Why USD/INR futures usually trade above spot
This is the India version of the lesson. Indian residents may trade currencies only through exchange-traded currency derivatives on NSE, BSE or MSE, with a SEBI-registered broker. Education only, no tips.
Every currency has an interest rate
Rupee deposits and US-dollar deposits earn different interest. Historically rupee rates have been higher than dollar rates, mainly because Indian inflation has been higher. That gap has a price, and you can see it on the exchange.
Why the future is not the spot rate
Imagine two ways to have dollars in three months: buy them today and keep them in a dollar deposit, or keep rupees in a rupee deposit and agree today to buy dollars in three months. If both routes cost the same, the agreed future rate must be higher than today’s spot rate by roughly the interest-rate gap. That extra is the FORWARD PREMIUM.
A rough estimate
Forward premium ≈ spot × interest-rate gap × time. Illustrative (not market data): spot 85.00, rupee rate 6%, dollar rate 4%, one month to expiry → 85.00 × 2% × 1/12 ≈ 0.14. The one-month future would be near 85.14. The exact formula compounds both rates, but the estimate is close for short periods (as of 3 November 2026).
The premium melts towards expiry
The premium pays for time. As expiry approaches there is less time left, so the premium shrinks, and on the last day the future converges on the reference rate. A hedger who sells USD/INR futures “earns” this premium over the life of the contract; a hedger who buys pays it. That is a cost of hedging, not a trading strategy.
You’ve mastered: the forward premium
Different interest rates make the futures price differ from spot
Higher rupee rates usually put USD/INR futures at a premium
Premium ≈ spot × rate gap × time, and it shrinks to zero at expiry
Exchange futures have no overnight swap — the rate gap is in the price
