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{{About|the financial instrument|other meanings of NDF|NDF (disambiguation)}} | |||
{{Foreign Exchange}} | |||
In [[finance]], a '''non-deliverable forward''' ('''NDF''') is an outright [[Forward contract|forward]] or [[futures contract]] in which counterparties settle the difference between the contracted NDF price or rate and the prevailing spot price or rate on an agreed [[notional amount]]. It is used in various markets such as foreign exchange and commodities. NDFs are prevalent in some countries where forward FX trading has been banned by the government (usually as a means to prevent exchange rate [[volatility (finance)|volatility]]). | |||
== | ==Market== | ||
The NDF market is an [[over-the-counter (finance)|over-the-counter]] market. NDFs began to trade actively in the 1990s. NDF markets developed for [[emerging markets]] with capital controls, where the currencies could not be delivered offshore. Most NDFs are cash-settled in US dollars.<ref name="BIS Overview">{{cite web | |||
| last = Lipscomb | |||
| first = Laura | |||
| authorlink = | |||
| coauthors = | |||
| title = An Overview of Non-Deliverable Foreign Exchange Forward Markets | |||
| work = | |||
| publisher = | |||
| date = Federal Reserve Bank of New York | |||
| url = http://www.bis.org/publ/cgfs22fedny5.pdf | |||
|format=PDF| doi = | |||
| accessdate = 2007-09-29 }}</ref> | |||
The more active banks quote NDFs from between one month to one year, although some would quote up to two years upon request. The most commonly traded NDF tenors are [[IMM dates]], but banks also offer odd-dated NDFs. NDFs are typically quoted with the USD as the reference currency, and the settlement amount is also in USD. | |||
=== List of currencies with NDF market === | |||
Below is a (non-exhaustive) list of currencies where non-deliverable forwards are traded.<ref name = "SB_FX">http://www.smithbarney.com/products_services/other_investments/foreign_exchange/fxcurrencies.html</ref><ref name="C-S">https://www.credit-suisse.com/media/production/pb/docs/unternehmen/kmugrossunternehmen/en/em-currency-handbook-2013.pdf</ref> | |||
Not all non-convertible currencies have a NDF market (e.g. [[Bangladeshi taka|BDT]] had no active market as of 2011<ref name="HSBC_NDF"/>). A currency may be convertible by some market participants while being non-convertible to others. | |||
{| class="wikitable" | |||
|- | |||
! Asia Pacific !! Europe, Middle East and Africa !! Latin America | |||
|- valign="top" | |||
| | |||
* [[Renminbi|CNY]] Chinese Renminbi<ref name="HSBC_NDF">http://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=3UGWxKwFIE&n=286681.PDF</ref> | |||
* [[Indonesian Rupiah|IDR]] Indonesian Rupiah<ref name = "C-S"/> | |||
* [[Indian Rupee|INR]] Indian Rupee<ref name = "C-S"/> | |||
* [[South Korean Won|KRW]] South Korean Won<ref name = "C-S"/> | |||
* [[Malaysian Ringgit|MYR]] Malaysian Ringgit<ref name = "C-S"/> | |||
* [[Philippine Peso|PHP]] Philippine Peso<ref name = "C-S"/> | |||
* [[New Taiwan dollar|TWD]] Taiwan Dollar<ref>http://www.uob.com.sg/corporate/corporate/treasury/asian_non_deliverable_forward.html</ref> | |||
* [[Vietnamese đồng|VND]] Vietnamese đồng<ref name = "C-S"/> | |||
| | |||
* [[Egyptian pound|EGP]] Egyptian pound<ref name="HSBC_NDF"/> | |||
* [[Israeli new shekel|ILS]] Israeli Shekel<ref name = "SB_FX"/><ref name="HSBC_NDF"/> | |||
* [[Kazakh tenge|KZT]] Kazakh tenge<ref name="HSBC_NDF"/> | |||
| | |||
* [[Argentine Peso|ARS]] Argentine Peso<ref name = "C-S"/> | |||
* [[Brazilian Real|BRL]] Brazilian Real<ref name = "C-S"/> | |||
* [[Chilean Peso|CLP]] Chilean Peso<ref name = "C-S"/> | |||
* [[Colombian Peso|COP]] Colombian Peso<ref name = "C-S"/> | |||
* [[Guatemalan quetzal|GTQ]] Guatemalan quetzal <ref name = "C-S"/> | |||
* [[Peruvian nuevo sol|PEN]] Peruvian nuevo sol<ref name = "C-S"/> | |||
* [[Uruguayan peso|UYU]] Uruguayan peso<ref name="HSBC_NDF"/> | |||
* [[Venezuelan bolívar|VEB]] Venezuelan bolívar<ref name = "C-S"/> | |||
|} | |||
==Structure and features== | |||
An NDF is a short-term, cash-settled currency forward between two [[counterparties]]. On the contracted settlement date, the profit or loss is adjusted between the two counterparties based on the difference between the contracted NDF rate and the prevailing spot FX rates on an agreed notional amount. | |||
