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Banks Turn India’s Hot-Money Move Into Lucrative Currency Trade

  • RBI rule change enabled banks to pile into currency spreads
  • Foreign banks said to be biggest beneficiaries of these trades
Updated on

The Reserve Bank of India’s attempt to flush out excess U.S. dollars from the nation’s markets has offered a unique arbitrage opportunity for some banks.

Lenders are using a regulatory loophole to profit from trading in the currency forward markets, according to people with knowledge of the matter. A large bank could easily rack up exposures of more than $1 billion, multiple traders said, asking not to be identified as the deals aren’t public.