rates are continuously changing, so the firms are exposed to the risk of exchange rate movements. As a result the assets or liability or cash flows of a firm which are denominated in foreign currencies undergo a change in value over a period of time due to variation in exchange rates. This variability in the value of assets or liabilities or cash flows is referred to exchange rate risk. Since the fixed exchange rate system has been fallen in the early 1970s, specifically in developed countries, the currency risk has become substantial for many business firms. As a result, these firms are increasingly turning to various risk hedging products like foreign currency futures, foreign currency forwards, foreign currency options, and foreign currency swaps

B. INTRODUCTION TO CURRENCY FUTURES

A futures contract is a standardized contract, traded on an exchange, to buy or sell a certain underlying asset or an instrument at a certain date in the future, at a specified price. When the underlying asset is a commodity, e.g. Oil or Wheat, the contract is termed a Commodity futures contract. When the underlying is an exchange rate, the contract is termed a “Currency futures contract”.

Currency Futures Contract In other words, it is a contract to exchange one currency for another currency at a specified date and a specified rate in the future. Therefore, the buyer and the seller lock themselves into an exchange rate for a specific value or delivery date. Both parties of the futures contract must fulfil their obligations on the settlement date Currency futures can be cash settled or settled by delivering the respective obligation of the seller and buyer. All settlements however, unlike in the case of OTC markets, go through the exchange. Currency futures are a linear product, and calculating profits or losses on Currency Futures will be similar to calculating profits or losses on Index futures. In determining profits and losses in futures trading, it is essential to know both the contract size (the number of currency units being traded) and also what the tick value is. A tick is the minimum trading increment or price differential at which traders are able to enter bids and offers. Tick values differ for different currency pairs and different underlying.

OVERVIEW OF THE FOREIGN EXCHANGE MARKET IN INDIA

During the early 1990s, India embarked on a series of structural reforms in the foreign exchange market. The exchange rate regime, that was earlier pegged, was partially floated in March 1992 and fully floated in March 1993. The unification of the exchange rate was instrumental in developing a market-determined exchange rate of the rupee and was an important step in the progress towards total current account convertibility, which was achieved in August 1994.

The following four currency futures are allowed on the Indian exchanges.

Symbol

Country

Currency

Nickname

USD

United States

Dollar

Geenback

EUR

Euro members

Euro

Fiber

JYP

Japan

Yen

Yen

GBP

Great Britain

Pound

Cable

1.2

India is 16 th largest forex market in the world. The daily global FX turnover USD 4 Trillion.

Market Share in World FX Market has increased from 0.1% (in 1998) to 0.9% ( 2010)

Daily FX Indian Market volume is $50 bn

59% of the total market USD INR

Daily Currency Futures Turnover Rs 32000 Crs. (NSE + MCXSX)

Main trading centers are London, NY, Tokyo, Singapore &now In MUMBAI

USD-INR volatility has seen an average increase of over 9% p.a.

Available FX Derivatives: Futures, Forwards, Options & Swaps

CURRENCY DERIVATIVE PRODUCTS

Derivative contracts have several variants.

options and swaps. used.

The most common variants are forwards, futures,

We take a brief look at various derivatives contracts that have come to be

FORWARD:

A forward contract is customized contract between two entities, where settlement takes place on

a specific date in the future at today’s pre agreed price. The exchange rate is the time the contract is entered into. This is known as forward exchange rate or simply forward rate.

FUTURE :

A currency futures contract provides a simultaneous right and obligation to buy and sell a particular currency at a specified future date, a specified price and a standard quantity. Future contracts are special types of forward contracts in the sense that they are standardized exchange- traded contracts.

SWAP

Swap is private agreements between two parties to exchange cash flows in the future according

to a prearranged formula.

OPTIONS:

In other words, a foreign currency option is a contract for future delivery of a specified currency in exchange for another in which buyer of the option has to right to buy (call) or sell (put) a particular currency at an agreed price for or within specified period.

FUTURE TERMINOLOGY

SPOT PRICE:

The price at which an asset trades in the spot market. The transaction in which securities and foreign exchange get traded for immediate delivery. Since the exchange of securities and cash is virtually immediate, the term, cash market, has also been used to refer to spot dealing. In the case of USD/INR, spot value is T + 2.

FUTURE PRICE:

The price at which the future contract traded in the future market.

CONTRACT CYCLE:

The period over which a contract trades. The currency future contracts in Indian market have one month, two month, and three month up to twelve month expiry cycles. In NSE/BSE will have 12 contracts outstanding at any given point in time.

VALUE DATE / FINAL SETTELMENT DATE:

The last business day of the month will be termed the value date /final settlement date of each contract. The last business day would be taken to the same as that for interbank settlements in Mumbai. The rules for interbank settlements, including those for ‘known holidays’ and would be those as laid down by Foreign Exchange Dealers Association of India (FEDAI).

EXPIRY DATE:

It is the date specified in the futures contract. This is the last day on which the Contract will be traded, at the end of which it will cease to exist. The last trading day will be two business days prior to the value date / final settlement date.

CONTRACT SIZE:

The amount of asset that has to be delivered under one contract, also called as lot size. In

of

USD/INR it is USD 1000.

COST OF CARRY:

case

The relationship between futures prices and spot prices can be summarized in terms of what is known as the cost of carry. This measures the storage cost plus the interest that is paid to finance or ‘carry’ the asset till delivery less the income earned on the asset. For equity derivatives carry cost is the rate of interest.

INITIAL MARGIN:

When the position is opened, the member has to deposit the margin with the clearing house as per the rate fixed by the exchange which may vary asset to asset. Or in another words, the amount that must be deposited in the margin account at the time a future contract is first entered into is known as initial margin.

MARKING TO MARKET:

At the end of trading session, all the outstanding contracts are reprised at the settlement price of that session. It means that all the futures contracts are daily settled, and profit and loss is determined on each transaction. This procedure, called marking to market, requires that funds charge every day. The funds are added or subtracted from a mandatory margin (initial margin) that traders are required to maintain the balance in the account. Due to this adjustment, futures contract is also called as daily reconnected forwards.

MAINTENANCE MARGIN:

Member’s account are debited or credited on a daily basis. In turn customers’ account are also required to be maintained at a certain level, usually about 75 percent of the initial margin, is called the maintenance margin. This is somewhat lower than the initial margin.This is set to ensure that the balance in the margin account never becomes negative. If the balance in the margin account falls below the maintenance margin, the investor receives a margin call and is expected to top up the margin account to the initial margin level before trading commences on the next day.

TICK SIZE/PIP & TICK VALUE Tick Size is the minimum tradable price movement that an exchange makes in a currency pair. For example, 1 pip=one hundredth of 1%=0.0001. Tick value is the change in value of 1 lot of the future contract for every tick movement. For example; If a trader takes long position in 1lot of USD/INR currency future contract at

63.3020 & if future price increased by 1 paisa to 63.3125, then the trader would make a profit

of Rs 10 i.e.

1 pip = 0.0001 100pips = INR0.01 per USD Hence profit is 0.01*1000 = INR 10

BID PRICE & ASK PRICE:

The Bid price is the highest or the best among all prices that the buyers are willing to pay to the seller at that particular period of time.

The Ask price is the price at which seller at the exchange are ready to sell their currency to the buyers.

LONG POSITION & SHORT POSITION:

Taking a long position in currency futures means a trader will “buy” a futures contract with the expectation that the price will rise in the future. On the other hand taking a short position means that a trader will “sell” a futures contract with the expectation that the price will decrease in the future.

