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Exchange Traded Currency Derivative

Published: 5th Apr, 2024

Context

A notification from the RBI on hedging of foreign currency risk caused a stir among market as it restricted the use of exchange traded currency derivative.

What is ETD?

An Exchange Traded Derivative is a standardised financial contract that is traded on stock exchanges in a regulated manner.
They are subject to the rules drafted by market regulators such as the Securities and Exchange Board of India (SEBI).

Fact Box: Derivatives

Derivatives are financial contracts that derive their values from the price fluctuations of their underlying assets such as stocks, currency, bonds, commodities etc.
Essentially, there are two types of derivatives;
- Exchange Traded Derivatives (ETDs): It is subject to standardised terms and conditions, hence, traded in the stock exchanges.
- Over the Counter (OTC) derivative: It is traded between private counter-parties, in the absence of a formal intermediary

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