Continued weakness in the rupee leads to activity in NDF Market
Corporates and speculators took notional positions in the off shore, non deliverable forwards market early in the morning today.
""In the morning people took notional bets at 56.60-56.90 per dollar in the Singapore market,"" said a dealer from a forex advisory and dealing firm, who requested anonymity.
The rupee opened with a gap of 4 paise at 56.30 per dollar in the morning.It continued to plummet through the day,falling to as low as 57.32 per dollar, on high demand for the green back from oil companies as well as gold importers.
The market remained abuzz with rumors that Reserve Bank of India has asked oil marketing companies to source their dollar requirements from select public sector banks, though RBI did not convey any such directive officially. Rupee finally closed 57.11 per dollar, weaker by 75 paise form its previous close.
Non deliverable forwards market, is where corporates with offshore subsidiaries, that have nothing to do with Indian regulatory entities, take positions in the offshore currency market.
Since rupee is a non tradable currency there, the transaction is settled in dollars. Punters then take reverse positions in the on shore spot market. Activity in the NDF market increases when there is a uni-directional movement in the currency.
The speculators buy the currency here and short it in the offshore markets, which could be in markets like Dubai or Singapore, leveraging on the difference in exchange rate of a currency pair, between the onshore and off-shore markets..
According to dealers, rupee was trading at 56.83 per dollar in Dubai early morning in the near month forward contracts, but by mid noon the arbitrage had narrowed down to 7-8 paise..