BASIS:

Basis refers to difference between the spot rate & the future contract price

BASE CURRENCY & QUOTE CURRENCY:

The first currency in the currency pair is referred to as the base currency & the second currency in a currency pair is called the quote currency. In USD/INR currency pair USD- Base currency & INR-Quote currency.

FOREIGN EXCHANGE QUOTATIONS

Foreign exchange quotations can be confusing because currencies are quoted in terms of other currencies. It means exchange rate is relative price.

For Example, If one US dollar is worth of Rs. 64 in Indian rupees then it implies that 64 Indian rupees will buy one dollar of USA, or that one rupee is worth of 0.0156 US dollar which is simply reciprocal of the former dollar exchange rate.

USES OF CURRENCY FUTURES

HEDGING:

Exchange-traded currency futures are used to hedge against the risk of rate volatilities in the foreign exchange markets. Here, we give two examples to illustrate the concept and mechanism of hedging Suppose an edible oil importer wants to import edible oil worth USD 100,000 and places his import order on July 15, 2013, with the delivery date being 4 months ahead. At the time when the contract is placed, in the spot market, one USD was worth say INR 61 But, suppose the Indian Rupee depreciates to INR 61.25 per USD when the payment is due in October 2013, the value of the payment for the importer goes up to INR 6,125,000 rather than INR 6,100,000. The hedging strategy for the importer, thus, would be:

Current Spot Rate (15 th July '13) Buy 100 USD - INR Oct '11 Contracts on 15 th July ’11

:

61.0000

(1000 * 61.0000) * 100 (Assuming the Oct '13 contract is trading at 61.0000 on 15 th July,

 

'13)

Sell 100 USD - INR Oct '11 Contracts in Oct '11 Profit/Loss (futures market)

:

61.0000

1000 * (61.25 61.00) * 100 = 25,000

 

Purchases in spot market @ 61.25 Total cost of hedged transaction

:

61.25

*

100,000

100,000 * 61.25 25,000 = INR 6,100,000

1.3

SPECULATION:

Take the case of a speculator who has a view on the direction of the market. He would like to trade based on this view. He expects that the USD/INR rate presently at Rs.64, is to go up in the next two-three months. How can he trade based on this belief? In case he can buy dollars and hold it, by investing the necessary capital, he can profit if say the Rupee depreciates to Rs.64.50. Assuming he buys USD 10000, it would require an investment of Rs.6,40000. If the exchange rate moves as he expected in the next three months, then he shall make a profit of

around Rs.5000. This works out to an annual return of around 4.76%. It may please be noted that the cost of funds invested is not considered in computing this return. A speculator can take exactly the same position on the exchange rate by using futures contracts. Let us see how this works. If the INR/USD is Rs.62 and the three month futures trade at Rs.62.40. The minimum contract size is USD 1000. Therefore the speculator may buy 10 contracts. The exposure shall be the same as above USD 10000. Presumably, the margin may be around Rs.21, 000. Three months later if the Rupee depreciates to Rs. 62.50 against USD, (on the day of expiration of the contract), the futures price shall converge to the spot price (Rs. 62.50) and he makes a profit of Rs.1000 on an investment of Rs.21, 000. This works out to an annual return of 19 %. Because of the leverage they provide, futures form an attractive option for speculators. ARBITRAGE:

Arbitrage is the strategy of taking advantage of difference in price of the same or similar product between two or more markets. That is, arbitrage is striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices

One of the methods of arbitrage with regard to USD-INR could be a trading strategy between forwards and futures market. As we discussed earlier, the futures price and forward prices are arrived at using the principle of cost of carry. Such of those entities who can trade both forwards and futures shall be able to identify any mis-pricing between forwards and futures. If one of them is priced higher, the same shall be sold while simultaneously buying the other which is priced lower. If the tenor of both the contracts is same, since both forwards and futures shall be settled at the same RBI reference rate, the transaction shall result in a risk less profit.

TRADING PROCESS AND SETTLEMENT PROCESS

Like other future trading, the future currencies are also traded at organized exchanges. The following diagram shows how operation take place on currency future market:

shows how operation take place on currency future market: It has been observed that in most

It has been observed that in most futures markets, actual physical delivery of the underlying assets is very rare and hardly it ranges from 1 percent to 5 percent. Most often buyers and sellers offset their original position prior to delivery date by taking an opposite positions. This is because most of futures contracts in different products are predominantly speculative instruments.

COMPARISION

CONTRACT

OF

FORWARD

AND

FUTURES

CURRENCY

BASIS

FORWARD

 

FUTURES

 
 

Structured

as

per

requirement

of

the

 

Size

parties

Standardized

 

Delivery Date

Tailored on individual needs

 

Standardized

 

Method

of

Established by the bank or broker through electronic media

Open

auction

among

buyers and

transaction

seller on the floor of recognized

 

exchange.

 

Participants

Banks, brokers, forex dealers, multinational companies, institutional investors, arbitrageurs, traders, etc.

Banks, brokers, multinational companies, institutional investors, small traders, speculators, arbitrageurs,

Margins

None as such, but compensating bank balanced may be required

Margin deposit required

 

Maturity

From one week to 10 years

 

Standardized

 

Settlement

Actual delivery or offset with cash settlement. No separate clearing house

Daily settlement to the market and variation margin requirements

 

Over

the

telephone

worldwide

and

At recognized exchange floor with worldwide communications

Market place

computer networks

 
 

Limited

to

large

customers

banks,

hedging facilities or has risk capital to speculate

Accessibility

institutions, etc.

 

Delivery

More than 90 percent settled by actual delivery

Actual delivery has very less even below one percent

CONTRACT SPECIFICATIONS FOR USD INR

Symbol

USD/INR

Instrument Type

FUTCUR

Unit of trading

1 (1 unit denotes 1000 USD)

 

Underlying

USD

Quotation/Price Quote

Rs. per USD

Tick size

0.25 paise or INR 0.0025

 
   

Monday to Friday 9:00 a.m. to 5:00 p.m.

 

Trading hours

Contract trading cycle

12 month trading cycle.

 
 

Two working days prior to the last business day of the expiry month at 12 noon.

Last trading day

 

Last working day (excluding Saturdays) of the expiry month. The last working day will be the same as that for Interbank Settlements in Mumbai.

Final settlement day

 

Theoretical price on the 1st day of the contract. On all other days, DSP of the contract.

Base price

Minimum initial margin

1.75% on first day & 1% thereafter.

 

Extreme loss margin

1% of MTM value of gross open position.

 
 

Daily

settlement

:

T

+

1

Settlement

Final settlement : T + 2

 

Mode of settlement

Cash settled in Indian Rupees

 
 

DSP shall be calculated on the basis of the last half an hour weighted average price of such contract or such other price as may be decided by the relevant authority from time to time.

Daily

settlement

price

(DSP)

Final

settlement

price

 

(FSP)

 

RBI reference rate

1.5

BENEFITS OF CURRENCY FUTURES

Greater accessibility to potential participants (Online / Offline platforms).

Standardized Contracts, small lot size US$ 1,000. Encourages retail and SME participation.

Electronic Settlement of MTM Profits / Losses: Control and track losses.

No counterparty default risk.

Large number of market participants.

High Transparency Real time dissemination of prices.

No requirement of underlying document to book the FCY.

Cost efficient: Low brokerage thus lower transaction cost.

Intraday volatility (43 Bps): Short term profits for the traders.

Lower margins: 3- 3.5% of the contract value compared to average of 10- 15% on index/stock futures.

Indian Currency Futures Market-Present Status Currency Futures trading was launched in India on 29 th Aug, 2008 on NSE.NSE & MCX’SX are the major two exchanges presently.BSE is almost non-active.

