Non-deliverable forwards – factors of development and market structure
Iwona Sobol, dr hab.
University of Gdańsk , Polandhttps://orcid.org/0000-0001-6398-6266
Monika Szmelter
University of Gdańsk , Polandhttps://orcid.org/0000-0003-0712-8528
Abstract
Forward transactions are agreements between two parties to exchange a pair of currencies at a specific time in the future at a predetermined rate, the so-called forward rate. Non-deliverable forward (NDF) contracts are similar to regular forwards, except at maturity they do not require delivery of currencies. In the case of NDFs the only cash flow is the payment of the difference between the forward rate and the prevailing spot rate on the maturity date. The main objective of the study is to examine the factors which have contributed to the emergence and development of the NDF market as well as analyse its size and currency composition. The study, based on BIS surveys, leads to the following conclusions. NDFs market grew quickly over the period from 2013 to 2019, and the transactions reached 13.02% share of the total FX turnover in 2019. There was a spectacular 93% rise of the market especially in 2019 caused in a large part by heavy NDF market electronification. The Korean won, the Indian rupee, the Brazilian real and the Taiwan dollar are the main currencies of trades (68% share in 2019), and the relative importance of these currencies increased significantly over the twelve-year period. The main reason for the emergence and growing interest in those NDF contracts were currency restrictions which prevented non-residents from accessing the local currency markets.
Keywords:
Non-deliverable forward, NDF, offshore market, currency restrictions, foreign exchange marketReferences
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University of Gdańsk https://orcid.org/0000-0003-0712-8528
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This work is licensed under a Creative Commons Attribution 4.0 International License.
This work is licensed under a Creative Commons Attribution 4.0 International License.
