The rupee may fall further this week. It is quoting in the range of 67.06/dollar for one-month futures to 72.34/dollar for 12 month futures in non-deliverable forward (NDF) markets in London, Singapore and Dubai. This means traders expect the rupee to fall to these levels in the indicated timeframes.
The Indian currency had rebounded by Rs. 3.15 to Rs. 65.70 over Thursday and Friday after hitting an all-time low of Rs. 68.85 per dollar on August 28, giving rise to hopes that the downtrend in the rupee-dollar exchange rate had been halted.
“The rupee is likely to open weak on Monday following the dismal GDP numbers released on Friday. Thereafter, its direction will be determined by global events,” said Anindya Banerjee, currency analyst, Kotak Securities. The rupee is sure to fall further if the US attacks Syria.
This is how the NDF markets work: If, for example, you expect the rupee to fall to, say, 68/dollar in three months, you can buy three-month forward contracts in the NDF markets at 68/dollar.
If the rupee does fall to that level, you collect the difference (68 minus Friday’s closing rate of Rs. 65.70 = Rs. 2.30). Multiply this by the amount invested (say, $1million) and your profit is Rs. 23 lakh.
You can also bet on the rupee rising to, say, 62. Depending on whether you get your bet right or wrong, you simply pocket your profit or pay up the loss. As the example shows, there is no physical exchange of rupees.
The overseas NDF market, which operates outside the jurisdiction of the Reserve Bank of India, is used by speculators as well as by regular businesses that want to hedge their foreign exchange exposure.
“The NDF market influences the rupee-dollar exchange rate in the spot market as it reflects future price expectations of market participants,” said Monojit Gogoi, regional director, Alpari Financial Services India.