The features of an NDF include: | |||
* '''notional amount''': This is the "face value" of the NDF, which is agreed between the two counterparties. It should again be noted that there is never any intention to exchange the notional amounts in the two currencies | |||
* '''fixing date''': This is the day and time whereby the comparison between the NDF rate and the prevailing spot rate is made. | |||
* '''settlement date''' (or '''delivery date'''): This is the day when the difference is paid or received. It is usually one or two business days after the fixing date. | |||
* '''contracted NDF rate''': the rate agreed on the transaction date, and is essentially the outright forward rate of the currencies dealt. | |||
* '''prevailing spot rate''' (or '''fixing spot rate'''): the rate on the fixing date usually provided by the [[central bank]], and commonly calculated by calling a number of dealers in the market for a quote at a specified time of day, and taking the average. The exact method of determining the fixing rate is agreed when a trade is initiated. | |||
Because an NDF is a cash-settled instrument, the notional amount is never exchanged. The only exchange of cash flows is the '''difference''' between the NDF rate and the prevailing spot market rate—that is determined on the fixing date and exchanged on the settlement date—applied to the notional, i.e. cash flow = (NDF rate – spot rate) × notional. | |||
Consequently, since NDF is a "non-cash", [[off-balance-sheet]] item and since the principal sums do not move, NDF bears much lower counter-party risk. NDFs are committed short-term instruments; both counterparties are committed and are obliged to honor the deal. Nevertheless, either counterparty can cancel an existing contract by entering into another offsetting deal at the prevailing market rate. | |||
==Pricing and valuation== | |||
An investor enters into a forward agreement to purchase a notional amount, ''N'', of the base currency at the contracted forward rate, ''F'', and would pay ''NF'' units of the quoted currency. On the fixing date, that investor would theoretically be able to sell the notional amount, ''N'', of the base currency at the prevailing spot rate, ''S'', earning ''NS'' units of the quoted currency. Therefore, the profit, <math>\pi</math>, on this trade in terms of the base currency, is given by: | |||
:<math>\pi = \frac{NS - NF}{S} = N\left(1-\frac{F}{S}\right)</math> | |||
The base currency is usually the more liquid and more frequently traded currency (for example, USD). | |||
==Uses== | |||
===Synthetic foreign currency loans=== | |||
NDFs can be used to create a foreign currency loan in a currency, which may not be of interest to the lender. | |||
For example, the borrower wants dollars but wants to make repayments in euros. So, the borrower receives a dollar sum and repayments will still be calculated in dollars, but payment will be made in euros, using the current exchange rate at time of repayment. | |||
The lender wants to lend dollars and receive repayments in dollars. So, at the same time as disbursing the dollar sum to the borrower, the lender enters into a non-deliverable forward agreement with a counterparty (for example, on the Chicago market) that matches the cash flows from the foreign currency repayments. | |||
Effectively, the borrower has a synthetic euro loan; the lender has a synthetic dollar loan; and the counterparty has an NDF contract with the lender. | |||
===Arbitrage opportunity=== | |||
Under certain circumstances, the rates achievable using synthetic foreign currency lending may be lower than borrowing in the foreign currency directly, implying that there is a possibility for [[arbitrage]]. Although this is theoretically identical to a second currency loan (with settlement in dollars), the borrower may face [[basis risk]]: the possibility that a difference arises between the swap market's exchange rate and the exchange rate on the home market. The lender also bears [[counterparty risk]]. | |||
The borrower could, in theory, enter into NDF contracts directly and borrow in dollars separately and achieve the same result. NDF counterparties, however, may prefer to work with a limited range of entities (such as those with a minimum [[credit rating]]). | |||
