Currency Derivatives

NISM-Series-I: Currency Derivatives — Detailed Syllabus

The NISM-Series-I: Currency Derivatives Certification Examination covers the fundamentals of currency markets and exchange-traded currency derivatives, including currency futures, currency options, trading strategies, trading mechanisms, clearing and settlement, risk management, regulatory requirements, accounting, taxation and investor protection.

The current NISM curriculum contains 10 units.

Unit 1 — Introduction to Currency Markets

• Brief history of foreign exchange markets

• Major currencies and currency pairs

• Basics of currency markets

• Base currency and quotation currency

• Two-way quotes

• Currency appreciation and depreciation

• Currency-market benchmarks

• Reference rates

• Value date

• Over-the-counter forward market

• Peculiarities of the currency market in India

• Exchange-rate arithmetic

• Cross-rate calculation

• Impact of economic factors on currency prices

• Important economic indicators

• GDP

• Retail sales

• Industrial production

• Consumer Price Index

• Employment-related indicators

• Other economic indicators affecting currency markets

Unit 2 — Foreign Exchange Derivatives

• Definition of derivatives

• Economic functions of derivatives

• Derivative products

• Forwards

• Futures

• Options

• Swaps

• Growth drivers of derivatives markets

• Market participants

• Hedgers

• Speculators

• Arbitragers

• Exchange-traded derivatives

• Over-the-counter derivatives

• Differences between exchange-traded and OTC derivatives

• Rationale for introducing exchange-traded currency derivatives in India

Unit 3 — Exchange Traded Currency Futures

• Definition of currency futures

• Futures payoff

• Payoff charts

• Contract specifications

• Contract value

• Contract size

• Expiry and settlement concepts

• Advantages of currency futures

• Limitations of currency futures

• Currency futures versus forward contracts

• Interest-rate parity

• Pricing of currency futures

• Relationship between spot and futures prices

Unit 4 — Exchange Traded Currency Options

• Basics of currency options

• Futures versus options

• Types and styles of options

• Call options

• Put options

• Moneyness

• In-the-Money

• At-the-Money

• Out-of-the-Money

• Basics of option pricing

• Option Greeks

• Option-pricing methodology

• Implied Volatility

• Option payoff diagrams

• Exchange-traded currency-option specifications

• Exchange-traded versus OTC currency options

Unit 5 — Strategies Using Exchange Traded Currency Derivatives

• Market participants and their objectives

• Hedging using currency derivatives

• Currency-futures hedging

• Currency-option strategies

• Speculation using currency derivatives

• Arbitrage using currency derivatives

• Trading spreads

• Applications of exchange-traded currency derivatives

• Limitations of exchange-traded currency derivatives for hedgers

Unit 6 — Trading Mechanism in Exchange Traded Currency Derivatives

• Entities involved in the trading system

• Exchange trading system

• Order management

• Order types

• Risk management and order routing

• Price-limit and circuit-filter concepts

• Trading costs

• Brokerage and transaction costs

• Practical understanding of the currency-derivatives trading process

Unit 7 — Clearing, Settlement and Risk Management in Exchange Traded Currency Derivatives

• Clearing and settlement mechanism

• Entities involved in clearing and settlement

• Interoperability of clearing corporations

• Clearing mechanism

• Determination of settlement obligations

• Position limits

• Settlement process

• Funds settlement

• Risk-management systems

• Margin collection by clearing corporations

• Core Settlement Guarantee Fund

• Cyber Security and Cyber Resilience Framework

• Relevant cyber-security considerations for stock brokers and depository participants

Unit 8 — Regulatory Framework for Exchange Traded Currency Derivatives

• Securities Contracts (Regulation) Act, 1956

• RBI-SEBI Standing Technical Committee

• Foreign Exchange Management Act, 1999

• SEBI regulations and guidelines

• RBI regulations and guidelines

• Regulatory framework governing currency derivatives

• Participation of different entities

• Eligibility requirements for exchange membership

• Regulatory considerations applicable to exchange-traded currency derivatives

Unit 9 — Accounting and Taxation

• Accounting guidelines for currency derivatives

• Accounting treatment

• Disclosure requirements

• Taxation of exchange-traded currency derivatives

• Important taxation considerations

• Reporting and compliance considerations

Unit 10 — Codes of Conduct and Investor Protection Measures

• SEBI Code of Conduct for brokers

• Investor grievance mechanisms

• Handling investor claims and complaints

• Default-related investor protection mechanisms

• Investor Protection Fund

• Power of Attorney considerations

• Risk disclosure to clients

• Know Your Customer requirements

• Investor-protection practices

Important Note

Currency-derivatives regulations, taxation provisions, exchange rules and other examination-related information may change. Candidates should verify the latest syllabus, examination pattern and regulatory information published by NISM before appearing for the examination.