What is a non-deliveravble forward?

A market for Non Deliverable Forward in Indian Rupee has often been made as a case for India to open up its currency futures market.

But what is an NDF? This non-technical note from New York Fed is a good one explaining the basics and mechanics.

In a forward market, the settlement happens in the currency for which we have bought a contract. However, in an NDF what happens is that you buy a contract taking an exposure to a currency but settle in another currency mostly US Dollar.

NDF market exists as few emerging markets have capital controls and do not have a currency futures market. But emerging market currency risk is crucial especially for multinationals who operate in emerging markets. So, we have an alternative- NDF market where one can structure forward contracts on emerging market currency but settle it on another currency.

Assorted Links

1. JR Varma points to SEC admitting rigging share prices. He also suggests private sector should try and help generate more data on Indian economy and financial markets.  

 2. TTR on Glodaman Sachs

3. WSJ Blog summarises various economists’ outlook for the FOMC on 11-12 dec.

4. New Economist pointsto the OECD Economic Outlook. It also tells you which country is going to be the world’s next factory after China- Vietnam

5. Mankiw explains positive vs normative economics

6. Rodrik on trade wisdom

7. Fin Prof points Freakonomics would become a documentary now.

8. ESAP explains another B’Desh Paradox.

9. Ajay Shah shares his thoughts over new issues in Indian Macro policy. He also points to an interesting interview of CB Bhave (NSDL chief), and to internationalisation of rupee.