Marking-to-market - In the futures market, at the end of each trading day, the margin account is adjusted to reflect the investors gain or loss depending upon the futures closing price. This is called marking-to-market.
The OTC market is restricted to Authorized Dealers (banks which are licensed by RBI to deal in FX), individuals and entities with forex exposures. Retail speculators with no exposure to FX cannot trade in OTC market.
Limitations of Futures - The benefit of standardization, though improves liquidity in futures, leads to imperfect hedge since the amount and settlement dates cannot be customized.
F = S x (1 + RQC x Period) / (1 + RBC x Period) Where F = forward price S = spot price RBC = interest rate on base currency RQC = interest rate on quoting currency Period = forward period in years
The formula is generalized for other currency pair and is given below: F = S + (S x (RQC - RBC) x Period)
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