PRICING CODE FOR FOREIGN EXCHANGE DERIVATIVES
The Fixed Income Money Market
and Derivatives Association of India
(FIMMDA), a body of market players,
has issued a code that advises banks
against entering into transactions at rates
or reference levels that differ materially
from market levels.
- The code has called for a process that ensures pricing at market levels, thereby preventing concealment of profit or loss by dealers.
- The code has barred banks from transactions like interest rate swaps
The RBI recently asked select foreign
banks active in the derivatives market
to provide information on derivative
structures sold by them following many
complaints.
Editorial Note :
As per leading experts the corporates
are advise to hedge their foreign
currency risk by plane vanilla
derivative products. The series/
combination of vanilla products
could also be considered. This
will facilitate:
- Competitive pricing as simple products are offered at very reasonable cost
- Unwinding of all or certain legs of the hedging transactions will be very easy once the corporate see that the market has improved and hedging risk has reduced.
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