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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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