Times of India- Aug 31 st , 2009 It has been exactly one year since the trading in Rupee Dollar futures was introduced in India. Since then the currency derivative segment has grown by over 1500% in terms of daily average

turnover. From about $ 60 million per day in August September 2008, the current rate is nearly $1 billion per day in each of the two.

The Financial Express Feb 6 th , 2010 The total turnover in the segment has increased incredibly from $ 3.4 bn in October2008 to $84 bn in December 2009. The average daily volume reached $4 bn in December 2009. India had witnessed enhanced FIIs thus Indian currency is becoming an important currency in world market. According to BIS, the total share of Indian rupee in total daily average foreign exchange has increased from 0.1% in 1998 to 0.9% in April 2007. Since the exchange rate is volatile during the last few years and hence increased importance of ETF.

Currency Movement

the exchange rate is volatile during the last few years and hence increased importance of ETF.

Fig. 1.1

Major Events in International and Indian Monetary System

o

Free float of currencies - 1973.

o

Oil crisis in 1973 - quadrupling of oil prices

o

European Currencies float against US$ - 1978

o

Post emergency years

o

Majority Govt. formed - 1984-85

o

Liberalization of Indian Economy: devaluation of INR - 1991

o

East and South East Asian Currency crisis - 1997

o

Nuclear tests by India - 1998

o

Robust economic growth in India

o

High crude oil and commodity prices

Currency Movement Impact

Importer

Exporter

Imports Goods & Services

Exports Goods & Services

Payments in foreign currency

Receivables in foreign currency

Buys currency from the bank

Sells currency to the bank

Re - STRONG

→ Gain

Re - STRONG

→ Loss

Re - WEAK

→ Loss

Re - WEAK

→ Gain

Tab. 1.6

Factors: Appreciation of INR

 

General

trend

for

   

Events likely to impact USD/INR rate

demand/supply

 

of

Impact

on

Impact

on

 

USD

INR

 

USD

Increase

in

exports

 

of

Excess inflow of USD in the country

   

India

Depreciates

 

Appreciates

RBI

is

selling

USD

to

Supply

of

USD

   

meet demand for the dollar

increases

Depreciates

 

Appreciates

NRI Forex remittance is increasing

Increase in USD inflow

Depreciates

 

Appreciates

Positive trade balance

 

Increase in USD inflow

Depreciates

 

Appreciates

Tab 1.7 Factors: Depreciation of INR

 

Events

likely

to

 

General trend demand/supply of USD

for

Impact

on

   

impact

 

USD/INR

Impact on INR

 

USD

rate

     

Increase in imports of India

 

Demand for USD increases

Appreciates

Depreciates

Rise in global prices of commodities

 

Demand for USD rises due to costlier imports

Appreciates

Depreciates

FIIs buying back USD

 

Excessive USD outflow

 

Appreciates

Depreciates

RBI is buying USD to absorb excess USD due to forex inflows

 

Absorption of excess USD liquidity

Appreciates

Depreciates

Tab

1.8

CHAPTER 2

SHAREKHAN 2.1 COMPANY PROFILE Sharekhan is one of the leading retail broking House of SSKI

SHAREKHAN

2.1 COMPANY PROFILE

Sharekhan is one of the leading retail broking House of SSKI Group which was running successfully since 1922 in the country. It is the retail broking arm of the Mumbai-based SSKI Group, which has over eight decades of experience in the stock broking business. Sharekhan offers its customers a wide range of equity related services including trade execution on BSE, NSE, Derivatives, depository services, online trading, investment advisory, Mutual Fund Advisory etc.

The firm’s online trading and investment site - www.sharekhan.com - was launched on Feb 8, 2000. The site gives access to superior content and transaction facility to retail customers across the country. Known for its jargon-free, investor friendly language and high quality research, the site has a registered base of over two lakh customers. The number of trading members currently stands More than 6 Lacs. While online trading currently accounts for just over 8 per cent of the daily trading in stocks in India, Sharekhan alone accounts for 32 per cent of the volumes traded online.

The content-rich and research oriented portal has stood out among its contemporaries because of its steadfast dedication to offering customers best-of-breed technology and superior market information. The objective has been to let customers make informed decisions and to simplify the process of investing in stocks. On April 17, 2002Sharekhan launched Speed Trade, a net-based executable application that emulates the broker terminals along with host of other information relevant to the Day Traders. This was for the first time that a net-based trading station of this caliber was offered to the traders. In the last six months Speed Trade has become a de facto standard for the Day Trading

community over the net. On October 01, 2007Sharekhan again launched his another integrated Software based product Trade Tiger, a net-based executable application that emulates the broker terminals along with host of other information relevant to the Day Traders. It has another quality which differs it from other that it has the combined terminal for equity and commodities both.

Share khan’s ground network includes over 1005 centers in 410 cities in India, of which 210 are fully-owned branches. Sharekhan has always believed in investing in technology to build its business. The company has used some of the best-known names in the IT industry, like Sun Microsystems, Oracle, Microsoft, Cambridge Technologies, Nexgenix, Vignette, Verisign Financial Technologies India Ltd, Spider Software Pvt Ltd. to build its trading engine and content. Previously the Morakiya family holds a majority stake in the company but now a world famous brand CITI GROUP has taken a majority stake in the company. HSBC, Intel & Carlyle are the other investors. With a legacy of more than 80 years in the stock markets, the SSKI group ventured into institutional broking and corporate finance 18 years ago. Presently SSKI is one of the leading players in institutional broking and corporate finance activities. SSKI holds a sizeable portion of the market in each of these segments. SSKI’s institutional broking arm accounts for 7% of the market for Foreign Institutional portfolio investment and 5% of all Domestic Institutional portfolio investment in the country. It has 60 institutional clients spread over India, Far East, UK and US. Foreign Institutional Investors generate about 65% of the organization’s revenue, with a daily turnover of over US$ 4 million. The Corporate Finance section has a list of very prestigious clients and has many ‘firsts’ to its credit, in terms of the size of deal, sector tapped etc. The group has placed over US$ 1 billion in private equity deals. Some of the clients include BPL Cellular Holding, Gujarat Pipavav, Essar, Hutchison, Planetasia, and Shopper’s Stop.

2.2 REASONS TO CHOOSE SHAREKHAN LIMITED

Experience SSKI has more than eight decades of trust and credibility in the Indian stock market. In the Asia Money broker's poll held recently, SSKI won the 'India's best broking house for 2004' award. Ever since it launched Sharekhan as its retail broking division in February 2000, it has been providing institutional-level research and broking services to individual investors.

Technology With our online trading account you can buy and sell shares in an instant from any PC with an internet connection. You will get access to our powerful online trading tools that will help you take complete control over your investment in shares.

Accessibility Sharekhan provides ADVICE, EDUCATION, TOOLS AND EXECUTION services for investors. These services are accessible through our centers across the country (Over 721 locations in 210 cities) over the internet (through the website www.sharekhan.com) as well as over the Voice Tool. Knowledge In a business where the right information at the right time can translate into direct profits, you get access to a wide range of information on our content-rich portal, Sharekhan. You will also get a useful set of knowledge-based tools that will empower you to take informed decisions.

Convenience You can call our Dial-N-Trade number to get investment advice and execute your transactions. We have a dedicated call-centre to provide this service via a Toll Free Number 1800-22- 7500,1800-22-7050 from anywhere in India.

Customer Service Our customer service team will assist you for any help that you need relating to transactions, billing, demat and other queries. Our customer service can be contracted via a toll-free number,

email or live chat on www.sharekhan.com.

