The Reserve Bank of India (RBI) has decided to permit resident entities to hedge exposure to price risk of gold using OTC derivatives in the IFSC, in addition to the derivatives on exchanges in the IFSC.
- Derivatives are types of securities where the prices are determined by the value of its intrinsic or underlying asset. Some common types of derivatives trading include derivative securities such as forwards, futures, options and swaps.
- Derivatives trading can protect against the risks associated with the price movements of the underlying assets.
- The derivatives traded through centralised stock exchanges are known as Exchange Traded Derivatives (ETDs).
- The derivatives traded between two or more different parties without the involvement of stock exchanges or any other formal intermediary are known as over-the-counter or OTC derivatives.
