Mumbai:
The Reserve Bank of India has allowed commercial banks
(excluding regional rural banks) and primary dealers to
sell derivative products.
According
to the revised guidelines on derivatives by the RBI banks
and primary dealers can trade in rupee interest rate derivatives,
which includes Interest Rate Swap (IRS), Forward Rate
Agreement (FRAs) and Interest Rate Futures, Foreign Currency
derivatives and Foreign Currency Forward, which includes
Currency Swap and Currency Option.
The
RBI defines derivative as an instrument, settled at a
future date, whose value is derived from a change in interest
rate, foreign exchange rate, credit rating or credit index,
price of securities (also called "underlying"),
or a combination of more than one of them.
Banks
may undertake interest rate futures transactions to hedge
the interest rate risk on their investments in government
securities in AFS and HFT portfolios.
All
permitted derivative transactions, including roll over,
restructuring and novation shall be contracted only at
prevailing market rates. The notification further explains,
that all risks arising from derivatives exposures should
be analysed and documented, both at transaction and portfolio
level.
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