Master Direction – Reserve Bank of India (Market-makers in OTC Derivatives) Directions, 2021

Question 1

……………………… means an OTC derivative involving the exchange of two currencies on a specified date in the future (more than two business days later) at a rate agreed on the date of the contract.

Answer 1

Foreign exchange forward

Question 2

…………………………. means an OTC derivative that gives the buyer the right, but not the obligation, to buy/sell an agreed amount of a certain currency with another currency at a specified exchange rate on a specified date in the future.

Answer 2

Foreign exchange call/ put option (Call = Buy) (Put = Sell)

Question 3

…………… means a cash-settled OTC derivative between two counterparties, in which a buyer will pay or receive, on the settlement date, the difference between a pre-determined fixed rate (FRA rate) and a reference interest rate, applied on a notional principal amount, for a specified forward period.

Answer 3

Forward rate agreement

Question 4

Market-makers shall not deal in derivative products, either directly or on a back-to-back basis, which they cannot ………………….

Answer 4

price independently