===Speculation=== | |||
It is estimated that between 60 to 80 per cent of NDF trading is speculative.<ref name="BIS Overview"/> The main difference between the outright forward deals and the non-deliverable forwards is that the settlement is made in dollars since the dealer or counterparty can not settle in the alternative currency of the deal. | |||
==References== | |||
<references/> | |||
* {{Citation | |||
| last1 = Misra | |||
| first1 = Sangita | |||
| last2 = Behera | |||
| first2 = Harendra | |||
| title = Non Deliverable Foreign Exchange Forward Market: An Overview | |||
| journal = Reserve Bank of India Occasional Papers | |||
| volume = 27 | |||
| issue = 3 | |||
| year = 2006 | |||
| url = http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/80592.pdf | |||
}} | |||
* {{Citation | |||
| last1=Ma | first1=Guonan | |||
| last2=Ho | first2=Corrinne | |||
| last3=McCauley | first3=Robert N. | |||
| title=The markets for non-deliverable forwards in Asian currencies | |||
| journal=BIS Quarterly Review | |||
| issue=June 2004 | |||
| year=2004 | |||
| url=http://www.bis.org/publ/qtrpdf/r_qt0406g.pdf | |||
}} | |||
[[Category:Derivatives (finance)]] | |||
Revision as of 15:06, 14 January 2014
29 yr old Orthopaedic Surgeon Grippo from Saint-Paul, spends time with interests including model railways, top property developers in singapore developers in singapore and dolls. Finished a cruise ship experience that included passing by Runic Stones and Church. Template:Foreign Exchange
In finance, a non-deliverable forward (NDF) is an outright forward or futures contract in which counterparties settle the difference between the contracted NDF price or rate and the prevailing spot price or rate on an agreed notional amount. It is used in various markets such as foreign exchange and commodities. NDFs are prevalent in some countries where forward FX trading has been banned by the government (usually as a means to prevent exchange rate volatility).
Market
The NDF market is an over-the-counter market. NDFs began to trade actively in the 1990s. NDF markets developed for emerging markets with capital controls, where the currencies could not be delivered offshore. Most NDFs are cash-settled in US dollars.[1]
The more active banks quote NDFs from between one month to one year, although some would quote up to two years upon request. The most commonly traded NDF tenors are IMM dates, but banks also offer odd-dated NDFs. NDFs are typically quoted with the USD as the reference currency, and the settlement amount is also in USD.
List of currencies with NDF market
Below is a (non-exhaustive) list of currencies where non-deliverable forwards are traded.[2][3] Not all non-convertible currencies have a NDF market (e.g. BDT had no active market as of 2011[4]). A currency may be convertible by some market participants while being non-convertible to others.
| Asia Pacific | Europe, Middle East and Africa | Latin America |
|---|---|---|
Structure and features
An NDF is a short-term, cash-settled currency forward between two counterparties. On the contracted settlement date, the profit or loss is adjusted between the two counterparties based on the difference between the contracted NDF rate and the prevailing spot FX rates on an agreed notional amount.
The features of an NDF include:
- notional amount: This is the "face value" of the NDF, which is agreed between the two counterparties. It should again be noted that there is never any intention to exchange the notional amounts in the two currencies
- fixing date: This is the day and time whereby the comparison between the NDF rate and the prevailing spot rate is made.
- settlement date (or delivery date): This is the day when the difference is paid or received. It is usually one or two business days after the fixing date.
- contracted NDF rate: the rate agreed on the transaction date, and is essentially the outright forward rate of the currencies dealt.
- prevailing spot rate (or fixing spot rate): the rate on the fixing date usually provided by the central bank, and commonly calculated by calling a number of dealers in the market for a quote at a specified time of day, and taking the average. The exact method of determining the fixing rate is agreed when a trade is initiated.
