NDF

See Nondeliverable Forward Contracts.

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Non-Deliverable Forward

A forward contract on a low-volume or inconvertible currency that cannot be settled by delivery of the underlying. In a non-deliverable forward, the parties net the difference between the exchange rate listed in the contract and the spot rate, and one party pays the other that difference. They are usually settled in U.S. dollars. Multinational corporations sometimes use non-deliverable forwards to hedge against risk associated with comparatively illiquid currencies.

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Nondeliverable Forward Contract

A forward contracts on an infrequently traded and/or inconvertible currency. The parties to a nondeliverable forward contract agree to buy/sell the underlying currency at a certain time for a certain exchange rate. Profit or loss on the contract comes from the spread between the agreed upon rate and the spot rate for the currency. Corporations with dealings in smaller countries often use nondeliverable forward contracts to hedge against exchange rate fluctuations. These contracts usually exist for between one month and one year. They are generally quoted and settled in U.S. dollars.