Uses of Currency Futures at NSE
The National Stock Exchange (NSE) offers currency futures trading in India. Currency futures are standardized contracts that allow traders to buy or sell a specific amount of a currency at a predetermined price and date in the future. Here are some of the uses of currency futures at NSE:
- Hedging: Currency futures can be used by traders and investors to hedge against potential losses due to currency fluctuations. For example, an Indian company that imports goods from the United States may use currency futures to lock in a specific exchange rate for the US dollar to protect against the risk of the Indian rupee appreciating.
- Speculation: Currency futures also provide an opportunity for traders to speculate on the direction of currency prices. Traders can take a long or short position on a currency futures contract, depending on their view of the market.
- Arbitrage: Currency futures can be used by traders to take advantage of pricing discrepancies between different markets. For example, if the price of a currency futures contract on the NSE is lower than the price of the same contract on another exchange, a trader could buy the contract on the NSE and sell it on the other exchange to make a profit.
- Investment: Currency futures can also be used as an investment instrument by traders and investors. By taking a long position on a currency futures contract, investors can benefit from the appreciation of the underlying currency.
Overall, the use of currency futures at NSE provides traders and investors with a range of options to manage currency risk, speculate on currency prices, and make investments based on their market views.
Practice Questions
1. What is the purpose of using currency futures at NSE?
A) To invest in the stock market
B) To manage currency risk
C) To buy and sell commodities
D) To trade in the bond market
Answer: B
2. How can currency futures be used for hedging at NSE?
A) By taking a long position on a currency futures contract
B) By taking a short position on a currency futures contract
C) By buying stocks of a company
D) By buying commodities in the spot market
Answer: B
3. What is the purpose of using currency futures for speculation at NSE?
A) To make investments based on market views
B) To manage currency risk
C) To buy and sell commodities
D) To trade in the bond market
Answer: A
4. How can currency futures be used for arbitrage at NSE?
A) By taking a long position on a currency futures contract
B) By taking a short position on a currency futures contract
C) By buying a contract on NSE and selling it on another exchange
D) By buying stocks of a company
Answer: C
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