Forex & Financial Engineering & New Products (FE&NP)

The Forex department is divided into the following sections:

Merchant: The dealers at this desk deal with bank's customers directly or through the forex designated branches of the bank and complete transactions involving foreign exchange in all major currencies of the world.

USD/INR Spot: The majority of the transactions taking place in forex necessarily involve the pair of USD/INR. This desk handles all those forex flows where INR- Indian Rupee is one of the currencies. It covers the merchant flows i.e. positions arising out of purchase and sale of foreign exchange from/to customers in the interbank market. The desk also acts as the market maker for USD/INR pair in the inter-bank market. Some of the very high value merchant transactions are also handled directly at this desk. Along with that, the desk does proprietary trading i.e., purchase and sale of foreign exchange in the interbank market with a specific purpose of benefiting from short/medium/long term price swings in the market and making profit from such trades. The spot desk also submits rates for punch marking to FEDAI & RBI.

USD/ INR forwards: SBI is the biggest market maker in USD/INR forwards market. It also quotes and covers the merchant positions. The maturity period of such transactions is usually up to one year though positions in long term forward contracts (LTFX) are also taken. The desk also executes swaps for funding and arbitrage purposes.

Crosses and Majors: This desk covers merchant transactions in all currencies other than USD/ INR. It deals in currencies of G7 countries and those of all other major countries in which the bank is maintaining a NOSTRO account.

Gold: The desk covers gold related spot and forwards transactions. The desk also covers the bullion sale of the bank including sale of gold coins.

Structured Products (FENP): Structured Products Desk handles structuring of Forex & Interest Rate Products to provide complete hedging solution to customers. Desk primarily handles Currency Options and Foreign Currency interest rate derivatives. We run Option book for USD-INR pair and a MIFOR book. Running the books give us an edge over other market participants who quote on back-to-back basis and it also allows us to offer an innovative product line. Most of the products offered are over-the-counter (OTC) in nature and are tailor made to suit customer specific requirements. Our customer base includes some of the well known Indian corporate with underlines of loans (both rupee as well as FC).

PRODUCTS & SERVICES

FOREX MARKETS: The foreign exchange transactions done by the branches are reported to the Global Markets for covering those transactions in the inter-bank market. Forex Markets section has various desks to handle these transactions. The Merchant Desk at the department takes reporting of all transactions involving foreign exchange in all major currencies from the designated branches as well as customer's directly.

CURRENCY PURCHASE/SALE: The positions arising out of purchase and sale of foreign exchange from/to customers are to be covered in the interbank market. The majority of the transactions taking place in forex necessarily involve USD/INR pair which necessitates purchase/sale of USD in cash/tom or spot market. The currency pairs other than USD/INR (Cross currency pairs) are dealt separately.

USD/ INR forwards: The USD/INR forward is a derivative product which involves purchase/sale of a definite quantity of USD at a pre-determined rate on a pre-determined date. These are used to hedge the currency or exchange rate risk. The party buying the contract assumes a long position while the party selling the contract assumes a short position. The market is active upto 1 year. SBI is the largest market maker in USD/INR forwards market. Forwards are traded in the OTC market and hence no standardization of contract is required. The exchange traded variant of the forwards is Futures.

Gold Purchase/Sale : The purchase of Gold in the spot and forward markets is undertaken to cover the customer transactions and bullion sale of the bank including sale of gold coins.

Structured Products: Structured Products involves structuring of Forex & Interest Rate Products to provide complete hedging solutions to customers. Various products involved in designing such solutions are as under:

  • Options : A contract between two parties in which the option buyer (holder) purchases the right (but not the obligation) to buy/sell a fixed quantity of an asset, at a predetermined price from/to the option seller (writer) within a fixed period of time. There are mainly two types of options viz. Call and Put. There are two styles of options which depend upon whether option can be exercised on the expiry or prior to expiry date. The option which can be exercised on the expiry date is called European Option while the one which can be exercised any time during the life of option is called American option. The buyer of the option has to pay a premium to obtain the right. The option premium dependents on the volatility, strike price, time remaining to expiration, rate of interest. The underlying of an option contract can be stock, currencies, indices, commodities etc.
  • SWAP : Swap is a contractual agreement to exchange specified cash flows at future dates. The cash flows could be:
    1. Fixed to floating interest rates - Interest Rate Swap
    2. Or in different currencies - Currency swap, or a combination of these

Interest Rate Swap is an agreement between two parties in which one party agrees to pay cash flows equal to interest at a predetermined rate while the other agrees to pay interest at floating rate on a notional principal amount for a number of years.

A Currency Swap involves exchange of principal and interest payments in one currency for principal and interest payments in another currency. The Principal amounts in each currency are usually exchanged at the beginning and at the end of life of Swap. The interest rates in both the currencies are fixed.

Forward Rate Agreement: An OTC contract between parties that determines the rate of interest, or the currency exchange rate, to be paid or received on an obligation beginning at a future start date.