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The purpose of this paper is to examine the contemporaneous and causal relationship between returns (volatility) and trading volume in the Indian currency futures market for selected currency pairs; USD-INR, EUR-INR, GBP-INR and JPY-INR, from August 2008 to December 2014.

The data for all the currency futures series has been taken from National Stock Exchange of India Limited which represents the daily settlement prices along with trading volume. The contemporaneous returns-volume relation is tested using the generalized method of moments, and Granger-causality framework impulse response function is used to test the predictive ability of returns (volatility) and volume for each other.

The author reports a positive contemporaneous relationship between futures returns and trading volume which persists even after controlling for heteroskedasticity providing support to mixture of distribution hypothesis. The results show a unidirectional Granger causality from futures returns to volume. However, there is a significant bidirectional Granger causality between returns volatility and volume lending support to sequential arrival of information hypothesis. Next, the results for cross-currencies show significant influence of US dollar on the volume and returns of all other currencies. Overall, the author suggests that the short- to medium-term movements in the currency markets are dominated by market microstructure and not by fundamentals.

The findings of this paper are very important for the participants in the market and regulators. The participants in the market require alternatives to diversify their risk. The significant relationship between futures returns (volatility) and trading volume implies that the current trading volume help predict the futures prices and should lead to creation of more reliable hedging strategies for investment purposes. Further, it may interest the regulators who need to decide upon the appropriateness of their policies in the currency futures market. Based on returns-volume relation, they need to set forth market restrictions such as daily price movement and position limits.

To the best of the knowledge, no study has yet investigated the forecast ability of trading volume to price changes and their volatility in the Indian currency futures market. Given that currency futures market is one of the largest markets in the world, and Indian rupee has seen wide fluctuations in the recent years, it seems exciting to explore the price-volume relationship in the Indian currency futures market.

This paper tested the conditional mean spillover effects between trading volume and price changes in international currency futures markets. We use 8 kinds of currency futures markets such as Japanese yen, British pound, Australian and Canadian dollar as the advanced market and Korean Won/Dollar, Brazilian Real, Russian rubul and South African's land futures as the emerging markets. The sample period is covered from May 19, 2006 to March 15, 2009. For this purpose we employed dynamic time series model such as Nelson (1991)'s Exponential GARCH (1, 1)-M. The major empirical results are as follows; First, according to the empirical results of 4 advanced currency futures markets, we find that the open interests have a strong impact on the price changes at a statistically significant level. In case of the British pound and Canadian dollar futures, the price changes also have influence on the open interests. Second, according to the empirical results of 4 emerging currency futures markets, only Russian currency futures' open interest has an impact on the price change but the price changes of the remain 3 countries have an impact on open interests respectively at a significant level. Third, we also find that there is a asymmetric volatility spillover effects between open interests and price changes in all the advanced and emerging currency futures markets. Fourth, according to Granger causality test the influence of Japanese yen, Australian and Canadian dollar and Brazilian Real futures on the other currency futures markets are dominant. From these empirical results we infer that most of currency futures markets have a much better price discovery function than currency cash market and are inefficient to the information.

The purpose of this paper is to examine the linear and nonlinear relations between returns volatility and trading volume for the Indian currency futures market.

To examine the contemporaneous relation between returns volatility and volume, the author uses the generalized method of moment estimator. For the linear causal relation, the author makes use of Granger (1969) bivariate vector autoregression model. The author tests for nonlinear Granger causality between returns volatility and trading volume based on a modified version of the Baek and Brock (1992) nonparametric technique developed by Hiemstra and Jones (1994).

The results indicate a negative contemporaneous relation between returns volatility and trading volume; therefore, the mixture of distribution hypothesis is not supported. The results of both linear and nonlinear Granger causality between futures returns volatility and trading volume indicate a significant bidirectional relation between the two variables lending support to the sequential arrival of information hypothesis. The results are robust to divergence of opinions as proxied by open interest.

The findings of this paper are important for the participants in the market and regulators. The participants in the market require alternatives to diversify their risk. The significant causal relation between returns volatility and trading volume implies that trading volume helps predict the futures prices and should lead to creation of more reliable hedging strategies for investment purposes. Furthermore, it may interest the regulators who need to decide upon the appropriateness of their policies in the currency futures market.

To the best of the author’s knowledge, there is no study that investigates the forecast ability of trading volume to futures returns volatility in an emerging currency futures market. Given that currency futures market is one of the largest markets in the world, and Indian rupee has seen wide fluctuations in the recent years, it seems exciting to explore the price–volume relation in the Indian currency futures market.

