Forget the euro or the dollar, the Indian rupee is emerging as one of the most popular futures contracts in the country.
Buoyed by the UAE's huge Indian population, rupee futures contracts on the Dubai Gold and Commodities Exchange (DGCX) are up a staggering 1,605 per cent compared with volumes last year.
The exchange has gradually cut the cost of buying a contract on margin from about US$800 to $400, prompting more investors to take advantage of hedging opportunities, said Lalit Kumar, a relationship manager at Richcomm Global Services, a commodity broker based in Dubai.
Margin is the collateral a trader puts up to buy a contract with borrowed money.
Many Indian expatriates buy futures contracts in the rupee to protect against sharp price changes in the currency, said Sajith Kumar, the director and chief executive of JRG International Brokerage in Dubai.
The DGCX is the only exchange legally permitted to carry out trading on the Indian rupee outside India.
"The rupee currency is a highly volatile market, so [investors] are taking the DGCX contract to fix the rupee price and get a better price" on the money they send home, Mr Kumar said.
A futures contract is arranged to buy or sell a particular commodity at a set price in the future. The price of the rupee against the dirham fluctuates on a daily basis and was down slightly yesterday at 12.33 rupees.
Indian businessmen running companies in their home country and who have monthly liabilities to meet, have also taken advantage of futures contracts to fix the price of the rupee, Mr Kumar said.
"Suppose they have to pay monthly liabilities for a construction company they are running back home; if the rupee is weakening [against] the dirham, they fix the rupee price for two months" by buying futures contracts, Mr Kumar said.
