Guide to Non-Deliverable Forward Contracts

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Non-deliverable forward contracts help you to protect your margins and manage the risk involved in receiving and making payments in currencies with trading restrictions, including non-convertible currencies.

Why use NDFs?

When you trade fully convertible currencies you can manage your risk with forward contracts, which allow you to lock in an exchange rate. NDFs effectively let you do the same with non-convertible currencies. So you can manage your currency exposure and accurately budget for international projects.

How do NDFs work?

NDFs work in much the same way as deliverable forward contracts, in that you can set an exchange rate over a specific period of time. The difference is that the end of the contract doesn’t result in the delivery of a foreign currency, instead, NDFs net the difference in exchange rates.

On maturity, the difference between the exchange rate set in the contract and the day’s fixing rate is settled between the two parties in the settlement currency. The fixing rate is published daily by the central bank of the non-convertible currency and obtained from the Reuters reference pages.

 

Booking an NDF

1. Date of hire

You agree with the currency pair and volume needed as well as the fixing date with your FX dealer.

2. Fixing date

Two working days prior to the NDF’s expiration date, the daily fixing rate from the non-convertible currency’s central bank is checked against the exchange rate in the contract. At this stage there are two possible outcomes:

    1. The settlement currency has appreciated against the agreed rate. Ebur will offset the difference.
    2. The settlement currency has depreciated against the agreed rate. You will need to pay the difference.

What this means is that your business will neither make losses nor gains and you’ll have a stable exchange rate.

3. Settlement date

Once the payment has been made in the settlement currency we close the NDF contract. The outcome is that your risk has been covered for the length of the contract.

 

 

There are no costs involved. At Ebury we incorporate a margin into the contracted exchange rate but, as with all our products, you’ll find that our rates are highly competitive.

If you use the resulting volume of settlement currency to purchase the non-convertible currency, you can do this in a separate transaction.

Ebury may be able to offer the non-convertible currency through a spot transaction (this is called an NDF+ or a deliverable forward). Alternatively, you can make this transaction through a local bank.

 

 

Why NDFs with Ebury?

We offer NDFs across a wide range of emerging market currencies and ensure that the NDFs offered to you meet your business’s needs in terms of volumes traded, maturity dates and currencies required.

 

 

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