A non-deliverable forward, or NDF, provides currency exposure without the conventional exchange of both underlying currency principals at maturity. BIS research describes cash settlement of the contractual difference, generally in a deliverable currency such as the U.S. dollar. The contract’s fixing convention helps determine that cash amount. BIS Quarterly Review: Non-deliverable forwards, 2013 and beyond
Follow the evidence
Trace how the event could reach markets, then inspect a competing explanation.
Compare explanations
Switch lenses to see what each account explains—and what remains uncertain.
WFN analysis: consider a hypothetical exporter whose NDF fixes on Tuesday and pays on Thursday. Tuesday’s fixing determines the contractual reference observation; Thursday is the cash-payment date. Looking at a Thursday spot quote and calling it the settlement reference would misidentify the event that determined the contract’s cash difference. A hedge review should therefore align the underlying commercial exposure with the fixing arrangement. If an invoice is converted using one rate source while the derivative settles against another, the comparison may retain a mismatch. The extent depends on the actual contract and business transaction. Calling the position hedged does not explain whether the two reference prices coincide. Quotation direction is equally important when checking a settlement formula. A currency price expressed as local units per dollar cannot be inserted unchanged into a calculation written for dollars per local unit. A reviewer needs the stated notional currency and contractual formula, rather than an improvised subtraction between superficially similar screen numbers.
WFN analysis: consider a hypothetical exporter whose NDF fixes on Tuesday and pays on Thursday. Tuesday’s fixing determines the contractual reference observation; Thursday is the cash-payment date. Looking at a Thursday spot quote and calling it the settlement reference would misidentify the event that determined the contract’s cash difference. A hedge review should therefore align the underlying commercial exposure with the fixing arrangement. If an invoice is converted using one rate source while the derivative settles against another, the comparison may retain a mismatch. The extent depends on the actual contract and business transaction. Calling the position hedged does not explain whether the two reference prices coincide. Quotation direction is equally important when checking a settlement formula. A currency price expressed as local units per dollar cannot be inserted unchanged into a calculation written for dollars per local unit. A reviewer needs the stated notional currency and contractual formula, rather than an improvised subtraction between superficially similar screen numbers.
Useful records include the trade confirmation, fixing source, observation time, fixing date, settlement date, rate direction and payment currency. The final cash payment should be reconciled to those agreed terms. This is an editorial review framework, not a substitute for the actual confirmation or an assertion that every NDF uses identical conventions. For currency reporting, keep the offshore forward quote, the eventual fixing and any accessible onshore conversion price separately labeled. Each can illuminate a different part of the financing or hedging story. Their difference alone does not prove manipulation, an executable arbitrage or a currency forecast. The first reliable conclusion comes from identifying which cash flow each observation is intended to measure.
An instrument definition with important boundaries
The March 2014 BIS review explains that the NDF payment reflects the difference between the agreed forward rate and the exchange-rate fixing used at maturity. The settlement currency differs from the non-deliverable currency being referenced. A forward contract and the cash needed to meet an operating expense can therefore have different settlement mechanics. BIS Quarterly Review: Non-deliverable forwards, 2013 and beyond
The review also discusses differences between onshore and offshore currency prices. Its market observations relate to the period studied. This article uses that document for instrument mechanics and analytical context, while avoiding any claim that its historical turnover figures or observed price gaps describe the market today. BIS Quarterly Review: Non-deliverable forwards, 2013 and beyond
Two dates can create two different questions
WFN analysis: consider a hypothetical exporter whose NDF fixes on Tuesday and pays on Thursday. Tuesday’s fixing determines the contractual reference observation; Thursday is the cash-payment date. Looking at a Thursday spot quote and calling it the settlement reference would misidentify the event that determined the contract’s cash difference.
A hedge review should therefore align the underlying commercial exposure with the fixing arrangement. If an invoice is converted using one rate source while the derivative settles against another, the comparison may retain a mismatch. The extent depends on the actual contract and business transaction. Calling the position hedged does not explain whether the two reference prices coincide.
Quotation direction is equally important when checking a settlement formula. A currency price expressed as local units per dollar cannot be inserted unchanged into a calculation written for dollars per local unit. A reviewer needs the stated notional currency and contractual formula, rather than an improvised subtraction between superficially similar screen numbers.
Read the cash flow before drawing a market conclusion
Useful records include the trade confirmation, fixing source, observation time, fixing date, settlement date, rate direction and payment currency. The final cash payment should be reconciled to those agreed terms. This is an editorial review framework, not a substitute for the actual confirmation or an assertion that every NDF uses identical conventions.
For currency reporting, keep the offshore forward quote, the eventual fixing and any accessible onshore conversion price separately labeled. Each can illuminate a different part of the financing or hedging story. Their difference alone does not prove manipulation, an executable arbitrage or a currency forecast. The first reliable conclusion comes from identifying which cash flow each observation is intended to measure.