The Reserve Bank of India (RBI) on Tuesday allowed the introduction of currency futures in euro, yen and pound sterling, a move dealers said would improve liquidity in the derivatives market.
The approval will expand the currency futures trading from the dollar-rupee contracts that was started in 2008, and will help participants hedge their risks in more currencies.
"This will improve liquidity further and facilitate price discovery better for non-dollar pairs," said R K Gurumurthy, head of treasury at ING Vysya Bank.
The RBI had said in its policy review in October last year that market participants were asking for futures contracts in major currency pairs.
"It will help exporters and importers to hedge their cross currency flows," said a dealer at a foreign bank.
The daily volume in the dollar-rupee futures market is around $6 billion to $7 billion.
Dealers said it would take some time for trading to pick up in other currency pairs because they would have to study the pricing of these derivatives.