What currencies are non-deliverable?

Key Takeaways

  • A non-deliverable forward (NDF) is a two-party currency derivatives contract to exchange cash flows between the NDF and prevailing spot rates.
  • The largest NDF markets are in the Chinese yuan, Indian rupee, South Korean won, New Taiwan dollar, and Brazilian real.

What currencies are deliverable?

Deliverable FX

Instrument Currency Pairs Maximum Tenor
Original Deliverable FX Forward Transactions USD and CNY(offshore) 3 years
Original Deliverable FX Swaps Transactions USD and CNY(offshore) 3 years

How do you value NDF?

Most NDFs are priced according to an interest rate parity formula. This formula is used to estimate equivalent interest rate returns for the two currencies involved over a given time frame, in reference to the spot rate at the time the NDF contract is initiated.

What is an NDF in FX?

A non-deliverable forward (NDF) is an FX exchange contract, where two parties agree to, on a date in the future, exchange currencies for the prevailing spot rate.

Is BRL a NDF currency?

This growth is remarkable in that three currencies with large NDF markets – the Brazilian real (BRL), the Indian rupee (INR) and the Russian rouble (RUB) – depreciated notably vis-à-vis the US dollar during the period.

Is ruble a NDF?

NDFs trade onshore to some extent in the real, won, rouble and New Taiwan dollar.

What is the difference between deliverable and non-deliverable forward?

; Deliverable Forward Contract: It is a contract wherein you have something to deliver. ; Non-Deliverable Forward Contract: In NDF contract, there is nothing to deliver instead there is a net settlement. Deliverable Forward Contract, as the name suggests, is the contract where there is something to deliver.

What is INR NDF?

The NDF market essentially permits investors to trade in non- or partially convertible currencies (such as the Indian rupee) with the settlement of contracts taking place in convertible currencies such as the US dollar.

How does a NDF work?

An NDF works like a regular forward contract, but with no physical delivery of the underlying currency pair. An NDF provides protection against adverse movements in the exchange rate of the currency pair during the term of the contract.

How does an NDF work?

What is an example of non-deliverable currency option?

An example would be a non-deliverable currency option, which is settled by a net cash payment, rather than delivery of the underlying foreign currency, generally because one of the currencies is not convertible.

What is the settlement value of a non deliverable swap?

The settlement value is based on the difference between the exchange rate specified in the swap contract and the spot rate, with one party paying the other the difference. A non-deliverable swap can be viewed as a series of non-deliverable forwards bundled together.

How is profit or loss calculated on a non-deliverable forward?

The profit or loss is calculated on the notional amount of the agreement by taking the difference between the agreed-upon rate and the spot rate at the time of settlement. A non-deliverable forward (NDF) is a two-party currency derivatives contract to exchange cash flows between the NDF and prevailing spot rates.

How do you settle a non-deliverable forward?

But, the two parties can settle the NDF by converting all profits and losses on the contract to a freely traded currency. They can then pay each other the profits/losses in that freely traded currency. That said, non-deliverable forwards are not limited to illiquid markets or currencies.