Forward exchange transactions in which no currency swap (settlement) is agreed from the outset. Instead, a settlement payment equal to the difference between the contractually agreed exchange rate and the exchange rate on the date of maturity is payable at maturity. – In practice, in an NDF transaction today, a non-freely convertible currency is exchanged for freely convertible means of payment, the latter being mostly USD and EUR. A contract is – for a fixed amount of the non-convertible currency, – for a specific maturity date, and – for an agreed forward rate. At maturity, the daily rate (reference price) is compared with the agreed NDF rate. The difference must be paid in the convertible currency. No payment or account movement takes place in the non-convertible currency. – See exchange rate hedging, swap, currency-related, currency option. – Cf. ECB Annual Report 2007, p. 170 (approval of the Continuous Linked Settlement system for transactions with NDFs).
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