The purpose of this paper is to examine the price discovery and volatility spillovers in spot and futures prices of four currencies (namely, USD/INR, EURO/INR, GBP/INR and JPY/INR) and between futures prices of both stock exchanges namely, Multi-Commodity Stock Exchange (MCX-SX) and National Stock Exchange (NSE) in India.

The study applies cointegration test of Johansen’s along with VECM to investigate the price discovery. GARCH-BEKK model is used to examine the volatility spillover between spot and futures and between futures prices. The other two models namely, constant conditional correlation and dynamic conditional correlation are used to demonstrate the constant and time-varying correlations. In order to confirm the volatility spillover results, the study also applies test of directional spillovers suggested by Diebold and Yilmaz (2009, 2012).

The results of the study show that there is long-term equilibrium relationship between spot and futures and between futures markets. Between futures and spot prices, futures price appears to lead the spot price in the short-run. Volatility spillover results indicate that the movement of volatility spillover takes place from futures to spot in the short-run while spot to futures found in the long-run. However, the results of between futures markets exhibit the dominance of MCX-SX over NSE in terms of volatility spillovers. By and large, the findings of the study indicate the important role of futures market in price discovery as well as volatility spillovers in India’s currency market.

The results highlight the role of futures market in the information transmission process as it appears to assimilate new information quicker than spot market. Hence, policymakers in emerging markets such as India should focus on the development of necessary institutional and fiscal architecture, as well as regulatory reforms, so that the currency market trading platforms can achieve greater liquidity and efficiency.

Due to recent development of currency futures market, there is dearth of literature on this subject. With the apparent importance of currency market in recent time, this study attempts to study the efficient behavior of currency market by way of examining the price discovery and volatility spillovers between spot and futures and between futures prices of four currencies traded on two platforms. The study has strong implications for India’s stock market especially at the time when its currency is under great strain owing to the adverse impact of global financial crisis.

Corporate treasurers manage the currency risk of their organization by hedging through futures contracts. The purpose of this paper is to evaluate the effectiveness of hedging by US currency futures contracts by taking into account the efficiency of the currency market.

The static models for calculating hedge ratio are as popular as dynamic models. But the main disadvantage with the static models is that they do not consider important properties of time series like autocorrelation and heteroskedasticity of the residuals and also ignore the cointegration of the market variables which indicate short-run market disequilibrium. The present study, therefore, measures the hedging effectiveness in the US currency futures market using two dynamic models – constant conditional correlation multivariate generalized ARCH (CCC-MGARCH) and dynamic conditional correlation multivariate GARCH (DCC-MGARCH).

The study finds that both the dynamic models used in the study provide similar results. The relative comparison of CCC-MGARCH and DCC-MGARCH models shows that CCC-MGARCH provides better hedging effectiveness result, and thus, should be preferred over the other model.

The findings of the study are important for the company treasurers since the new updated Indian accounting standards (Ind-AS), applicable from the financial year 2016–2017, make it mandatory for the companies to evaluate the effectiveness of hedges. These standards do not specify a quantitative method of evaluation but provide the flexibility to the companies in choosing an appropriate method which justifies their risk management objective. These results are also useful for the policy makers as they can specify and list the appropriate methods for evaluating the hedge effectiveness in the currency market.

Majorly, the studies on Indian financial market limit themselves to either examining the efficiency of that market or to evaluate the effectiveness of the hedges undertaken. Moreover, most of such works focus on the stock market or the commodity market in India. This is one of the first studies which bring together the concepts of efficiency of the market and effectiveness of the hedges in the Indian currency futures market.

The purpose of this paper is to study the lead-lag relationship between the futures and spot foreign exchange (FX) market in India to understand the price discovery mechanism and the relationship between these two markets.

The estimation of lead-lag relationship is realized in three steps. First unit root and stationarity tests (Augmented Dickey-Fuller, Phillips-Perron, and Kwiatkowski-Phillips-Schmidt-Shin) are applied to check the stationarity of the data. Second, cointegration tests (Engle and Granger’s residual based approach and Johansen’s cointegration test) are applied to determine long run relationship between the markets. Third, error correction estimation is carried out by applying Vector Error Correction Model (VECM) to determine the leading market.

The study finds that there is a long run relationship between the futures and spot market where the futures market has emerged as the leading market for the four currencies studied in the paper.

Majorly, the studies on Indian FX market limit themselves to identifying the efficiency of the market and the studies which talk about the lead-lag relationship focus on the Indian stock market. This paper enhances the existing literature on Indian FX market by exploring the less explored subject of the lead-lag relationship between futures and spot FX market in India.

