Currency Derivatives: Contract Specs and MTM
Currency Derivatives tests the exchange-traded currency segment: USD/INR futures and options plus the cross pairs. The rules are mechanical - contract size, tick, settlement and reference rate - and questions usually ask for a mark-to-market figure or a contract value.
Contract specification
- USD/INR futures have a contract size of USD 1,000; EUR/INR and GBP/INR are 1,000 units each, and JPY/INR is JPY 1,00,000.
- Tick size is 0.25 paise for USD/INR and 0.5 paise for the other pairs.
- Contracts are cash-settled in INR; options are European and no foreign currency is ever delivered.
- Tenors run up to 12 months, and the final settlement price is based on the RBI reference rate on the expiry day.
Margins and MTM
- Initial margin and daily mark-to-market are computed in rupees on the rupee value of the position.
Worked example. A dealer buys 10 USD/INR futures contracts at 83.20. Contract size is USD 1,000, so notional = 10 × 1,000 × 83.20 = ₹8,32,000. At settlement the rate is 83.45. Profit = 10 × 1,000 × (83.45 − 83.20) = 10,000 × 0.25 = ₹2,500. Remember the tick is 0.25 paise = ₹0.0025, so a one-tick move is worth only ₹25 across ten contracts.
Traps. Multiplying the rate change by the rupee notional instead of the USD notional is the most frequent error. Do not treat the tick as ₹0.25 or assume American exercise. Profits and losses are settled in INR, and there is no option to take or make delivery of dollars.