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Interplay Between Exchange Traded Currency Futures Markets, Spot Markets and Forward Markets: A Study on India

Author

Listed:
  • GURU, ANURADHA

    (Ministry of Finance, Government of India)

Abstract

Exchange traded currency futures, in the Indian Rupee- Dollar currency pair have recently been introduced in India last year. This paper empirically tests the impact of currency futures trading on volatility and returns of underlying spot exchange rates. The informational advantage in exchange traded currency futures contracts relative to OTC (Over-the-Counter) contract is also tested. Results indicate that both speculative and hedging activities in the futures market for currency have no influence on the volatility in the underlying exchange markets. The returns in futures markets are seen to be driving the returns in spot markets, indicating the information advantage of the futures markets. Further, results indicate that the information content of futures markets is higher than that of forward markets.

Suggested Citation

  • Guru, Anuradha, 2010. "Interplay Between Exchange Traded Currency Futures Markets, Spot Markets and Forward Markets: A Study on India," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 45(1), pages 111-130.
    • Handle: RePEc:dse:indecr:0017
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    Citations

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    Cited by:

    1. Syarifuddin, Ferry, 2020. "Macroeconomic Consequences of Foreign Exchange Futures Market for Inflation Targeting Economies," MPRA Paper 104810, University Library of Munich, Germany.
    2. Sanjay Sehgal & Mala Dutt, 2018. "Domestic and International Information Linkages for the US Dollar/Indian Rupee Contracts: An Empirical Study," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 43(4), pages 205-233, November.
    3. Woradee Jongadsayakul, 2024. "Foreign Exchange Futures Trading and Spot Market Volatility in Thailand," Risks, MDPI, vol. 12(7), pages 1-21, June.
    4. Ferry Syarifuddin, 2020. "Macroeconomic Consequences Of Foreign Exchange Futures," Working Papers WP/14/2020, Bank Indonesia.
    5. Biswal, P.C. & Jain, Anshul, 2019. "Should central banks use the currency futures market to manage spot volatility? Evidence from India," Journal of Multinational Financial Management, Elsevier, vol. 52.

    More about this item

    Keywords

    Exchange Traded Currency Futures; Over-the-Counter Derivatives; Domestic Forwards Markets;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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