Currency derivatives

India today is an attractive destination for investors and has seen a rise in inflows and outflows of different foreign currencies. Indian forex market has become more complex and deep with various participants using many different derivative instruments for trading and hedging risk. This changing structure of the market and rising participants stressed on the need to bring efficiency, stability and transparency in the market and therefore currency futures were introduced. Thus, two motivations for the study are identified. First, Indian regulatory body RBI has been regularly making many policy changes to make forex market more efficient. It, therefore, becomes essential to study the significant components of the market like futures to comprehend the working of the market better. Understanding price discovery and the lead-lag relationship in the futures and the spot market is one step toward that. Second, more development of derivatives market and specifically futures market has focused a great deal of research toward empirically testing causality relationships. But most of this research has focused on the developed markets. Further, Indian researchers have studied price discovery and lead-lag in the stock market and currency markets have been left unexplored.