Excerpts From
xii) 45 ‘Contracted exposure’ refers to currency risk arising on account of current and capital
account transactions permissible under the Act or any rules or regulations made
thereunder, that have been entered into;
xiii) 46 ‘Anticipated exposure’ refers to currency risk arising on account of current and
capital account transactions permissible under the Act or any rules or regulations made
thereunder, that are proposed to be entered into in future;
xiv) 47’Currency risk’ means the potential for loss on account of movement in exchange
rates of Rupee against a foreign currency or on account of movement in exchange rates
of one foreign currency against another or on account of movement of interest rate
applicable to a foreign currency;
xv) 48’Hedging’ means the activity of undertaking a foreign exchange derivative
transaction to manage currency risk
And
Schedule I Part 2
- A person may enter into an exchange traded currency derivative contract on an
exchange recognised under section 4 of the Securities Contract (Regulation) Act, 1956.
Contracts involving Rupee shall be subject to the following condition(s):
i) That such contracts shall be for the purpose of hedging a contracted exposure
as defined in these regulations.
ii) That such person shall designate an Authorised Dealer in India for monitoring
of their positions taken beyond such position limits as may be prescribed by the
Reserve Bank of India to an exchange.
iii) That such person shall share the details of the contracted exposure with the
Authorised Dealer when called upon to do so by the dealer.
Things that I see:
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You cannot trade on “Anticipated exposure”, when transaction hasn’t been “already entered into”. If you expect USD income to come, You cannot take derivative trade unless the transaction is already started/“entered into”. You cannot hold positions after the transaction is complete. However, it would seem you can trade on “Anticipated exposure”, if you deal directly with banks( Schedule I Part 1). Exchange trading derivatives is not allowed on “Anticipated exposure”, but only on “Contracted exposure”
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You can only hedge. Hedging is “managing currency risk”, which is defined as potential for “loss”. If you’re getting USD, you cannot double down. You can only short USD on derivatives here. A gain on one side should result in loss on other side.