Non-deliverable forward
Also called: NDF, Offshore rupee market · Topic: Balance of Payments and Exchange Rates · NCERT: Beyond NCERT
Meaning
A non-deliverable forward (NDF) is an offshore forward contract in a currency that is not fully convertible, such as the rupee. A forward contract fixes an exchange rate today for a deal on a future date. In an NDF, the underlying currency is never delivered. Only the difference between the agreed rate and the actual rate is settled, in dollars. Large NDF markets can pull offshore rupee prices away from onshore prices.
Example
Rupee NDFs trade in Singapore, Dubai and London. From 2020, RBI allowed Indian banks with units in the IFSC to deal in rupee NDFs, which helped narrow the gap between onshore and offshore prices.
Related concepts
- Foreign exchange market
- Foreign exchange
- Foreign exchange rate
- Demand for foreign exchange
- Supply of foreign exchange
- Flexible exchange rate
- Currency depreciation
- Currency appreciation
- Currency speculation
- Interest rate differential