Investment Advice Sharekhan has dedicated research teams of more than 30 people for fundamental and technical researches. Our analysts constantly track the pulse of the market and provide timely investment advice to you in the form of daily research emails, online chat, printed reports and SMS on your mobile phone.

BENEFITS

Free Depository A/c

Secure Order by Voice Tool Dial-n-Trade.

Automated Portfolio to keep track of the value of your actual purchases.

24x7 Voice Tool access to your trading account.

Personalized Price and Account Alerts delivered instantly to your Cell Phone & E-mail address.

Special Personal Inbox for order and trade confirmations.

On-line Customer Service via Web Chat.

Anytime Ordering.

NSDL Account

Instant Cash Tranferation.

Multiple Bank Option.

Enjoy Automated Portfolio.

Buy or sell even single share.

Branch - Head Office

A-206, Phoenix House, 2nd Floor, Senapati Bapat Marg, Lower Parel, Mumbai- 400013. TelephoneNo: 67482000 Email: myaccount@sharekhan.com

KEY OFFICIALS

1. Mr. ShripalMorakhia

2 .Mr. Tarun Shah

3. Mr. Kaliyan Raman

4. Mr. Jason Pandey and Mr. Pradeep

5. Mr. HemendraAggarwal

6. Mr Amit pal Singh and Mr. ManeetRastogi

DESIGNATION

Chairman CEO Online Sales Head DP Head

Cluster Head Regional Sales Manager

2.3 PRODUCTS OF SHAREKHAN

CLASSIC ACCOUNT This account allows the client to trade through the website and is suitable for the retail investor who is risk-averse and hence prefers to invest in stocks or who do not trade too frequently. It allows investor to buy and sell stocks online along with the following features like multiple watch lists, Integrated Banking, De-mat and Digital contracts, Real-time portfolio tracking with price alerts and Instant money transfer.

FEATURES

Online trading account for investing in Equity and Derivatives via www.sharekhan.com

Live Terminal and Single terminal for NSE Cash, NSE F&O, BSE& Mutual Funds.

Integration of On-line trading, Saving Bank and De-mat Accounts.

Instant cash transfer facility against purchase & sale of shares.

Competative transaction charges.

Instant order and trade confirmation by E-mail.

Streaming Quotes (Cash & Derivatives).

Personlized market watch.

Single screen interface for Cash and derivatives and more.

Provision to enter price trigger and view the same online in market watch

TRADE TIGER TRADE TIGER is an internet-based software application which is the combination of EQUITY & COMMODITIES, that enables you to buy and sell share and well as commodities item instantly. It is ideal for every client of SHAREKHAN LTD.

FEATURES

Integration of EQUITY & COMMODITIES MARKET.

Instant order Execution and Confirmation.

Single screen trading terminal for NSE Cash, NSE F&O & BSE & Commodities.

Technical Studies.

Multiple Charting.

Real-time streaming quotes, tic-by-tic charts.

Market summary (Cost traded scrip, highest value etc.)

Hot keys similar to broker’s terminal.

Alerts and reminders.

Back-up facility to place trades on Direct Phone lines.

Live market debts.

DIAL-N-TRADE Along with enabling access for your trade online, the CLASSIC and TRADE TIGER ACCOUNT also gives you our Dial-n-trade services. With this service, all you have to do is dial our dedicated phone lines which are 1800-22-7500, 3970-7500.

2.4 PORTFOLIO MANAGEMENT SERVICES

Sharekhan is also having Portfolio Management Services for Exclusive clients.

1. PROPRIME

- Research & Fundamental Analysis.

Ideal for investors looking at steady and superior returns with low to medium risk appetite. This portfolio consists of a blend of quality blue-chip and growth stocks ensuring a balanced portfolio with relatively medium risk profile. The portfolio will mostly have large capitalization stocks based on sectors & themes that have medium to long term growth potential.

2. PROTECH

- Technical Analysis.

Protech uses the knowledge of technical analysis and the power of derivatives market to identify trading opportunities in the market. The Protech lines of products are designed around various risk/reward/ volatility profiles for different kinds of investment needs. THRIFTY NIFTY: Nifty futures are bought and sold on the basis of an automated trading system that generates calls to go long/short. The exposure never exceeds value of

portfolio i.e. there is no leveraging; but being short in Nifty allows you to earn even in falling markets and there by generates linear

BETA PORTFOLIO: Positional trading opportunities are identified in the futures segment based on technical analysis. Inflection points in the momentum cycles are identified to go long/short on stock/index futures with 1-2 month time horizon. The idea is to generate the best possible returns in the medium term irrespective of the direction of the market without really leveraging beyond the portfolio value.

STAR NIFTY: Trailing Stops Momentum trading techniques are used to spot short term momentum of 5-10 days in stocks and stocks/index futures. Trailing stop loss method of risk management or profit protection is used to lower the portfolio volatility and maximize returns. Trading opportunities are explored both on the long and the short side as the market demands to get the best of both upwards & downward trends.

3. PROARBITRAGE - Exploit price analysis

- ONLINE IPO'S AND MUTUAL FUNDS ADVISORY IS AVAILABLE.

2.5 CHARGE STRUCTURE

1) Pre Paid Account: - Advance Amount which will be fully adjusted against your brokerage you paid in One year.

Following Schemes Are Available: -

Brokerage will be charged - 0.070 / 0.40 % 0.025 / 0.25 % 0.040 / 0.20 % 0.030 / 0.18 % 0.020 / 0.15 % 0.015 / 0.10 %

2,000/- Scheme: -

6,000/- Scheme: -

18,000/- Scheme: -

30,000/- Scheme: -

60,000/- Scheme: - 1,00,000/- Scheme: -

2)

Cash Trading : - 0.50% or 10 Paisa per share. Min. Rs.16/- per script.

Normal Account: -

Margin Trading

: - 0.10% or 5 Paisa per share.

Future & Options

: - 0.10% (First Leg)

0.02% (2 nd Leg if square off same day)

0.10% (2 nd Leg)

2.6 DEPOSITORY CHARGES

Account Opening Charges

Rs. 750

Annual Maintenance Charges

Rs. NIL first year Rs. 300 Per annum from second year onward

Minimum Brokerage Intra Day per Share:

5 Paisa each leg (buy or sell) for Intra-day Trades (For e.g. on Rs 20 Scrip, brokerage @ 0.10% = 2 paisa, but there is a min. chargeable amount of 5 paisa).

Minimum Delivery Handling Charges:

10 Paisa for Delivery Trades (buy and sell) (For e.g. on aRs 10 Scrip, brokerage @ 0.50% = 5 paisa, but there is a min. chargeable amount of 10 paisa). Rs 16/- per Scrip (brok. per Scrip will be charged for the selling of shares). (For e.g. if a customer sells 100 shares of SAIL, Delivery value = 2200, brokerage @ 0.5% = Rs 11, but the min chargeable amt per scrip per day = Rs 16), so additional Rs 5/- will be charged as Min delivery handling charges). Minimum Margin of Rs.5000/- is Required for Account Opening. Annual Maintenance Charges will NIL for 1 st year and Rs. 300/- from 2 nd year.

EXPOSURE:

It is the limit or turnover that a depository participant allows to its client to take positions at a time on margin money in his account. Sharekhan offers an Exposure of 4 to 6.6 times of margin

money in cash. In Futures and Options it offers 10 times of margin money. Sharekhan also offers exposure of Trading+two days on delivery, it means that a client is not asked to deposit margin due on his account for next two days and thereafter if it again allows a client to hold order for additional 3 days and charges nominal interest @14% p.a. on the same. On sixth day order will be squared off if margin money is not deposited.

