Difference between revisions of "Non-deliverable forward"

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A non-deliverable forward contract (NDF) is a [[foreign exchange]] derivative in which there is no physical settlement at [[maturity]], but instead is [[cash-settled]] in an international financial center, typically in U.S. dollars.<ref>{{cite web|url=http://www.bis.org/publ/cgfs22fedny5.pdf|name=An Overview of Non-Deliverable Foreign Exchange Forward Markets|org=Bank for International Settlements|date=December 3, 2013}}</ref> In general, NDFs are used in FX transactions involving [[emerging market]] currencies, which are often illiquid and not freely convertible, and often involve restrictions on capital flow.<ref>{{cite web|url=http://lexicon.ft.com/term?term=non_deliverable-forward-NDF|name=Non-deliverable forward|org=FT Lexicon|date=December 3, 2013}}</ref>  
A non-deliverable forward contract (NDF) is a [[foreign exchange]] derivative in which there is no physical settlement at [[maturity]], but instead is [[cash-settled]] in an international financial center, typically in U.S. dollars.<ref>{{cite web|url=http://www.bis.org/publ/cgfs22fedny5.pdf|name=An Overview of Non-Deliverable Foreign Exchange Forward Markets|org=Bank for International Settlements|date=December 3, 2013}}</ref> In general, NDFs are used in FX transactions involving [[emerging market]] currencies, which are often illiquid and not freely convertible, and often involve restrictions on capital flow.<ref>{{cite web|url=http://lexicon.ft.com/term?term=non_deliverable-forward-NDF|name=Non-deliverable forward|org=FT Lexicon|date=December 3, 2013}}</ref>  
==History==
As trade with Latin American countries grew throughout the 1990s, the use of NDFs as a way of hedging foreign exposure grew as well. Over this period, the use of NDFs spread to emerging currencies in Asia and Eastern Europe. In 1997, the [[International Swaps and Derivatives Association]] ([[ISDA) added provisions for NDF transactions to its definitions.<ref>{{cite web|url=http://www.mondaq.com/unitedstates/x/225358/|name=United States: Non-Deliverable Forward Foreign Exchange Contracts At A Glance|org=Mondaq|date=December 3, 2013}}</ref> 


The [[Dodd-Frank Act]], signed in 2010, left it to the [[Department of the Treasury]] to determine the scope of the Act's reach into foreign exchange. In November 2012, Treasury issued its final determination which exempted spot FX and physically-delivered swaps and forwards from mandatory clearing and execution requirements of Dodd-Frank. However, NDFs, [[options]] and other derivatives are required to adhere to such Dodd-Frank requirements.
The [[Dodd-Frank Act]], signed in 2010, left it to the [[Department of the Treasury]] to determine the scope of the Act's reach into foreign exchange. In November 2012, Treasury issued its final determination which exempted spot FX and physically-delivered swaps and forwards from mandatory clearing and execution requirements of Dodd-Frank. However, NDFs, [[options]] and other derivatives are required to adhere to such Dodd-Frank requirements.
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