With the unprecedented volatility in the global forex markets, many banks and corporates have piled up notional losses on their forex derivatives positions. Those corporates which have earlier made bumper profits in the forex derivatives are now blaming the banks for their plight.

India has caught up with globalization. Whether it is the freedom to raise money from any part of the world or making the world as its marketplace or just having a global intent, the Indian corporates and banks have come a long way. Along with all the benefits of going global, there are also some challenges. The prominent among them is the currency risk, the risk resulting out of fluctuations in the exchange rates.

Forex and currency derivatives are used to minimize this risk resulting out of unfavorable fluctuations in the exchange rates. Some of the popular derivatives used in India are the forwards - Forward Rate Agreements (FRA), Options and Swaps. The derivatives are like a double-edged sword. While derivatives can be used to reduce the risk the speculators can misuse these instruments with the sole aim of making money and end up making huge losses. While the strict guidelines of the RBI do not allow such easy speculation, many corporates seemed to have taken huge positions in the forex derivatives resulting in piling up of large mark-to-market notional losses.

Professional Banker Magazine, Forex Muddle, Global Forex Markets, Forex Derivatives, Globalization, Forward Rate Agreements, FRA, Retail Banking, Risk Management, Foreign Exchange Markets, International Banks, customers Relationship Management.