Posts Tagged ‘Yen’

Weekly Update 20th – 24th September 2010

Global market rallied in the week gone by after Japan intervened in the currency market to weaken yen and Chinese and U.S. economic reports raised the confidence of global growth. Stocks rallied in Japan after it intervened in the currency market to stem the Yen appreciation. The yenweakened to 85.85 per dollar after climbing as high as 82.88 per dollar earlier inthe week, the strongest level since May 1995.

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Continuous reversal in Yen may leadto more investment in exporter companies in the region. The concerns overmoderate expansion in China got erased as the data showed that Industrial Production expanded 13.9 percent in August. The data gave optimism on global growth and led to rally in metals.

Consumer sentiment in U.S. fell to one year lowof 66.6 from 68.9 in August increasing the risk that consumer will cut back on theirpurchases.In India, RBI, in order to anchor inflationary expectations and as a step tocontinue the process of normalisation of the monetary policy instruments raisedborrowing costs for the fifth time this year.

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It raised Repurchase (repo) Rate to 6percent from 5.75 percent, and the reverse-repurchase rate to 5 percent from4.5 percent. It seems that for now, RBI has done enough to contain inflationarypressures and as the repo rate is the operative policy rate therefore thetransmission from policy rates to market rates has strengthened.

Going forward,we expect that RBI would give due weigh to the macro economic situation ratherthan only inflationary pressures before doing any adjustment in monetary policyinstruments.We expect the market to remain firm as even advance tax numbers were higherthan that of last year. Next week U.S. Federal Reserve is expected to give stimuluspackage in its meeting scheduled on 31st September seeing the worrisomesituation of high unemployment and weakness in construction activity asindicated by the latest Fed Beige book finding.

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With the positivity from the global front, we are steadily approaching near the alltime high zone and likely to extend the up move in the coming weeks withrequired consolidation for the sustainable move. Nifty has support between 5700-5550 and sensex between 19200-18800.Another round of quantitative easing by the fed amid falling dollar proved supportive to the bullions and once again lovable gold made life time high acrossthe bourses. Though it made life time high on MCX as well but upside was limiteddue to appreciation in local currency. Silver is also rocking on heavy investmentdemand. Even base metals recovered as many central banks maintained low borrowing cost but slow recovery is capping the upside of industrial metals. Evenfalling crude oil is indicating ambiguous trend. This week, bullions may see aconfident move further on fundamental and technical support.

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Nevertheless,appreciation in currency may lock the price movements to some extent on domestic bourses. FOMC meet regarding interest rate will provide further direction to commodities. Expect a volatile week for agro commodities as expiryof September contract is scheduled on Monday.

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CURRENCY FUTURE – BETTER FUTURE FOR CURRENCY TRADERS

There is good news for currency traders who would like to trade in currency futures. After trading in dollar-rupee futures, now corporate and retail investors will also be able to trade in currencies such as Euro, and Japanese Yen.

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Currently dollar-rupee futures are trading on three recognized exchanges, NSE, MCX Stock Exchange and BSE. But the currency derivative is liquid only on the first two bourses, which have together posted an average daily turnover of around Rs. 18,566 crore in December, up from a couple of thousand crore when the currency futures trading commenced in the second-half of 2008.

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NSE commenced currency futures trading in India on 29th August 2008. It has witnessed healthy growth in the turnover and open interest positions during its first completed month of currency futures trading in India.

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Brief of currency future

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Currency futures contracts are those contracts which allow investors to hedge against foreign exchange risk and traders to speculate on the movement in Currency. Since these contracts are marked-to-market daily, investors can exit from their obligation to buy or sell the currency prior to the contract’s delivery date.

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Major Profitable accounts

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The introduction of new currency pairs will go a long way in helping market participants, especially international traders, hedge against cross-currency Volatility and mitigate risk in export and imports across all major traded currencies and will add depth to the exchange-traded currency futures market.

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Along with the above mentioned participants, Currency futures trading in India has generated huge interest among Indian retail investors and traders.

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There is a strong demand for information gathering about the intricacies of currency futures from small investors and enterprises. For instance, entities that have borrowings in Euro will get one more avenue, apart from the over-the-counter market that is dominated by banks, to hedge them against volatility in the 16-nation common currency.

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Due to the transparent mechanism of execution in currency futures trade, increased participation by corporations and high net worth individuals, too, could be witnessed.

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Contract specification

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As in the case of the dollar-rupee futures, the contract size has been fixed at 1,000 units each for pound and euro, and 100,000 units for the yen, across 12 concurrently available contracts, one for each month.

