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Inr Ndf

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INTERNATIONAL FINANCE

Aghila Alex Yesha Gala Disha Juthani Anuj Kandoi

15 31 41 43

Bharat Kothari 51
Anirudh Mehra 57

Non Deliverable Forward

Non Deliverable Forward | 2

INTRODUCTION
The Indian foreign exchange market has seen a massive transformation over the past decade. From a closed and heavily controlled setting of the 1970s and 1980s, it has moved to a more open and market-oriented regime during the 1990s. Turnover has increased in both the spot and forward segments of the market. A recent feature has been the growing trading of the Indian rupee in the non-deliverable forward (NDF) foreign exchange market. The NDF markets have generally evolved for currencies with foreign exchange convertibility restrictions, particularly in the emerging Asian economies, viz., Taiwan, Korea, Indonesia, India, China, Philippines, etc., With controls imposed by local financial regulators and consequently the non-existence of a natural forward market for nondomestic players, private companies and investors investing in these economies look for alternative avenues to hedge their exposure to such currencies. In this context, nondeliverable forwards have become popular derivative instruments catering to the offshore investors’ demand for hedging. NDFs are types of derivatives for trading in nonconvertible or restricted currencies without delivery of the underlying currency. Trading in the NDF market generally takes place in offshore centers. In this market, no exchange takes place of the two currencies’ principal sums; the only cash flow is the movement of the difference between the NDF rate and the prevailing spot market rate and this amount is settled on the settlement date in a convertible currency, generally in US dollars, in an offshore financial center. The other currency, usually an emerging market currency with capital controls, is

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