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Today's podcast explores RBI's directive on currency derivatives trading in India, delving into differences between forward and futures contracts, reasons behind the directive, and potential market implications.
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Quick takeaways
- RBI's directive aims to curb speculative trading in currency derivatives market to reduce volatility.
- Tightening regulations on currency trading helps manage rupee's volatility and prevent speculative pressures.
Deep dives
Impact of RBI's Directive on Currency Derivatives Market
The RBI's recent directive on trading currency derivatives on exchanges aims to curb speculative trading in the market. With over 70% of activity driven by speculators rather than those with genuine foreign currency exposure, the RBI now requires traders to verify their real exposure to the currency. By introducing this measure, the RBI hopes to reduce volatility in the rupee and prevent self-fulfilling prophecies where speculators dictate currency movements. This move may lead to a decline in market participation, impacting price discovery and potentially affecting small companies needing to hedge currency exposure.
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Listen to the best highlights from the podcasts you love and dive into the full episode