In a world of trade among nations using different currencies, every exchange of goods, services, or assets taking place between economic actors of different nations requires an accompanying currency transaction. If foreign exchange rates were fixed, this would be little more than a formality and not a potential source of market distortion. In the current world, however, the currency exchange rates are often very volatile and can affect market prices when viewed from outside the economy. Individuals with risk-averse preferences seek to minimize the potential losses possible from their currency positions through the use of currency hedging tools. When a nation‘s currency hedging instrument (e.g. a currency futures contract) is traded in liquid market, it is easy to hedge the risk posed by holding a foreign currency position. In these market situations, currency futures contracts can be purchased for hedging the currency position. However, when a nation‘s currency hedging instrument is not traded in liquid markets, it is impossible to hedge the risk by the direct hedging. Hence, a proxy for the currencies of small economies (i.e. minor currencies) must be found. This study examines five nations‘ currencies, the Fiji Dollar, Cyprus Pound, Maltese Lira, Taiwanese Dollar, and South Korea Won in order to determine an effective currency futures hedge for the three minor currencies in the above list : the Fiji Dollar, the Cyprus Pound, and the Maltese Lira. The results of this study‘s tests indicate that multiple futures contract hedge proposed in this study is an appropriate hedging tool for both the Fiji Dollar and the Cyprus Pound. In the case of the Maltese Lira, the results are less conclusive and suggest that the selection of the appropriate futures contracts should be improved.

Recent research indicates that the random walk hypothesis (RWH) approximately describes the behavior of major dollar exchange rates during the post‐1973 float. The present analysis seeks to examine the profitability of currency futures trading rules that assume that spot exchange rates can be adequately modeled as a driftless random walk.

Two random walk currency futures trading rules are simulated over all available data from the period 1984‐2003. In both cases, the investor buys currencies selling at a discount and sells those selling at a premium, as the RWH implies. The two rules differ only in the way they allocate the hypothetical investor's resources among long and short foreign currency positions.

Results show that an investor who used these trading strategies over the past decade would have enjoyed large cumulative gains, although periods of profit were interrupted by periods of substantial loss.

The findings encourage the hope that profitable random‐walk‐based strategies for currency futures trading can be devised. The simulation results have important implications for those willing to hedge, borrowers, and speculators.

This paper provides evidence that purchasing futures contracts on currencies priced at a discount and selling futures contracts priced at a premium has generally been a profitable trading strategy during the last two decades of floating exchange rates.

Exposure risk managers can hedge exchange rate risk with either currency futures or currency options. It is generally suggested that hedgers should choose a hedge instrument that matches the risk profile of the underlying currency position as closely as possible. This advice, however, ignores the possibility that the hedging effectiveness may differ for the alternate risk management tools. This study compares the effectiveness of currency futures and currency options as hedging instruments for covered and uncovered currency positions. Based on Ederington's portfolio theory of hedging, the results show that currency futures provide the more effective covered hedge, while currency options (used to construct a synthetic futures contract) are more effective for an uncovered hedge. Hence, exposure risk managers do not have to sacrifice hedging effectiveness to obtain the desired risk profile. Corporations engaged in international business transactions are commonly exposed to exchange rate risk. Since management is concerned with currency exposure, it can hedge the anticipated exchange rate risk either with futures or options. The choice of the appropriate hedging tool is generally influenced by the type of currency exposure (transaction, translation, or economic risk), the size of the firm, the industry effect, the risk preference of the manager or the firm and his/her familiarity with the available financial instruments and techniques. It is also suggested that a hedger should choose a hedge instrument that matches the risk profile of the underlying currency position as closely as possible. Hence, futures contracts are more suitable for covered hedges, while option contracts are best used for uncovered hedges. Hedging effectiveness of these two hedge instruments must be considered as well in order to evaluate the cost of obtaining the desired risk profile. Some empirical research has shown that the futures contract provides both an appropriate risk profile and a more effective hedge than an options contract for covered positions. If these findings also hold for uncovered currency positions, then the hedging decision involves a trade‐off between the desired risk profile and hedging effectiveness. That is, a hedger would have to decide whether the extra risk protection afforded by the attractive risk profile of options is worth the loss in hedging performance. This study compares the hedging effectiveness of currency futures and currency options for both covered and uncovered positions. Ederington's risk‐minimizing approach is applied to estimate the hedging effectiveness and the least risk hedge ratios which, in turn, are used to assess the trade‐off between risk profile and hedging performance.

Introduction In a world of increased uncertainty about the future value of exchange rates and increased visibility of foreign exchange gains and losses, it is not surprising that both commercial and financial firms have become more concerned about minimizing foreign exchange risks. Once a company becomes involved in international trade, be it the formation of a foreign subsidiary or simply the import or export of goods, it subsequently becomes subject to foreign exchange risk exposure. Foreign exchange risk exposure can be broken down into three categories for further development; these are real economic exposure, translation exposure, and transaction exposure.