Because an NDF is a cash-settled instrument, the notional amount is never exchanged. The only exchange of cash flows is the difference between the NDF rate and the prevailing spot market rate—that is determined on the fixing date and exchanged on the settlement date—applied to the notional, i.e. cash flow = (NDF rate – spot rate) × notional.
Consequently, since NDF is a "non-cash", off-balance-sheet item and since the principal sums do not move, NDF bears much lower counter-party risk. NDFs are committed short-term instruments; both counterparties are committed and are obliged to honor the deal. Nevertheless, either counterparty can cancel an existing contract by entering into another offsetting deal at the prevailing market rate.
Pricing and valuation
An investor enters into a forward agreement to purchase a notional amount, N, of the base currency at the contracted forward rate, F, and would pay NF units of the quoted currency. On the fixing date, that investor would theoretically be able to sell the notional amount, N, of the base currency at the prevailing spot rate, S, earning NS units of the quoted currency. Therefore, the profit, , on this trade in terms of the base currency, is given by:
The base currency is usually the more liquid and more frequently traded currency (for example, USD).
Uses
Synthetic foreign currency loans
NDFs can be used to create a foreign currency loan in a currency, which may not be of interest to the lender.
For example, the borrower wants dollars but wants to make repayments in euros. So, the borrower receives a dollar sum and repayments will still be calculated in dollars, but payment will be made in euros, using the current exchange rate at time of repayment.
The lender wants to lend dollars and receive repayments in dollars. So, at the same time as disbursing the dollar sum to the borrower, the lender enters into a non-deliverable forward agreement with a counterparty (for example, on the Chicago market) that matches the cash flows from the foreign currency repayments.
Effectively, the borrower has a synthetic euro loan; the lender has a synthetic dollar loan; and the counterparty has an NDF contract with the lender.
Arbitrage opportunity
Under certain circumstances, the rates achievable using synthetic foreign currency lending may be lower than borrowing in the foreign currency directly, implying that there is a possibility for arbitrage. Although this is theoretically identical to a second currency loan (with settlement in dollars), the borrower may face basis risk: the possibility that a difference arises between the swap market's exchange rate and the exchange rate on the home market. The lender also bears counterparty risk.
The borrower could, in theory, enter into NDF contracts directly and borrow in dollars separately and achieve the same result. NDF counterparties, however, may prefer to work with a limited range of entities (such as those with a minimum credit rating).
Speculation
It is estimated that between 60 to 80 per cent of NDF trading is speculative.[1] The main difference between the outright forward deals and the non-deliverable forwards is that the settlement is made in dollars since the dealer or counterparty can not settle in the alternative currency of the deal.
References
- ↑ 1.0 1.1 Template:Cite web
- ↑ 2.0 2.1 http://www.smithbarney.com/products_services/other_investments/foreign_exchange/fxcurrencies.html
- ↑ 3.00 3.01 3.02 3.03 3.04 3.05 3.06 3.07 3.08 3.09 3.10 3.11 3.12 3.13 https://www.credit-suisse.com/media/production/pb/docs/unternehmen/kmugrossunternehmen/en/em-currency-handbook-2013.pdf
- ↑ 4.0 4.1 4.2 4.3 4.4 4.5 http://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=3UGWxKwFIE&n=286681.PDF
- ↑ http://www.uob.com.sg/corporate/corporate/treasury/asian_non_deliverable_forward.html
- Many property agents need to declare for the PIC grant in Singapore. However, not all of them know find out how to do the correct process for getting this PIC scheme from the IRAS. There are a number of steps that you need to do before your software can be approved.
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Have handed an trade examination i.e Widespread Examination for House Brokers (CEHA) or Actual Property Agency (REA) examination, or equal; Exclusive brokers are extra keen to share listing information thus making certain the widest doable coverage inside the real estate community via Multiple Listings and Networking. Accepting a severe provide is simpler since your agent is totally conscious of all advertising activity related with your property. This reduces your having to check with a number of agents for some other offers. Price control is easily achieved. Paint work in good restore-discuss with your Property Marketing consultant if main works are still to be done. Softening in residential property prices proceed, led by 2.8 per cent decline within the index for Remainder of Central Region
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15.6.1 As the agent is an intermediary, generally, as soon as the principal and third party are introduced right into a contractual relationship, the agent drops out of the image, subject to any problems with remuneration or indemnification that he could have against the principal, and extra exceptionally, against the third occasion. Generally, agents are entitled to be indemnified for all liabilities reasonably incurred within the execution of the brokers´ authority.