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The contracts, like the existing dollar futures, would be cash-settled in rupees and the settlement price would be at RBI’s reference rate for all the four currencies.

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However, there are different initial margins (cash) that an investor needs to put up for trading each currency on day one and subsequently though this has not been changed for the dollar.

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The market regulator has also decided to modify the calendar spread margin to be applied on the dollar-rupee contracts.

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All the new contracts would be quoted in rupee terms, while the outstanding positions would be in the respective foreign currency terms.

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The maximum maturity of the contract would be 12 months, while all monthly maturities from 1 to 12 months would be made available.

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The contracts would be settled in cash in rupees.

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The client-level position limit has been capped at 6 per cent of the total open interest position.

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Responses:

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Market participants responded enthusiastically to the inclusion of these new currency pairs. The three new currency pairs clocked Rs. 1,98,761 contracts resulting from 7,762 trades at a total value of Rs. 1,277.13-crore on the NSE on day first, which is approximately comes out to be 9.61 percent of the total turnover in value terms. Out of the three new pairs, euro-rupee (EURINR) was the most traded currency pair clocking 1, 82,013 contracts.

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Total contracts and open interest in EUR/INR and GBP/INR:



First Traders inception of currency futures 🙂

The first trade in the new currency pairs was executed by East India Securities, IndusInd Bank executed the first trade amongst banks. Union Bank was the first PSU bank to trade and execute the single largest trade. ICICI Bank and State Bank also participated actively. This market has now become bigger than the cash segment of the equity market, which recorded average volumes of Rs. 20,000 crore last month.

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The beauty of exchange-traded currency futures are that they allow a participant to directly buy or sell the Dollar,Euro,Yen or GBP without having an underlying exposure, so it’s also a view-based market. One can take this opportunity of investing smartly in currency futures and gain by every tick.

Stay Tuned for More updates 🙂

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Dollar Supremacy to End? New Global Reserve Currency to Set In ?

UN called on Tuesday for a new global reserve currency to end dollar supremacy. Is dollar Supremacy at risk?

UN called for a new global reserve currency to end dollar supremacy. Is dollar Supremacy at risk?

The United Nations has called on for a new global reserve currency to end dollar supremacy, which has allowed the United States the “privilege’’ of building a huge trade deficit.

“Important progress in managing imbalances can be made by reducing the reserve currency country’s ‘privilege’ to run external deficits in order to provide international liquidity,’’ UN undersecretary-general for economic and social affairs, Sha Zukang, said.

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Speaking at the annual meetings of the International Monetary Fund and World Bank in Istanbul, he explained:

“It is timely to emphasis that such a system also creates a more equitable method of sharing the seigniorage derived from providing global liquidity.’’

Greater use of a truly global reserve currency, such as the IMF’s special drawing rights (SDRs), enables the seigniorage gained to be deployed for development purposes,’’ he said.

The SDRs are the asset used in IMF transactions and are based on a basket of four currencies—the dollar, euro, yen and pound—which is calculated daily.

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China had called in March for a new dominant world reserve currency instead of the dollar, in a system within the framework of the Washington based IMF.

Beside this another worrying news for Dollar lovers is floating around that Arab states had launched secret moves with China, Russia, Japan and France to stop using the dollar for oil trades, though denied by many of arab states.

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Allot IDRs on proportionate basis: SEBI

Allot IDRs on proportionate basis: SEBI

Market regulator SEBI today said that the allotment of Indian Depository Receipts, a tool used by foreign companies to raise funds from Indian bourses, should be made on proportionate basis and not at the discretion of the issuer.

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“Allotment to all these categories shall be made on proportionate basis only,” SEBI said, amending its guidelines concerning general and disclosure requirements pertaining to IDR issues.

The market regulator further said that in case of underwritten issues, if the issuing company does not receive the minimum subscription of 90 per cent of the net offer, from the date of closure of the issue, the issuing company shall forthwith refund the entire subscription amount received.

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Underwriting refers to the process that a large financial service provider like a bank or investment house undertakes to assess the eligibility of a customer to receive their financial products and in case the product is not bought, the financial service provider takes them.

Commenting on it, SMC Capitals Equity Head Jagannadham Thunuguntla said, “It is a right step for creating a good IDR market in India. It will help in smooth execution of IDRs.”

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SEBI further said that the audited financial statements should be prepared in accordance with Indian GAAP, or with the International Financial Reporting Standards (IFRS) or US GAAP, for a period of three financial years immediately preceding the date of prospectus.

The report prepared by the statutory auditors of the issuing company should disclose financial statements in Indian rupees, while the issuing company would do it in Sterling Pound, Euro, Yen or US Dollar. 🙂