On the forex side, apart from forwards, which were in existence for long, cross currency options not involving rupee, foreign currency-rupee options and swaps were permitted for customers who have foreign currency exposures. The fundamental requirement of existence of an underlying commercial transaction for entering into a derivative, both on current or capital account, has remained through the years.
The determination of underlying exposure is largely based on current exposure and past performance for trade related transactions. However, as an exception, borrowers having long-term Indian rupee (INR) borrowing were permitted to use foreign currency-INR swaps to transform these into a foreign exchange liability.