Non-Deliverable Forward

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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.
References in periodicals archive ?
The CRPP is a nondeliverable forward hedging facility aimed at alleviating demand pressures in the foreign exchange spot market from borrowers seeking to hedge their future foreign exchange exposures.
EBS BrokerTec added a new nondeliverable forward (NDF) instrument, one month against the fix, to be called TOD/TOM (today/tomorrow).
This is an off-balance-sheet exposure and is generally hedged via forward contract or a nondeliverable forward.
Premier Wen Jiabao, speaking at a wide-ranging, three-hour news conference at the end of China's legislative session, said the yuan has gained 30 percent in real terms since 2005 and has moved up and down since September in Hong Kong trading of nondeliverable forward contracts.
The forward contract often took the form of a nondeliverable forward, under which dollar payments were made by reference to movements in the spot dollar-to-ruble rate.
But the share of dollar deposits continued to decline despite some stabilization at the margin in the interest differential in 2002, pointing to an additional catalyst--rising expectations of renminbi appreciation, as indicated by the RMB/$ forward exchange rate in the nondeliverable forward market (Ma and McCauley 2003).
The CRPP is a nondeliverable forward hedging facility which is aimed at alleviating demand pressures in the foreign exchange spot market from borrowers seeking to hedge their future foreign exchange exposures.
Importantly, the final determination doesn't extend to other FX derivatives, such as FX options, currency swaps, and nondeliverable forwards. These other FX derivatives will be subject to mandatory clearing and exchange-trading requirements.
Since the early 1990s, however, some international banks have been offering an offshore, over-the-counter market in nondeliverable forwards (NDFs) for many emerging-market currencies, including the Chinese renminbi.
Recently, a market in nondeliverable forwards (NDFs) has arisen to provide cover for companies trading in renminbi.
At the start of this year, a new BSP ruling imposing a cap on banks' holdings of nondeliverable forwards (NDFs) took effect.
Also, the BSP earlier this year slapped a higher capital charge on purchases by banks of nondeliverable forwards (NDFs).