Courses

Non-Deliverable Forwards

Brief definition of NDFs
Non-deliverable forwards (NDFs) are synthetic financial instruments that enable the trading of a currency at a future date for hedging or speculative purposes... more »

Popular NDF currencies
Argentina (ARS), Brazil (BRL)... more »

Detailed definition of NDFs
An NDF is economically equivalent and structurally identical to a conventional forward foreign exchange contract, which is an agreement that requires the delivery of one currency in exchange for a known amount of a second currency... more »

Timeline of NDF development
In the early 1990s a significant NDF market starts to emerge, driven by increasing sophistication of market participants in terms of both their risk management awareness and capabilities and their breadth of currency exposure... more »

The NDF market today
Precise volume figures are very difficult to obtain because NDFs are OTC instruments. However... more »

Limitations of NDFs
The downside to having partial access to onshore markets is that market makers are exposed to basis risk...But perhaps of more concern are the limitations of NDFs as risk management tools... more »

Pricing of NDFs
The pricing of NDFs is difficult to model theoretically because prices are volatile and affected by a wide range of factors such as trading flows, liquidity, and counterparty risk... more »

Examples of NDF usage
Company XYZ imports from China and is concerned about the effects a potential upward revaluation of the Chinese yuan may have on its import costs. To protect itself, XYZ enters into an NDF
contract... more »