Thursday, March 13, 2008

S&P launches India, China currency indices

Leading index provider Standard & Poor's on Thursday announced the launch of currency indicies - Indian Rupee index and Chinese Renminbi index - which will provide global investors an exposure to the two emerging economic giants.

Standard and Poor's has launched the two indices, the first in a series of real-time currency indices to be launched in 2008, a company release said.

"China and India are both important Markets in global trade, but currently lack a liquid and accessible currency futures market," Standard & Poor's Managing Director and Chairman of the Index Committee David Blitzer said.

Launch of the two new indices would provide investors with access to the currencies of the two emerging economic superpowers, while also serving as a reliable and relative benchmark for currency performance, Blitzer added.

The S&P Indian Rupee index and Chinese Renminbi index are designed to replicate the performance of the Chinese Renminbi and the Indian Rupee versus the US Dollar.

The indices represent the performance of a rolling investment in three-month, non-deliverable, forward currency contracts.

The two indices are rebalanced every three months on the valuation date of the previous three-month contract. The indices have an excess return version, which reflect changes in forward prices, as well as a total return version that adds a risk-free rate to the excess return index.

Both emerging Markets do not have liquid currency futures, so S&P has launched the indices by using non-deliverable forward contracts. These indices would provide information on the currencies and the costs of hedging positions in a convenient and consistent form, it said.

Given the appreciation in currencies of these two trading powers, these indices and index linked products would provide a transparent hedging mechanism for trade participants in the local Markets.

For example, a Chinese or Indian exporter sells services to the US in dollars. If Rupee or Yuan rises, they suffer. Now they can hedge in a exchange listed, transparent framework without worrying about futures Markets, liquidity of contracts and over the counter transactions.

This would also be the first ever way for the US retail investors to get access to currencies of the two emerging economic superpowers.

The China index would provide US retail investors an exchange listed access to a local Chinese asset for the first time, the release added.

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