Dubai to offer exchange traded rupee futures

Dubai to Offer First Exchange-Traded Rupee Futures (Update1)
By Matthew Brown
June 6 (Bloomberg) -- Dubai Gold & Commodities Exchange will tomorrow begin offering the world's first exchange-traded futures contracts in Indian rupee, helping companies and investors hedge against risks.
The contracts, linked to the future value of the rupee, will be settled in euros, David Rutledge, a director at DGCX, told reporters today in Dubai, United Arab Emirates. The market is outside the jurisdiction of India's central bank, which places curbs on trading in the rupee, he said.
``There is a real commercial need for this product,'' Rutledge said. ``Anyone involved in international trade with a rupee currency risk'' might be interested, he said. A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.
Trading on a futures market is a more transparent alternative to so-called non-deliverable forwards, which are derivatives contracts arranged by banks. Trading in such rupee- based contracts averaged about $500 million a day in the second quarter of 2006, according to the Bank for International Settlements in Basel, Switzerland.
India's currency climbed 8.8 percent this year on increased capital flows as Asia's fourth-biggest economy expanded at the fastest pace in almost two decades.
The exchange plans to offer the contracts to institutions and individuals, including almost four million expatriate Indian workers in the region who sent $6 billion in remittances in the year ended March 31, 2006.
``This is an opportunity for overseas banks to cater to a huge market,'' said V. Rajagopal, chief currency trader at Kotak Mahindra Bank Ltd. in Mumbai. ``Trading in the exchange will also have an impact on the spot rupee market here in India.''
Transparent Market
The implied rate for the currency in the forwards market in Mumbai suggest that the rupee will trade at 41.78 against the dollar, compared with the spot rate of 40.66, according to data compiled by Bloomberg.
Derivatives are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in the weather or interest rates. Forwards are agreements to buy assets at a later specified date. A non- deliverable forward is typically settled in dollars and involves no physical exchange of other currencies.
The DGCX contract, to be traded on Dubai's two-year-old commodities exchange, will compliment the NDF market, Rutledge said. Dubai is India's third-biggest trading partner.
``The advantage of an exchange-traded contract is that it is accessible at a low cost and is transparent,'' Rutledge said. Banks offering NDFs ``can hedge some risk'' through the DGCX contract, he said. ``It will be easier for them to offer NDFs.''
DGCX is a venture between Dubai Multi Commodities Center, Financial Technologies India Ltd. and Multi-Commodity Exchange of India Ltd., according to the DGCX Web site.
Its first product was a gold contract, which began trading in November 2005, and has since been followed by silver, currencies, including the pound, euro and yen, and fuel oil. DGCX's steel futures contract will debut June 27.