I am a beginner so please forgive any gaps in my understanding of Forex Futures. Based on RBI's decision earlier this year to let NRI's invest in rupee futures I want to propose a Currency Futures Trade I want to make to protect my Rupee Term Deposits in India. The gist is that if there is a rupee appreciation I can use it to hedge against future depreciations of the rupee.

Now here is an example of how I think this would work(See Follow Questions after the example):

  1. For the sake of a hypothetical argument, let's say I have deposited 6,000,000 Rs into a Fixed Term Deposit(FD) in india at 7.5% interest rate on Dec 1st 2017. This FD matures on Dec 1st 2018. Let's assume that the exchange rate when this was done was 60 Rs to 1 USD(i.e. 10$). I want to hedge the return of my FD against currency movement.

  2. Assume that in July 2018 the rupee futures are trading at 59 Rs to a dollar. I buy a 6 month contract for Dec 2018 USD/INR Future(i.e. to buy $ and sell Rs). I buy 60 contracts- assume minimum units of 100,000 Rs each.

  3. Dec 2018 arrived and the FD has matured and the spot exchange rate is 65 Rupees to a $. I cash settle the futures contract and make a profit of 1,694$ (6,000,000(1/59 - 1/60)). I intend to pay 6,000,000 from the proceeds of my FD.

I am assuming that I take the future to expiration and cash settle it.

Q. Have I understood this correctly and Is this kind of a trade doable with current norms for NRI's?

and if so

Q. How would I do this? Could you recommend exchanges/banks etc that do this?

  • You have a good question here, but I think you are asking too many things to get a good response. I suggest breaking your question down into multiple new smaller questions would get more attention. Commented Jan 8, 2018 at 13:49
  • @Grade'Eh'Bacon Hi I have simplified the question. Thanks for the suggestions.
    – Sid
    Commented Feb 21, 2018 at 22:09
  • Do you have a specific reason for hedging with USD; like, will you need to convert your money to USD in the future? Because if you don't, then this hedge does not protect you against the scenario where both the INR and the USD lose value vs. other currencies. You would want to hedge in a basket of other currencies to protect for that ...
    – dg99
    Commented Feb 23, 2018 at 18:01
  • @dg99 Yes I actually need the money in USD as I live in the US and I want it back here. Also could you clarify what happens exactly when there is a drop in value both USD and INR vs other currencies?
    – Sid
    Commented Feb 24, 2018 at 18:28
  • 1
    If you were trying to protect yourself against the INR losing value relative to the average of the rest of the world's currencies, then hedging just against USD would not do that. But given that you're only trying to protect yourself against a USD/INR change, your hedge makes sense. (I haven't checked over your math, I just mean that the concept makes sense.)
    – dg99
    Commented Feb 27, 2018 at 0:06

1 Answer 1


That is not the right PnL. You'll be buying the USD back at a rate of 59, not 65. The majority of your PnL (vs doing nothing) will come from the deposit.

start: 100,000 USD

convert to 6m INR at 60 USDINR

deposit 6m INR @ 7.5%

end: 6m x (1.075) = 6.45m INR

convert to USD, 6m INR @ 59 USDINR (the terms of the futures contract) = 101,695 USD

You still have 450,000 INR left - I assume you will convert at the market rate = 450,000 INR x 65 USDINR = 6923 USD

So that's a total of 108,618 USD - minus the 100,000 you put in = 8618 USD PnL.

If you want to correctly hedge the FX component, you should hedge the final outcome value of the deposit, not the upfront deposit amount.

I have no idea about the legal and tax implications but you should consider:

You will have to place initial and variation margin (possibly in INR) with the exchange. You will need to keep this topped up if the futures contract goes against you. This can be substantial.

You will also have to consider the possibility of a default on the deposit. I don't know any Indian banks, but if banks in the US can go bust, then so can they.

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