Currency Derivative

Currency Derivatives : Overview

The examination seeks to create a common minimum knowledge benchmark for persons working in the Currency Derivatives market segment, in order to enable a better understanding of currency markets and exchange traded currency future products, better quality investor service, operational process efficiency and risk controls.

  • Know the basics of currency markets and specifically Exchange Traded Currency Derivatives markets. This is the addtion.
  • Understand the trading, clearing and settlement mechanisms related to Currency Derivatives markets and basic investment strategies that use currency futures and options products.
  • Know the regulatory environment in which the Currency Derivatives markets operate in India.

 Currency Derivatives : Fees Details

Name of Examination: NISM-Series-I: Currency Derivatives Certification Examination

Fees (Rs.) Test Duration (in minutes) No. of Questions Maximum Marks Pass Marks* (%) Certificate Validity (in years)#
1500+ 120 100 100 60 3

 Chapter – I : Introduction to Currency Markets

  •  History of foreign exchange markets
  •  Major currency pairs
  •  Overview of international currency markets
  •  Basics and Peculiarities of currency markets in India
  •  Settlement or value date
  •  Over-the-Counter (OTC) forward market
  •  Exchange rate arithmetic- cross rate
  •  Impact of market economics on currency prices
  •  Economic indicators

Chapter – 2 : Foreign Exchange Derivatives

  • Evolution of derivatives
  •  Derivative products and features
  •  Growth drivers of derivatives
  •  Market players in the foreign exchange market
  •  Key economic functions of derivatives
  •  Exchange-Traded Vs. OTC derivatives

Chapter – 3 : Exchange Traded Currency Futures

  •  Currency futures
  •  Spot price
  •  Futures price
  •  Contract cycle
  •  Value date/Final settlement date
  •  Expiry date
  •  Contract size
  •  Initial margin
  •  Marking-to-market
  •  Rationale behind currency futures
  •  Standard items in a futures contract
  •  Introduction of currency futures in India
  •  Futures and forward contracts
  •  Advantages of futures contracts
  •  Limitations of futures contracts
  •  Interest rate parity and pricing of currency futures

Chapter – 4 : Strategies Using Currency Futures

  • Role of speculation in futures markets
  • Long position in futures
  • Short position in futures
  • Hedging using currency futures
  • Types of hedgers
  • Size of the hedging position
  • Trading spreads using currency futures
  • Concept of arbitrage
  • Use of arbitrage in currency futures markets
  • Arbitrage opportunities under various conditions

 Chapter -5 : Trading in Currency Futures

  • Contract specification for currency futures
  • Trading parameters
  • Tenors of futures contract
  • Expiry date
  • Settlement price
  • Entities in the trading system
  • Types of orders
  • Concept of Mark-to-Market (MTM)
  • Position limits
  • Allowable open position limits for members trading in currency futures
  • Monitoring and enforcement of position limits in the currency futures market
  • Surveillance systems and procedures of exchanges

 Chapter- 6 : Clearing, Settlement and Risk Management in Currency Futures

  • Clearing entities
  • Clearing mechanism
  • Open positions and obligations of clearing members
  • Settlement mechanis
  •  MTM settlement
  •  Final settlement
  • Risk management measures
  • Concept of margin requirements
  • Initial margin
  • Portfolio based margin
  • Calendar spread margin
  • Extreme loss margin
  • Liquid net worth
  • Liquid assets
  • Real time computation
  • Process of margin collection by Clearing Corporations

Chapter – 7 : Exchange Traded Currency Options

  • Options
  • Call and put option
  • Bought and sold option
  • Option premium
  • Futures and options
  • European vs. American option
  • Moneyness of an option
  • Option pricing and option Greeks
  • Option pricing methodology
  • Black-Scholes model
  • Binomial pricing model
  • Option pay offs
  • Option strategies
  • Practical application of currency options
  • Clearing, settlement and risk management for currency options
  • Initial margin
  • Extreme loss margin
  • Net option value
  • Calendar margin

Chapter – 8 :  Accounting and Taxation

  • Accounting treatment for derivative contracts
  • Taxation of derivative transaction in securities
  • Tax treatment of profit/loss on derivative transaction in securities

 Chapter – 9 :  Regulatory Framework for Currency Derivatives

  • Features of Securities Contracts (Regulation) Act, 1956 [SC(R)A]
  • Features of Securities and Exchange Board of India Act, 1992
  • Recommendations of the RBI-SEBI Standing Technical Committee on Exchange Traded Currency and Interest Rate Derivatives
  • Provisions of Foreign Exchange Management Act, 1999
  • Salient features of RBI notification ‘Currency Futures (Reserve Bank) Directions, 2008
  • Salient features of RBI Circular, ‘Guidelines on trading of Currency Futures in Recognised Stock / New Exchanges’
  • Salient features of SEBI Regulations for Currency Derivatives Exchanges
  • Regulatory framework for clearing corporations
  • Governing Council of the Exchange and Clearing Corporation
  • Eligibility criteria for membership of currency derivatives exchanges

 Chapter – 10 : Codes of Conduct and Investor Protection Measures

  • Features of SEBI Codes of Conduct for brokers
  • Features of SEBI Codes of Conduct for sub-Brokers
  • Features of Codes of Conduct specific to Exchange Traded Currency Derivatives Segment
  • Grievance redressal mechanism for investors
  • Nature of complaints considered by exchanges
  • Arbitration mechanism at exchanges