RBI introduces cross-currency options in exchanges

The Reserve Bank of India (RBI) on Thursday introduced cross-currency pairs in the exchange-traded currency derivatives market in order to facilitate efficient hedging.

The cross currency pairs introduced were Euro-US dollar, Pound Sterling-dollar and dollar-Japanese yen. So far, only pairs with the Indian rupee being on one leg were allowed and hence any participant hedging their exposure had to do so through two transactions. For example, a Japanese investor wanting to hedge in dollars had to enter into yen-rupee and rupee-dollar options to ultimately arrive at the yen-dollar option. With the introduction of the dollar-yen pairs, the market becomes more efficient.

The decision to allow cross-currency pairs was first announced on the fourth bi-monthly monetary policy review on September 29. To take positions in such cross-currency pairs, a participant doesn't need to have any underlying exposure.

RBI on Wednesday said it would intervene in the exchange-traded market, if required, in addition to its regular intervention in the spot market.