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CA Final · Advanced Financial Management · Foreign Exchange Exposure and Risk Management

Which statement about exchange-traded currency futures in India is correct?

The correct statement is that the clearing corporation guarantees settlement and positions are marked to market daily in rupees. Currency futures are standardised, margin-based and cash-settled in rupees, unlike forwards, which are customised, bilateral and usually settled by actual delivery, carrying counterparty risk.

  1. AThey are settled by physical delivery of the foreign currency at expiry
  2. BThe exchange's clearing corporation guarantees settlement, and positions are marked to market daily in rupeesCorrect
  3. CContract terms such as size and maturity are negotiated individually between the two parties
  4. DThere is no margin requirement because the counterparty risk is borne by the buyer

Explanation

Currency futures on Indian exchanges are standardised contracts, cash-settled in rupees, with the clearing corporation acting as counterparty to both sides, and daily mark-to-market with margins. Negotiated terms and absence of margin describe forwards, not futures. Physical delivery does not occur.

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