Indian rupee (INR) futures on the Dubai Gold and Commodities Exchange (DGCX) have seen an encouraging increase in volumes but still have a long way to go before they become the number one choice for hedging by foreign traders who deal with India, said sources.
And they are also a long way away from becoming a favourable trading option for foreign exchange dealers.
The Dubai Gold and Commodities Exchange (DGCX) introduced INR futures contracts for the first time outside India in 2007 and since then the average daily volume has grown to 175 lots.
But some traders say INR futures are of no use to them as they deal only in dollars.
"Since we are doing business in dollars I do not need to take hedging in INR futures or any other currency," Chandu Siroya, Managing Partner of Dubai-based Siroya Jewellers, told Emirates Business.
"We do business with India, Pakistan, Italy, Singapore, Thailand and other countries. INR futures hedging is beneficial to those who deal in other currencies. Of course, we do hedge, but only in gold."
Sabu Chamakala, Business Development Manager of Dubai-based Wabel, which imports plastics from India, steel from China and recently began trading in gold, said: "Whatever we import is in dollars. There is no question of dealing in rupees. We transact in back-to-back letters of credit in dollar terms through the bank. Trading in the rupee is useful for those who have surplus money and continuous business throughout the year."
However, Pradeep Unni, Senior Research Analyst at Richcomm Global Services, said: "INR futures are helpful to many exporters and importers who deal only in dollars. When they convert dollars into Indian rupees the advantage of rupee futures comes into the picture as they enable them to hedge against currency volatility in the global markets.
"We cannot compare dollar-INR with other leading currency pairs such as dollar-euro and dollar-sterling because the rupee moves more in line with macro-economic factors in India. There would be limited volatility as the INR is not fully convertible. But it still offers good scope for arbitrage trading in addition to hedging." The contract size for INR futures is Rs2 million and they are quoted in cents for INR that is 200.5 cents per Rs100.
Kevin Flanagan, Chief Operating Officer of Richcomm, said: "INR futures are not expensive but they lack volume. Generally, speculators prefer high volumes."
Keep up with the latest business news from the region with the Emirates Business 24|7 daily newsletter. To subscribe to the newsletter, please click here.