TIE UPS: Tie up with eleven banks i.e. HDFC Bank Ltd, ICICI Bank, Oriental Bank Of Commerce, IDBI Bank Ltd, Citi Bank, United Bank of India, Axis bank, Bank of India, Indusland Bank, Centurian Bank of Punjab for online money transfer.If you are having bank a/c in one of them, you can transfer the funds and withdraw the funds online from your trading a/c at anytime.

2.7 DOCUMENTS REQUIRED FOR ACCOUNT OPENING

Photo ID Proof

Residence Proof (Permanent or Correspondence)

· Pan Card (Mandatory)

· Passport (valid)

· Passport

· Voter's ID

· Driving License

· Driving License (valid)

· Voter's ID

· Letter verified by Bank

· MAPIN UIN Card

· Bank Statement & Bank Passbook (latest)

· Telephone Bill (latest)

· Electricity Bill (latest)

· Ration Card

· Rent Agreement (Noterised)

· Latest Insurance Policy with Bond Copy

· Letter from Employer (Only in case of Army People)

1.1

--2 Photographs (Passport size & front face)

--1 Cheque of Rs. 750/- in the favor of SHAREKHAN LTD.

2.8 SWOT ANALYSIS OF SHAREKHAN

STRENGTHS

1. Big client base

2. In-house research house

3. online as well as offline trading

4. Online IPO/ MF services

5. Share shops

6. Transparent

7. User friendly tie ups with 10 banks

WEAKNESS

1. Lack of awareness among customer

2. Less focus on customer retention

3. Less Exposure

OPPORTUNITIES

1. Diversification

2. Product modification

3. Improve Web based trading

4. Provide competitive brokerage

5. Concentrate on PMS

6. Focus on Institutional investors

7. Concentrate on HNI’s (high net worth investor)

THREATS 1. Aggressive promotional strategies by close competitor like Religare, Angel Broking and India bulls.

2 More and more players are venturing into this domain, which can further reduce the earning of Share Khan.

3 Stock market is very volatile, risk involves is very high

CHAPTER 3

DISCUSSIONS ON TRAINING

3.1 ROLES AND RESPONSIBILITIES

The company placed me as a Trainee. I have been handling the Following responsibilities:

My first and most important responsibility was to reach for training on time at 10:30am.

My next responsibility was to open my own de-mat account to enter in the share market.

I was given a responsibility to complete my target.

Checking the daily movement of all the stock assigned us.

Keeping a record of the movement of all the share.

Trading in various instruments in the market.

Interpreting the various transactions done in the demat account, i.e., amount of taxes deducted, brokerage, etc.

Factors to be kept in mind while investing in any shares.

Market research, i.e., factors affecting prices of commodities.

Target assigned

To sell 4 De-mat accounts.

Target market

Different properties dealers.

Charted accountants.

Lawyers

Travel agencies

Transport business

House wives

Businessmen

Corporate Employees, etc

3.2 KEY LEARNING’S

Reporting time: 10.30 AM

Got a whole picture about the life in corporate world.

The do’s and don’ts of the corporate world, i.e., rules and regulations to be followed.

Merits of investing in capital market both long term and short term.

Risk involved in capital market.

Calculating brokerage and taxes to be leived on buying and selling of shares.

Opening a demat account.

Trading through demat account.

Right time to invest, i.e., enter and exit from the shares.

How to use share mobile. A mobile application for trading.

Buying and selling of equity shares on intra-day basis and delivery basis.

Buying and selling of currency on premium basis.

Buying and selling of Derivatives.

Completing the formalities like filling the application form and documentation.

We were also taught to trade through IGNITE Software. IGNITE is a software for the clients who invest a large amount of money in share market. Cost of this IGNITE Software is Rs. 50,000.

Roles and guidelines of SEBI.

CHAPTER - 4

RESEARCH METHODOLOGY

4.1 OBJECTIVE OF THE STUDY

This Research Project has been taken up to study the driving attributes of Currency Derivatives trading in India. Specific objectives are:

To know the percentage of traders/retail investors already into currency derivatives trading.

To know the driving attributes of retail investors for each asset market.

To study how currency derivative impact the investor market , and how currency movement influence the indian forex market

To analyze different currency derivatives products.

4.2 SCOPE OF STUDY

The currency derivative market is the largest market in the world, even larger than equity and commodity markets. However the Indian scenario is quite different. Currency derivatives market happens to be smaller than the other two in India. Study mainly concentrates on USD/INR EXHANGE RATE contracts though NSE and MCX has introduced trading in currency futures based on

Euro(EUR)-INR

Pound Sterling(GBP)-INR

Japanese Yen (JPY)-INR exchange rates

The main factor that affects the USD/INR EXHANGE RATE or any other currency is the Demand/supply dynamics for the individual currencies. However the Demand/supply dynamics is influenced by many other factors such as interest rates, inflation, money supply, trade

balance, growth in imports, exports, capital flows, and overall economic growth in the country and global developments. Due to time constraints only one major economic indicators are selected for analysis

Gross Domestic product (GDP)

4.3 RESEARCH DESIGN

A research design is the determination and statement the general research approach or strategy adopted/or the particular project. It is the heart of planning. If the design adheres to the research objective, it will ensure that the client's needs will be served. In this project Descriptive Research design method is used

Source of the Data Collection:-

The data is collected through both the means of primary and secondary data collection

In primary data collection- Questionnaires are prepared, whereas

In secondary data collection-information is collected from various sites and books

Sample Design:- Sample Size: The Total sample size was 50

Sampling Method: - The study is based on the non-probability sampling and wherein convenience sampling was used to collect the data by picking out people in the most convenient and fastest way to immediately get their reactions

4.4 METHOD OF DATA COLLECTION

PRIMARY DATA:- Primary data is collected through Questionnaires, two different questionnaires were prepared

For individuals &

For exporters & importer

SECONDAY DATA:-

1. The secondary data is also collected from the newspapers, magazines, different websites

report submitted by RBI/SEBI committee and NCFM/BCFM modules periodicals.

2. A major bulk of the data has been obtained from India Indexmundi.

4.5 LIMITATION TO STUDY

This research was designed for investors who are investing in capital market for quite long and whose investments range above 1,00,000. But due to unavailability to reach big

investors,

It makes this research limited to the scope of very small investors who are either student or invest less than 1,00,000. Smaller sample size may not give the result of complete population.

the

sample

size

is

taken

from

the

peers.

CHAPTER - 5

DATA ANALYSIS AND INTERPRETATION

Gender:

Gender

No. of persons

No. of persons in %

Male

38

76%

Female

12

24%

80% 75% 70% 60% 50% 40% 30% 24% 20% 10% 0% Male Female OF PERSONS
80%
75%
70%
60%
50%
40%
30%
24%
20%
10%
0%
Male
Female
OF PERSONS IN %NO.

GENDER

INTERPRETATION:

76% of the male are interested in currency market.

Only 24% of the females are interested in currency market.

Age:

Age (years)

No. of persons

No. of persons in %

20-30

8

16%

30-40

21

42%

40-50

11

22%

50 & Above

10

20%

45% 42% 40% 35% 30% 25% 22% 20% 20% 16% 15% 10% 5% 0% 20
45%
42%
40%
35%
30%
25%
22%
20%
20%
16%
15%
10%
5%
0%
20 - 30
30 - 40
40 - 50
50 & Above
OF PERSONS IN %NO.

AGE (YEARS)

INTERPRETATION:

16% persons of 20 30 age group are interested in currency market.

42% persons of 30 40 age group are interested in currency market.

22% persons of 40 50 age group are interested in currency market.

