A non-deliverable forward (NDF) book is a financial market that allows it’s participants to speculate and hedge in currencies that are not freely convertible. NDFs are basically a type of financial derivative contract that allows parties to lock in a future exchange rate for a specific currency pair.
Key Features:
- Settlement:
- NDFs are settled in cash, typically in US dollars, based on the difference between the agreed-upon rate and the actual market rate at maturity.
- No physical delivery:
- Unlike standard forward contracts, NDFs do not require physical delivery of currencies.
- Short-term contracts:
- They are basically short-term contracts between two parties.
