Cross-Currency Futures
Standardised futures contracts on exchange rates between two major foreign currencies — such as EUR/USD, GBP/USD, and USD/JPY — traded on NSE since 2015, settling to internationally recognised reference rates and enabling Indian participants to hedge or take positions in non-INR currency pairs.
Cross-currency futures expand the range of foreign exchange risk management available on Indian exchanges beyond the rupee-denominated currency pairs (USD/INR, EUR/INR, etc.) to include futures on internationally significant currency relationships where neither leg involves the rupee. These contracts are relevant for Indian companies with multi-currency international operations, for treasury teams managing diversified foreign currency receivables and payables, and for sophisticated traders seeking exposure to global currency market dynamics.
NSE introduced cross-currency futures and options in EUR/USD, GBP/USD, and USD/JPY in February 2018. The EUR/USD contract, for example, represents EUR 1,000 per contract and settles to the European Central Bank's daily reference rate for EUR/USD. Settlement is in Indian rupees — the rupee equivalent of the USD-denominated profit or loss is calculated and credited or debited to the participant's account, making the contracts accessible without requiring actual delivery of foreign currency.
For a multinational Indian company that has both euro-denominated revenues (from European sales) and US dollar-denominated costs (from US procurement), the net exposure may be primarily a EUR/USD exposure rather than a direct INR exposure. Using EUR/USD futures on NSE allows the treasurer to hedge this cross-currency exposure domestically without routing the transaction through the OTC forward market, which requires dealing with an authorised dealer bank and may involve minimum transaction sizes too large for smaller companies.
Liquidity in Indian cross-currency futures has remained limited compared to the rupee-denominated pairs. The primary reason is that Indian participants with genuine cross-currency exposure can also access the much deeper and more liquid OTC forward and swap markets through their banking relationships, making the exchange-traded alternative less compelling for large hedges. Speculators who want exposure to EUR/USD can access global CFD platforms or futures exchanges directly, further limiting the domestic user base.
The pricing relationship between Indian cross-currency futures and the international OTC market creates arbitrage opportunities for sophisticated participants with access to both markets. When the NSE-listed EUR/USD futures price diverges significantly from the internationally quoted EUR/USD spot rate adjusted for interest rate differentials, arbitrageurs can trade the spread, and this activity tends to keep the domestic and international prices aligned.
RBI's regulations on cross-border foreign exchange transactions define the conditions under which Indian residents can participate in cross-currency derivatives, and SEBI's position limit framework applies to exchange-traded cross-currency futures in the same way as to other derivatives.