Definition
Currency Options on NSE
Currency options on the NSE give the right, not obligation, to buy (call) or sell (put) a foreign currency against the rupee at a set strike, primarily on USDINR.
Exchange-traded USDINR options let an importer cap the rupee cost of future dollar payments by buying a call, paying only the premium and keeping upside if the rupee strengthens. Exporters buy puts to protect against rupee appreciation.
Traded on the NSE with weekly and monthly expiries, these are European-style and cash-settled against the RBI reference rate. They offer more flexible hedging than futures because losses are limited to the premium while the favourable scenario stays open.
Related terms
- USDINRUSDINR is the exchange rate of the US dollar against the Indian rupee, the most-watched currency pair in India and a key barometer of capital flows and import costs.
- Currency Futures on NSECurrency futures on the NSE are standardised, exchange-traded contracts to buy or sell a fixed amount of foreign currency against the rupee on a future date.
- Hedging Forex RiskHedging forex risk means using forwards, futures, options or swaps to lock in or limit the exchange-rate cost of future foreign-currency cash flows.
- RBI Reference RateThe RBI reference rate is the daily benchmark exchange rate for the rupee against major currencies, now computed and published by FBIL and used to settle cash-settled currency derivatives.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.