A non-deliverable forward (NDF) is a derivative contract that is used to hedge foreign exchange risk for currencies that are not freely convertible, such as the Brazilian real, Indian rupee, and Chinese yuan. NDFs work similarly to regular foreign exchange forwards by locking in an exchange rate for a future date, except they settle financially rather than through delivery of the foreign currency. At settlement, the difference between the contracted NDF rate and the current spot rate is paid out in U.S. dollars rather than delivering the foreign currency. NDFs provide a way for companies and investors to hedge currency risk for these restricted currencies.

1. By:-
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Non-Deliverable Forward

2. 1. Definition
2. Why Non-Convertible Currencies?
3. How do Non-Deliverable Forward Contracts Work?
4. Reference
Content

3. A NON-DELIVERABLE FORWARD contract is a financial derivative used to hedge foreign exchange risk. NDFs are
very similar to foreign exchange forward contracts, in the sense, that it is a contract to buy or sell a specific quantity of
foreign currency (non-convertible currency) at a pre-determined rate that will apply on a future date.
Definition

4. Some of the currencies which actively participates in the NDF markets are the Korean won (KRW), Indian rupee (INR),
Taiwan dollar (TWD), Chinese yuan (CNY), Indonesian rupiah (IDR), Malaysian ringgit (MYR), Philippine peso (PHP),
Argentine peso (ARS), and the Brazilian Real (BRL).
Why Non-Convertible Currencies?

5. NDFs are used to settle foreign exchange transactions between the parties involved. The bank is one of the parties to the
transaction and is based in the country of non-deliverable currency. So, if the non-deliverable currency is Brazilian Real
(BRL), the bank will be based in Brazil.
On the date of settlement, there is no exchange of foreign currency. The foreign currency is converted by the bank at the
pre-agreed forward rate.
How do Non-Deliverable Forward Contracts Work?

6. Reference
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