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

Anuradha Guru ()
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Anuradha Guru: Ministry of Finance, Government of India, Postal: Indian Economic Service (1999 batch), Department of Economic Affairs, Ministry of Finance, Government of India, New Delhi, India

Indian Economic Review, 2010, vol. 45, issue 1, 111-130

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.

Keywords: Exchange Traded Currency Futures; Over-the-Counter Derivatives; Domestic Forwards Markets (search for similar items in EconPapers)
JEL-codes: G14 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (5)

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