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NDF
In a foreign exchange context, a type of forward exchange contract whereby the differential is settled in cash at maturity rather than by an exchange of currencies, and which corresponds to the difference between the agreed upon exchange rate and the spot rate at maturity, on the basis of an agreed fixed notional.
(1) Such contracts are used more specifically to hedge against the foreign exchange risk of a non-convertible or thinly traded currency. In such cases, the contract is settled in a readily convertible currency like the dollar or the euro.
(2) Unlike forward exchange contracts or foreign exchange swaps, in the case of non-deliverable forwards the quantity of initial currency is only a hypothetical principal (the notional) used as a reference in foreign exchange rate calculations. Since non-deliverable forwards do not involve an exchange of foreign currencies, they may require the concurrent cash purchase or sale of foreign currencies.
Synonyms and variations
- Non-deliverable forward
- Non-deliverable forward contract