20% persons of 50 & above age are interested in currency market.

Education Qualification:

Education Qualification

No. of persons

No. of persons in %

H.S.C

5

10%

Graduate

27

54%

Post Graduate

16

32%

Other

2

4%

60%

54%

50% 40% 32% 30% 20% 10% 10% 4% 0% H.S.C Graduate Post Graduate Other OF
50%
40%
32%
30%
20%
10%
10%
4%
0%
H.S.C
Graduate
Post Graduate
Other
OF PERSONS IN %NO.

EDUCATION QUALIFICATION

INTERPRETATION:

10% persons are H.S.C.

54% persons are Graduates.

32% persons are Post Graduates.

4% persons are others.

Occupation:

Occupation

No. of persons

No. of persons in %

Business

22

44%

Self Employment

10

21%

Service

13

26%

Student

2

4%

Housewife

3

6%

Other

0

0%

50% 44% 45% 40% 35% 30% 26% 25% 21% 20% 15% 10% 6% 4% 5%
50%
44%
45%
40%
35%
30%
26%
25%
21%
20%
15%
10%
6%
4%
5%
0%
0%
Business
Self
Service
Student
Housewife
Other
OF PERSONS IN %NO.

Employment

OCCUPATION

INTERPRETATION:

44% persons are investors in currency market which belongs to business.

21% persons are investors in currency market which are self employed.

26% persons are investors in currency market which belongs to service.

4% persons are investors in currency market are students.

6% persons are investors in currency market are housewives.

Annual Income:

Annual Income (Rs.)

No. of persons

No. of persons in %

≤ 2,00,000

4

8%

2,00,000 3,50,000

19

38%

3,50,000 5,00,000

20

40%

5,00,000≥

7

14%

45%

40%

40% 38% 35% 30% 25% 20% 14% 15% 10% 8% 5% 0% ≤ 2,00,000 2,00,000
40%
38%
35%
30%
25%
20%
14%
15%
10%
8%
5%
0%
≤ 2,00,000
2,00,000 – 3,50,000
3,50,000 – 5,00,000
5,00,000≥
OF PERSONS IN %NO.

ANNUAL INCOME (RS.)

INTERPRETATION:

8% persons are having income less than or equal to 2,00,000.

38% persons are having income between 2,00,000 3,50,000.

40% persons are having income between 3,50,000 5,00,000.

14% persons are having income more than or equal to 5,00,000.

Q1. What are investment avenues which you are presently investing?

Investment Avenues

No. of persons

No. of persons in %

Equity

8

16%

Currency

15

30%

Commodity

7

14%

IPO

6

12%

Mutual funds

6

12%

Insurance

4

8%

SIP

2

4%

Bonds

2

4%

Others

0

0%

35%

30% 30% 25% 20% 16% 14% 15% 12% 12% 8% 10% 4% 4% 5% 0%
30%
30%
25%
20%
16%
14%
15%
12%
12%
8%
10%
4%
4%
5%
0%
0%
NO. OF PERSONS IN %

INVESTMENT AVENUES

INTERPRETATION:

16% persons are presently investing in equity share.

30% persons are presently investing in currency.

14% persons are presently investing in commodity.

12% persons are presently investing in IPO.

12% persons are presently investing in mutual funds.

8% persons are presently investing in insurance.

4% persons are presently investing in SIP.

4% persons are presently investing in bonds.

Q2. In which currency do you prefer to invest?

Currency

No. of persons

No. of persons in %

USD

20

40%

EURO

15

30%

GBP

11

22%

YEN

3

6%

Others

1

2%

45%

40% 40% 35% 30% 30% 25% 22% 20% 15% 10% 6% 5% 2% 0% USD
40%
40%
35%
30%
30%
25%
22%
20%
15%
10%
6%
5%
2%
0%
USD
EURO
GBP
YEN
Others
OF PERSONS IN %NO.

CURRENCY

INTERPRETATION:

40% persons prefer to invest in USD.

30% persons prefer to invest in EURO.

22% persons prefer to invest in GBP.

6% persons prefer to invest in YEN.

2% persons prefer to invest in other currencies.

Q3. What is the primary objective of your investment in currency?

Objectives

No. of persons

No. of persons in %

Hedging

23

46%

Volatility

17

34%

Speculation

8

16%

Arbitrage

2

4%

50%

46%

45% 40% 34% 35% 30% 25% 20% 16% 15% 10% 4% 5% 0% Hedging Volatility
45%
40%
34%
35%
30%
25%
20%
16%
15%
10%
4%
5%
0%
Hedging
Volatility
Speculation
Arbitrage
OF PERSONS IN %NO.

OBJECTIVES

INTERPRETATION:

46% persons primary objective for investment in currency is hedging.

34% person’s primary objective for investing in currency is volatility.

16% person’s primary objective for investing in currency is speculation.

4% person’s primary objective for investing in currency is arbitrage.

Q4. What is the time duration you invest in currency?

Time Period

No. of persons

No. of persons in %

Intraday

5

10%

Less than 1 month

26

52%

1-2 months

14

28%

2-3 months

3

6%

More than 3 months

2

4%

60%

52%

50% 40% 30% 28% 20% 10% 10% 6% 4% 0% Intraday Less than 1 month
50%
40%
30%
28%
20%
10%
10%
6%
4%
0%
Intraday
Less than 1 month
1-2 months
2-3 months
More than 3 months
OF PERSONS IN %NO.

TIME PERIOD

INTERPRETATION:

10% persons invest currency on intraday.

52% persons invest currency for less than 1 month.

28% persons invest currency for 1-2 months.

6% persons invest currency for 2-3 months.

4% persons invest currency for more than 3 months.

Q5. What factors do you determine at the time of investing in currency?

Factors to Determine

No. of persons

No. of persons in %

Economy

20

40%

Political

5

10%

Industrial

10

20%

Export-Import

12

24%

Infrastructure

3

6%

Other

0

0%

45%

40%

40% 35% 30% 24% 25% 20% 20% 15% 10% 10% 6% 5% 0% 0% Economy
40%
35%
30%
24%
25%
20%
20%
15%
10%
10%
6%
5%
0%
0%
Economy
Political
Industrial
Export-Import
Infrastructure
Other
OF PERSONS IN %NO.

FACTORS

INTERPRETATION:

40% persons determine economy factors at the time of investing in currency.

10% persons determine political factors at the time of investing in currency.

20% persons determine industrial factors at the time of investing in currency.

24% persons determine export-import factors at the time of investing in currency.

6% persons determine infrastructural factors at the time of investing in currency.

Q6. How many percentage of money do you invest in currency from your income?

% of money

No. of persons

No. of persons in %

10%

11

22%

11% - 20%

25

50%

21% - 30%

9

18%

31% ≥

5

10%

60%

50%

50% 40% 30% 22% 20% 18% 10% 10% 0% ≤ 10% 11% - 20% 21%
50%
40%
30%
22%
20%
18%
10%
10%
0%
≤ 10%
11% - 20%
21% - 30%
31% ≥
OF PERSONS IN %NO.

% OF MONEY

INTERPRETATION:

22% persons invest ≤ 10% of their income in currency.

50% persons invest 11% -20% of their income in currency.

18% persons invest 21% - 30% of their income in currency.

10% persons invest 31% ≥ of their income in currency.

Q7. Which currency do you most rely on?

Currency

No. of persons

No. of persons in %

USD

18

36%

EURO

16

32%

GBP

11

22%

YEN

5

10%

Other

0

0%

40% 36% 35% 32% 30% 25% 22% 20% 15% 10% 10% 5% 0% 0% USD
40%
36%
35%
32%
30%
25%
22%
20%
15%
10%
10%
5%
0%
0%
USD
EURO
GBP
YEN
Other
OF PERSONS IN %NO.

