The Hindu : IDBI Bank offers rupee options

Online edition of India's National Newspaper
Tuesday, Jul 08, 2003

Business

Business

IDBI Bank offers rupee options

By Our Corporate Reporter

CHENNAI JULY 7. IDBI Bank has started offering rupee options in foreign exchange market today and it closed over ten transactions on Monday, the first day it launched the product.

The bank had a large number of mandates to close deals on the very first day from various corporate houses.

"There has been a flood of enquiries over the last few days and more deals are expected", according to a spokesperson of IDBI Bank.

Hedge seekers in rupee, whose products have so far been limited to booking forwards, will now have access to more versatile option products.

IDBI Bank obtained the RBI nod meeting the regulator's norms which included minimum of 9 per cent CAR (capital adequacy ratio), continuous profitability for the last three years, NPA at a below five per cent and a minimum networth of Rs. 200 crores.

Options are instruments that carry with them a right but not an obligation.

Unlike forwards, which are price fixing instruments, options are price insurance instruments.

This is the first time that players in the market can take advantage of directional moves with an assured limited downside.

Options are dependent, among other factors, on `volatility' of the underlying currency. For the first time in Indian markets, `volatility' of the rupee will be traded, with participants buying and selling the `vols'. Unlike common perception that the seller of the option is betting on directional move of the spot the market maker is actually betting on whether volatility will go up or go down.

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