By  Paul Ploumis 08 Jul 2015  Last updated at  08:06:04 GMT

NEW DELHI (Scrap Monster): Multi Commodity Exchange of India Ltd. (MCX)- India's largest commodities exchange has announced the launch of an international gold contract that will be denominated in rupees. The new contract is expected to put a stop to the illegal online gold trades through overseas bourses in New York, Dubai and Europe. Furthermore, the contracts are expected to offer huge benefits to importers and exporters of gold.

According to MCX, the new gold contract will derive its value from Comex-based international gold price. Also, it excludes the 10% import duty and other local charges. The exchange hopes greater retail participation when compared with the existing gold contract which derives its value based on landed price of gold in the country. Additionally, the existing gold contract also includes 10% import duty.

The new gold contracts will be of 200 grams. The base quote will be 10 grams. The tick size will be either Rs 1 or Rs 2.Moreover, the contracts will be cash settled, unlike the existing MCX gold contract. Being denominated in rupee, the contract allows hedging of international gold rate and rupee.

The exchange has decided to go ahead with the launch of the contract amidst a few brokers raising fears that it may fail to attract residents’ participation. The brokers had cited the case of Dow Jones and S&P 500 derivatives denominated in rupees having failed to evoke substantial resident participation even after four years of its launch. However, MCX believes that the new gold contract would turn out to be a huge hit among Indian customers. Incidentally, gold constitutes the second largest import bill after crude. The success of the contract will prevent huge outflow of forex money, noted MCX.

The market regulator- Forward Markets Commission (FMC) has already approved the new MCX gold contract.