CURRENCY

INTERPRETATION:

36% persons rely on USD.

32% persons rely on EURO.

22% persons rely on GBP.

10% persons rely on YEN.

Q8. Type of return you expect in currency?

Scale

Very low

Low

Nutral

High

Very high

No. of persons

2

6

16

22

4

No. of persons in

4%

12%

32%

41%

8%

%

50%

44% 45% 40% 35% 32% 30% 25% 20% 15% 12% 10% 8% 4% 5% 0%
44%
45%
40%
35%
32%
30%
25%
20%
15%
12%
10%
8%
4%
5%
0%
Very low
Low
Nutral
High
Very high
OF PERSONS IN %NO.

SCALE

INTERPRETATION:

4% persons expect very low return in currency.

12% persons expect low return in currency.

32% persons expect nutral return in currency.

44% persons expect high return in currency.

8% persons expect very high return in currency.

Q9. How much riskier is currency market?

Scale

Very low

Low

Nutral

High

Very high

No. of persons

20

16

10

3

1

No. of persons in %

40%

32%

20%

6%

2%

45% 40% 40% 35% 32% 30% 25% 20% 20% 15% 10% 6% 5% 2% 0%
45%
40%
40%
35%
32%
30%
25%
20%
20%
15%
10%
6%
5%
2%
0%
Very Low
Low
Nutral
High
Very high
NO. OF PERSONS IN %

SCALE

INTERPRETATION:

40% persons say currency market is very low riskier.

32% persons say currency market is low riskier.

20% persons say currency market is nutral.

6% persons say currency market is highly riskier.

2% persons say currency market is very highly riskier.

Q10. Which service of broker you give highest weight age?

Particulars

Rank 1

Rank 2

Rank 3

Rank 4

Research & Advisory based call

20

18

8

4

Low margin

12

10

24

14

Low brokerage

18

20

10

2

Good trading software

3

4

12

31

35 31 30 24 25 20 20 20 18 18 14 15 12 12 10
35
31
30
24
25
20
20
20
18
18
14
15
12
12
10
10
10
8
4
4
5
3
2
0
Research & advisory
based call
Low margin
Low brokerage
Good trading software
NO. OF PERSONS
based call Low margin Low brokerage Good trading software NO. OF PERSONS Rank 1 PARTICULARS Rank

Rank 1

PARTICULARS

based call Low margin Low brokerage Good trading software NO. OF PERSONS Rank 1 PARTICULARS Rank

Rank 2

based call Low margin Low brokerage Good trading software NO. OF PERSONS Rank 1 PARTICULARS Rank

Rank 3

based call Low margin Low brokerage Good trading software NO. OF PERSONS Rank 1 PARTICULARS Rank

Rank 4

INTERPRETATION:

Here I have used rank order to measure the customer’s preference towards service provided from the broker. There are several type of investors and their preference also varies. The 20 persons rated Research & Advisory call on the first rank. On second rank 20 persons prefer the low brokerage. The fewer margin is on third position 24 persons rank it & on forth good trading software is preferred. The person who does online trading are prefer a good trading software. And the most preferable service is advisory calls & low brokerage. To attract new clients broker can attract with low brokerage slab % research & advisory call.

CHAPTER 6

SUMMARY AND CONCLUSIONS

6.1 SUMMARY

India has the third largest investor base in the world after USA and Japan. Over 7500 companies are listed on the Indian stock exchanges (more than the number of companies listed in developed markets of Japan, UK, Germany, France, Australia, Switzerland, Canada and Hong Kong.). The Indian capital market is significant in terms of the degree of development, volume of trading, transparency and its tremendous growth potential. India’s market capitalization was the highest among the emerging markets. Total market capitalization of The Bombay Stock Exchange (BSE), which, as on July 31, 1997, was US$ 175 billion has grown by 37.5% percent every twelve months and was over US$ 834 billion as of January, 2007. Bombay Stock Exchanges (BSE), one of the oldest in the world, accounts for the largest number of listed companies transacting their shares on a nationwide online trading system. The two major exchanges namely the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) ranked no. 3 & 5 in the world, calculated by the number of daily transactions done on the exchanges. The Total Turnover of Indian Financial Markets crossed US$ 2256 billion in 2006 An increase of 82% from US $ 1237 billion in 2004 in a short span of 2 years only. Turnover in the Spot and Derivatives segment both in NSE & BSE was higher by 45% into 2006 as compared to 2005. With daily average volume of US $ 9.4 billion, the Sensex has posted excellent returns in the recent years. Currently the market cap of the Sensex as on July 2013 was Rs 48.4 Lakh Crore with a P/E of more than 20. Derivatives trading in the stock market have been a subject of enthusiasm of research in the field of finance the most desired instruments that allow market participants to manage risk in the modern securities trading are known as derivatives. The derivatives are defined as the future contracts whose value depends upon the underlying assets. If derivatives are introduced in the stock market, the underlying asset may be anything as component of stock market like, stock prices or market indices, interest rates, etc. The main logic behind derivatives trading is that derivatives reduce the risk by providing an additional channel to invest with lower trading cost

and it facilitates the investors to extend their settlement through the future contracts. It provides extra liquidity in the stock market.

Derivatives are assets, which derive their values from an underlying asset. These underlying assets are of various categories like

• Commodities including grains, coffee beans, etc.

• Precious metals like gold and silver.

• Foreign exchange rate.

•Bonds of different types, including medium to long-term negotiable debt securities issued by governments, companies, etc.

• Short-term debt securities such as T-bills.

• Over-The-Counter (OTC) money market products such as loans or deposits.

• Equities

For example, a dollar forward is a derivative contract, which gives the buyer a right & an obligation to buy dollars at some future date. The prices of the derivatives are driven by the spot prices of these underlying assets.

However, the most important use of derivatives is in transferring market risk, called Hedging, which is a protection against losses resulting from unforeseen price or volatility changes. Thus, derivatives are a very important tool of risk management. There are various derivative products traded. They are;

1. Forwards

2. Futures

3. Options

4. Swaps

“A Forward Contract is a transaction in which the buyer and the seller agree upon a delivery of a specific quality and quantity of asset usually a commodity at a specified future date. The price may be agreed on in advance or in future.” “A Future contract is a firm contractual agreement between a buyer and seller for a specified as on a fixed date in future. The contract price will vary according to the market place but it is fixed when the trade is made.

The contract also has a standard specification so both parties know exactly what is being done”. “An Options contract confers the right but not the obligation to buy (call option) or sell (put

option) a specified underlying instrument or asset at a specified price the Strike or Exercised price up until or an specified future date the Expiry date. The Price is called Premium and is paid by buyer of the option to the seller or writer of the option.”

A call option gives the holder the right to buy an underlying asset by a certain date for a certain

price. The seller is under an obligation to fulfill the contract and is paid a price of this, which is called "the call option premium or call option price".

A put option, on the other hand gives the holder the right to sell an underlying asset by a certain

date for a certain price. The buyer is under an obligation to fulfill the contract and is paid a price

for this, which is called "the put option premium or put option price". “Swaps are transactions which obligates the two parties to the contract to exchange a series of cash flows at specified intervals known as payment or settlement dates. They can be regarded as portfolios of forward's contracts. A contract whereby two parties agree to exchange (swap) payments, based on some notional principle amount is called as a ‘SWAP’

6.2 FINDINGS AND RECOMMENDATIONS

FINDINGS

Males are more aware of share market and are investing in currency derivatives.

