NDF = Non-Deliverable Forward

An NDF is a cash-settled short term forward contract on a thinly traded or not fully convertible foreign currency. It is conceptually similar to a forward transaction with the difference that there is no settlement in the non-convertible currency. Instead, the whole transaction is settled in the convertible currency such as USD, EUR, or CHF. In a ‘normal’ forward transaction, a deliverable contract will involve the movement of both principal amounts.

An NDF is an efficient way to hedge a foreign exchange (FX) exposure against non-convertible currencies. They make it possible to hedge the exchange rate risk.