DINR contract volume falls on DGCX

A relatively low bandwidth of fluctuation of the Indian rupee, reluctance among traders to hedge their rupee holdings, payments by Indian businessmen in foreign currencies and a level of ignorance among Indian traders about dealing in derivatives has eroded the Indian Rupee-Dollar (DINR) futures contract at the Dubai Gold and Commodities Exchange (DGCX) of the volume it deserves, analysts said.

The volumes of DINR contracts have remained ebbed in three digit figures, even as the volumes of other currency contracts including euro-dollar and sterling-dollar at the DGCX have rolled into thousands – and have almost sustained the volumes this year. Rupee fluctuated between Rs44.7876 per dollar and Rs46.7211 a dollar in May. However, this has still not had the essential impact on the DINR volumes.

There has been news in the past the foreign exchanges in the UAE will consider hedging on the Dubai based exchange – a process that may raise volumes at the exchange manifold.

Sudhir Shetty, the Chief Operating Officer (COO) of UAE Exchange, one of the largest exchanges in the UAE, said though the exchange has considered hedging on the exchange, there have been several factors that have worked against the plans.

"Earlier, there used to be good time difference of a few days between the time money was remitted from the UAE and when it was credited to a bank in India. However, we now credit the money into a bank in India within 24 hours. Furthermore, as per regulations of the Reserve Bank of India (RBI), we have to pick up the rupee from the Indian bank concerned," Shetty told Emirates Business.

There are several factors that would suggest that the Dollar–Indian Rupee contract at the(DGCX) should have been one of the best performers at the exchange. Two of the most prominent reasons were: India is the largest trading partner of the UAE, and that there is a huge Indian population across the country and the region.

However, the DINR contracts, each comprising Rs200,000 on the DGCX, continues to remain ebbed at the fifth or sixth spot at the exchange. Analysts and senior officials dealing in the currencies point out a number of reasons for the trend.

"One of the most important reason is that the Indian rupee is one of the least fluctuating currencies. And the Reserve Bank of India steps in to control any major fluctuations, thus negating any inclination among traders to hedge rupee," said Sajith Kumar PK, the CEO of INTL Commodities DMCC. "Most of the traders based in Dubai or at other places in the GCC do not hedge their rupee requirements. However, they do tend to hedge their euro and dollar holdings."

Sajith has been training traders and individuals to trade in the contract.

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