Non-Deliverable Forward

(redirected from Nondeliverable Forwards)

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 ?
At the start of this year, a new BSP ruling imposing a cap on banks' holdings of nondeliverable forwards (NDFs) took effect.
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.
(13) A typical example in today's marketplace would include spot and forward foreign-exchange contracts including, most likely, derivative equivalents, such as nondeliverable forwards.
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.
Also, the BSP earlier this year slapped a higher capital charge on purchases by banks of nondeliverable forwards (NDFs).
In January, the BSP imposed higher capitalization requirement on banks' holdings of nondeliverable forwards (NDFs)--a hedging instrument meant for clients of banks engaged in export and import activities--to discourage excessive investments in them.