After taking off with a bang, volumes in the Interest Rate Futures (IRF) market in India have slowed down. The financial crisis has also underscored the weaknesses in the OTC derivatives markets which need to be addressed for building a...
moreAfter taking off with a bang, volumes in the Interest Rate Futures (IRF) market in India have slowed down. The financial crisis has also underscored the weaknesses in the OTC derivatives markets which need to be addressed for building a resilient financial system that is less prone to instabilities. But any corporate debt market suffers from an inherent interest rate risk-one of the most pervasive risks in any economy. The increasing importance of interest rate risk for the corporate sector in a deregulated interest rate environment is widely appreciated. A way to hedge against such a risk is to use an interest rate future. This paper seeks to examine if the current trend in interest rate derivatives trading is indeed worrisome; and if so, what could be the likely causes and the issues related to OTC traded interest rate derivatives in India.
