Thailand, one of Asia’s fastest growing nations has announced plans to introduce currency futures on the local futures bourse.
With the fluctuating exchange rate affecting the Thai economy in both the real and the financial sector, dollar futures will served as a hedging tool against foreign-exchange (FX) risk. This tool stands to benefit not only exporters and importers but also investors who want to diversify their portfolios in foreign assets.
Dollar futures is a contract to exchange dollars for Baht at a specified future date and at a rate fixed on day of purchase. Each contract has a value of US$1,000, which is considered a small contract for an exporter or importer seeking to hedge risk.
Initially, the maximum position for each client will be $5 million, or 5,000 contracts. Dollar future contracts offer four different lengths of maturity: the three nearest consecutive months and the next quarterly month.
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The price is quoted in terms of Baht per one US dollar, with minimum price movement at Bt0.01 (Bt10 per contract). The contract is cash-settled, which means no physical dollars are delivered on the expiration date. Moreover, investors receive or have to pay (depending on gain or loss) in cash. On the last trading day, expiring contracts will be settled at 11am. The final settlement price is based on the US$/Bt rate recorded by Thomson Reuters at 11am. The rate is derived from the best bid and offer quoted by about 20 Thai and foreign contributing banks.
The Thai baht is currently trading at 30.790 agaisnt the greenback
Thailand has been slow to embrace spot FX trading as there are local restrictions in sending funds outside the country.
The local interbank market was lifted when Thomson Reuters offered the baht onshore as a Forward on the Thomson Reuters matching platform.
TFEX presently offers equities products comprising SET50 Index futures/Options and single stock futures, as well as commodities products including futures in gold, silver and oil, and the interest rate products THBFIX/BIBOR/five-year govt bond futures.