People between the age group 30 40 are more interested in currency market.

Majority investors in currency market are businessman.

Many people are investing in currency, equity share, commodity and so on.

People prefer to invest in USD.

The very first primary objective for investing in currency is hedging.

Most of the people invest currency for less than a month.

People determine economic factors at the time of investing in currency.

11% to 20% of money people invest in currency from their income.

USD is the most reliable currency to invest.

Return expected in currency derivative is nutral.

Currency market is not riskier.

RECOMMENDATIONS

Females should also be aware of share market and should be provided with proper

guidance about shares.

Students and housewives can also do trading through sharekhan as it provide the proper

guidance that in which currency they should invest.

People don’t prefer much to invest in YEN.

Arbitrage is not the primary objective to invest in currency for most of the people.

YEN and other currencies are not much reliable.

BIBLIOGRAPHY

NCFM: Currency future Module.

BCFM: Currency Future Module.

Report of the Internal Working Group on Currency Futures .Reserve Bank of India,

Report of the RBI-SEBI standing technical committee on exchange traded (Currency futures)

WEBLIOGRAPHY

www.mcx-sx.com

ANNEXURES

QUESTIONNAIRE

Name:

Gender:

Gender: Male Female

Male

Gender: Male Female

Female

Age:

30 – 40 40 30 –

20

- 30

40

Male Female Age: 30 – 40 20 - 30 40 – 50 50 Above Education Qualification:

50

Female Age: 30 – 40 20 - 30 40 – 50 50 Above Education Qualification: H.S.C

50 Above

Education Qualification:

20 - 30 40 – 50 50 Above Education Qualification: H.S.C Post Graduate Graduate Other Ocuupation:

20 - 30 40 – 50 50 Above Education Qualification: H.S.C Post Graduate Graduate Other Ocuupation:

H.S.C

Post Graduate

50 50 Above Education Qualification: H.S.C Post Graduate Graduate Other Ocuupation: Annual Income: Business Student

Graduate

Above Education Qualification: H.S.C Post Graduate Graduate Other Ocuupation: Annual Income: Business Student Self

Other

Ocuupation:

Annual Income:

Post Graduate Graduate Other Ocuupation: Annual Income: Business Student Self Employment House Wife Service Other

Post Graduate Graduate Other Ocuupation: Annual Income: Business Student Self Employment House Wife Service Other

Business

Student

Self Employment House Wife
House WifeSelf Employment

Annual Income: Business Student Self Employment House Wife Service Other 2,00,000 – 3,50,000 5,00,0 00 ≥

Annual Income: Business Student Self Employment House Wife Service Other 2,00,000 – 3,50,000 5,00,0 00 ≥

Service

Other

2,00,000 – 3,50,000 3,50,000

5,00,000 ≥ 00 ≥

≤ 2,00,000Wife Service Other 2,00,000 – 3,50,000 5,00,0 00 ≥ 3,50,000 – 5,00,000 Q1. What are investment

3,50,000 – 5,00,000 5,00,000

Q1. What are investment avenues which you are presently investing?

are investment avenues which you are presently investing? Equity IPO SIP Currency Mutual Fund Bonds Q2.

are investment avenues which you are presently investing? Equity IPO SIP Currency Mutual Fund Bonds Q2.

are investment avenues which you are presently investing? Equity IPO SIP Currency Mutual Fund Bonds Q2.

Equity

IPO

SIP

avenues which you are presently investing? Equity IPO SIP Currency Mutual Fund Bonds Q2. In which

avenues which you are presently investing? Equity IPO SIP Currency Mutual Fund Bonds Q2. In which

avenues which you are presently investing? Equity IPO SIP Currency Mutual Fund Bonds Q2. In which

Currency

Mutual Fund

Bonds

Q2. In which currency do you prefer to invest?

Fund Bonds Q2. In which currency do you prefer to invest? USD JPY EURO Other Commodity

Fund Bonds Q2. In which currency do you prefer to invest? USD JPY EURO Other Commodity

USD

JPY

Bonds Q2. In which currency do you prefer to invest? USD JPY EURO Other Commodity Insurance

Bonds Q2. In which currency do you prefer to invest? USD JPY EURO Other Commodity Insurance

EURO

Other

Commoditywhich currency do you prefer to invest? USD JPY EURO Other Insurance Others GBP Q3. What

do you prefer to invest? USD JPY EURO Other Commodity Insurance Others GBP Q3. What is

do you prefer to invest? USD JPY EURO Other Commodity Insurance Others GBP Q3. What is

do you prefer to invest? USD JPY EURO Other Commodity Insurance Others GBP Q3. What is

Insurance

Others

GBP

Q3. What is the primary objective of your investment in currency?

is the primary objective of your investment in currency? Hedging Arbitrage Volatility Other Speculation Q4. What

is the primary objective of your investment in currency? Hedging Arbitrage Volatility Other Speculation Q4. What

Hedging

Arbitrage

objective of your investment in currency? Hedging Arbitrage Volatility Other Speculation Q4. What is the time

objective of your investment in currency? Hedging Arbitrage Volatility Other Speculation Q4. What is the time

Volatility

Other

investment in currency? Hedging Arbitrage Volatility Other Speculation Q4. What is the time duration you invest

Speculation

Q4. What is the time duration you invest in currency?

Q4. What is the time duration you invest in currency? Intraday 2-3 months Less than 1

Intraday

2-3 monthsQ4. What is the time duration you invest in currency? Intraday Less than 1 month More

Less than 1 month More than 3 months
More than 3 monthsLess than 1 month

What is the time duration you invest in currency? Intraday 2-3 months Less than 1 month

1-2 months

Q5. What factors do you determine at the time of investing in currency?

Economy

Export-Importyou determine at the time of investing in currency? Economy Industrial Infrastructure Political Other Q6. How

at the time of investing in currency? Economy Export-Import Industrial Infrastructure Political Other Q6. How many

Industrial

Infrastructureof investing in currency? Economy Export-Import Industrial Political Other Q6. How many percentage of money do

in currency? Economy Export-Import Industrial Infrastructure Political Other Q6. How many percentage of money do you

in currency? Economy Export-Import Industrial Infrastructure Political Other Q6. How many percentage of money do you

Political

OtherEconomy Export-Import Industrial Infrastructure Political Q6. How many percentage of money do you invest in currency

Q6. How many percentage of money do you invest in currency from your income?

of money do you invest in currency from your income? ≤ 10% 21% - 30% 11%

of money do you invest in currency from your income? ≤ 10% 21% - 30% 11%

≤ 10% 21% - 30%

you invest in currency from your income? ≤ 10% 21% - 30% 11% - 12% 31%

you invest in currency from your income? ≤ 10% 21% - 30% 11% - 12% 31%

11% - 12%

31%

Q7. Which currency do you most rely on?

- 30% 11% - 12% 31% Q7. Which currency do you most rely on? USD JYP

- 30% 11% - 12% 31% Q7. Which currency do you most rely on? USD JYP

USD

JYP

- 12% 31% Q7. Which currency do you most rely on? USD JYP EURO Other GBP

- 12% 31% Q7. Which currency do you most rely on? USD JYP EURO Other GBP

EURO

Other

Q7. Which currency do you most rely on? USD JYP EURO Other GBP Q8. Type of

GBP

Q8. Type of return you expect in currency market?

 

Low

1

2

3

4

5

High

Q9. How much riskier is currency market?

 
 

Low

1

2

3

4

5

High

Q10. Which service of broker you give highest age? (rate among 1 to 4)

Particulars

Rank

Research & Advisory Based Call

Less Margin

Low Brokerage

Good Trading Software