A Non-Deliverable Forward (NDF) is a derivative contract used primarily in the foreign exchange (forex) market. NDFs let investors trade currencies that are not freely traded. They are often used in countries with capital controls or where the currency is restricted to hedge against currency volatility.
NDF currencies are the currencies that are traded in NDF contracts. In this article, we will provide you with NDF currency list.
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What is Non-Deliverable Forward?
To understand what NDF is, let’s use a Non-Deliverable Forward example. In an NDF deal, two parties agree to swap currencies at a set rate on a later date, but they don’t actually exchange the currencies. This happens because those special currencies can’t be easily traded, so handing them over is hard or even impossible.
Imagine you are a U.S. company that has secured a contract to supply machinery to a Chinese company. The total cost of the machinery is 10 million Chinese Yuan (CNY), and the payment is due in six months. However, due to regulations and restrictions, you’re unable to easily convert Chinese Yuan into U.S. dollars at the current market exchange rate. To protect yourself from potential losses caused by fluctuations in the Chinese Yuan’s value, you decide to enter into an NDF contract with a financial institution.
Here is how NDF works:
- Parties: You (the U.S. company) and the financial institution (counterparty).
- Agreement: You both agree that in six months, you will exchange 10 million Chinese Yuan at an agreed-upon exchange rate of 1 USD = 6.5 CNY (for illustration purposes, the actual market exchange rate might differ).
- Outcome: After six months, the actual market exchange rate is 1 USD = 6.8 CNY. Even though physical exchange of currencies didn’t happen, based on the NDF contract terms, the financial institution owes you the difference in exchange rates: (6.8 – 6.5) X 10 million CNY = 300,000 CNY.
- Settlement: Since you can’t easily convert Chinese Yuan into U.S. dollars due to restrictions, the financial institution pays you the equivalent value in U.S. dollars. At the agreed-upon rate, you receive 300,000 CNY / 6.5 = 46,153.85 USD.
Also Read: Closed Currencies List
NDF Currencies
NDF currencies play a significant role in international finance and trade, particularly in regions where certain currencies are not freely tradable or face restriction. NDF are important for a number of reasons.
First, they enable investors to trade currencies that might be hard or even impossible to trade otherwise. Secondly, NDFs can serve as a safeguard against currency risk. Lastly, NDFs offer a chance to speculate on where a currency might go in the future. If the currency gains value, the investor can sell it for a profit.
NDF Currencies List 2023
The following is non deliverable currency list in 2023.
Asia Pacific
| Currency Code | Currency |
|---|---|
| CNY | Chinese Renminbi |
| INR | Indian Rupee |
| MYR | Malaysian ringgit |
| TWD | Taiwan dollar |
| KRW | South Korean won |
| IDR | Indonesian rupiah |
| PHP | Philippine peso |
| VND | Vietnamese dong |
| THB | Thai Baht |
Europe, Middle East and Africa
| Currency Code | Currency |
|---|---|
| EGP | Egyptian pound |
| KZT | Kazakhstani tenge |
| NGN | Nigerian Naira |
Latin America
| Currency Code | Currency |
|---|---|
| ARS | Argentine peso |
| CLP | Chilean peso |
| CRC | Costa Rican colon |
| PEN | Peruvian Nuevo sol |
| COP | Colombian peso |
| UYU | Uruguayan peso |
| SRD | Surinmese dollar |
| VEF | Venezuelan bolivar |
| GTQ | Guatemalan quetzal |
| BRL | Brazilian real |
Also Read: Freely Convertible Currencies List 2023
NDF Currency Pairs
NDF currency pairs are the two currencies that are traded in a non-deliverable forward (NDF) contract. The most common NDF currency pairs are:
- Non-Deliverable Forward (NDF) Currency Pairs:
- CNY/USD (Chinese Yuan/US Dollar)
- INR/USD (Indian Rupee/US Dollar)
- KRW/USD (South Korean Won/US Dollar)
- BRL/USD (Brazilian Real/US Dollar)
- IDR/USD (Indonesian Rupiah/US Dollar)
- MYR/USD (Malaysian Ringgit/US Dollar)
- TWD/USD (Taiwan Dollar/US Dollar)
- ARS/USD (Argentine Peso/US Dollar)
- THB/USD (Thai Baht/US Dollar)
- PHP/USD (Philippine Peso/US Dollar)
- NGN/USD (Nigerian naira / US dollar)
Hedge Against Risk With Non Deliverable Currencies
Non-deliverable currencies (NDFs) are a type of derivative contract that allows investors to trade in currencies that are not freely traded. This can be helpful in countries with restricted currencies or where the currency is volatile. NDFs can be used to hedge against currency risk, speculate on the future direction of a currency, or help price currencies that are not freely traded.
NDFs are a complex financial instrument and should only be used by experienced investors. They carry a high degree of risk and can lead to losses if the underlying currency does not perform as expected.
NDF Currencies FAQs
What is DF currency?
Non-Deliverable Forward (NDF) is a derivative contract used primarily in the foreign exchange (forex) market. They let investors trade currencies that are not freely traded. NDF currencies are the currencies that are traded in NDF contracts.
Is THB a non deliverable currency?
THB (Thai Baht) is a non-deliverable currency. The Thai government has strict capital controls in place that make it difficult for foreigners to buy and sell THB.
Is MXN an ndf currency?
Yes, MXN (Mexican Peso) is a non-deliverable currency.
NDF vs NDS
NDF and NDS are both types of derivative contracts that allow investors to trade in currencies that are not freely traded. Non-deliverable forward (NDF) is a cash-settled contract, which means that the two parties to the contract do not actually exchange the currencies. Instead, they settle the contract in cash at the predetermined exchange rate on the settlement date. Non-deliverable swap (NDS) is a physically settled contract, which means that the two parties to the contract actually exchange the currencies on the settlement date.