To achieve the very best outcomes, you must be always updated on market situations, including past transaction information and reliable projections. You could review and examine comparable homes that are currently available in the market, especially these which have been sold or not bought up to now six months. You'll be able to see a pattern of such report by clicking here It's essential to defend yourself in opposition to unscrupulous patrons. They are often very skilled in using highly unethical and manipulative techniques to try and lure you into a lure. That you must also protect your self, your loved ones, and personal belongings as you'll be serving many strangers in your home. Sign a listing itemizing of all of the objects provided by the proprietor, together with their situation. HSR Prime Recruiter 2010 - Many property agents need to declare for the PIC grant in Singapore. However, not all of them know find out how to do the correct process for getting this PIC scheme from the IRAS. There are a number of steps that you need to do before your software can be approved.
Naturally, you will have to pay a safety deposit and that is usually one month rent for annually of the settlement. That is the place your good religion deposit will likely be taken into account and will kind part or all of your security deposit. Anticipate to have a proportionate amount deducted out of your deposit if something is discovered to be damaged if you move out. It's best to you'll want to test the inventory drawn up by the owner, which can detail all objects in the property and their condition. If you happen to fail to notice any harm not already mentioned within the inventory before transferring in, you danger having to pay for it yourself.
In case you are in search of an actual estate or Singapore property agent on-line, you simply should belief your intuition. It's because you do not know which agent is nice and which agent will not be. Carry out research on several brokers by looking out the internet. As soon as if you end up positive that a selected agent is dependable and reliable, you can choose to utilize his partnerise in finding you a home in Singapore. Most of the time, a property agent is taken into account to be good if he or she locations the contact data on his website. This may mean that the agent does not mind you calling them and asking them any questions relating to new properties in singapore in Singapore. After chatting with them you too can see them in their office after taking an appointment.
Have handed an trade examination i.e Widespread Examination for House Brokers (CEHA) or Actual Property Agency (REA) examination, or equal; Exclusive brokers are extra keen to share listing information thus making certain the widest doable coverage inside the real estate community via Multiple Listings and Networking. Accepting a severe provide is simpler since your agent is totally conscious of all advertising activity related with your property. This reduces your having to check with a number of agents for some other offers. Price control is easily achieved. Paint work in good restore-discuss with your Property Marketing consultant if main works are still to be done. Softening in residential property prices proceed, led by 2.8 per cent decline within the index for Remainder of Central Region
Once you place down the one per cent choice price to carry down a non-public property, it's important to accept its situation as it is whenever you move in – faulty air-con, choked rest room and all. Get round this by asking your agent to incorporate a ultimate inspection clause within the possibility-to-buy letter. HDB flat patrons routinely take pleasure in this security net. "There's a ultimate inspection of the property two days before the completion of all HDB transactions. If the air-con is defective, you can request the seller to repair it," says Kelvin.
15.6.1 As the agent is an intermediary, generally, as soon as the principal and third party are introduced right into a contractual relationship, the agent drops out of the image, subject to any problems with remuneration or indemnification that he could have against the principal, and extra exceptionally, against the third occasion. Generally, agents are entitled to be indemnified for all liabilities reasonably incurred within the execution of the brokers´ authority.
To achieve the very best outcomes, you must be always updated on market situations, including past transaction information and reliable projections. You could review and examine comparable homes that are currently available in the market, especially these which have been sold or not bought up to now six months. You'll be able to see a pattern of such report by clicking here It's essential to defend yourself in opposition to unscrupulous patrons. They are often very skilled in using highly unethical and manipulative techniques to try and lure you into a lure. That you must also protect your self, your loved ones, and personal belongings as you'll be serving many strangers in your home. Sign a listing itemizing of all of the objects provided by the proprietor, together with their situation. HSR Prime Recruiter 2010