Non- deliverable forwards

Reasons for executing NDF

Summary

Introduction

History

Market Size and Liquidity

Financial instruments

Speculation

Features of FX market

Why people choose FX market

Market Participants

Interest rate party

Party conditions

Violation of IRP

Introduction

Foreign exchange market are that market which exchange of one currency for another currency

Individuals, firms and banks

With the help of telecommunication

Every single currency

Foreign currency for other currency

Most liquid financial market

24 hours market

No centralized location

Large and most liquid market

Speculation, hedging and arbitrage

Quote driven market

24 hours market

FEATURES OF FX MARKET

WHY PEOPLE CHOOSE FX MARKET

Large volume trading

Easy of entry

High chance of profit

24 hours market

Low fees cost

Market participants SPOT MARKET

Commercial banks

Brokers

Customers of commercial and central bank

Corporations/ companies international

FORWARD MARKET

Arbitrageurs

Traders

Hedgers

Speculators

Market participants

History of Foreign Exchange Market

4th century

Medieval and later15th century

the Medici family

1704

agents

Kingdom of EnglandCounty of Holland

Early modern

Modern to post-modern

WWII - Markets close - After 1973

Market Size and Liquidity

Main foreign exchange market turnover, 1988–2007, measured in billions of USD.

Bank for International Settlements outright forwards, swaps and other derivatives

1998 - $1.7 trillion 2010 -  US$3.98 trillion April 2013

United Kingdom - 36.7% United States - 7.9%

Japan - 6.2%.

Singapore surpassed Japan $383 billion per day

United Kingdom (41%)United States (19%)Singapore (5.7)%Japan (5.6%) Hong Kong (4.1%)

Financial instruments

Spot

Forward

Swap

Futures

Option

TOMM

NDF

Cash

No arbitrage condition

forward exchange and spot exchange rate

Expected rate of change = interest rate of the exchange rate differential

INTEREST RATE PARITY

RATE OF RETURN IN LOCAL CURRENCY

= RATE OF RETURN IN FOREIGN CURRENCY

MATHEMATICALLY

If IRP is violated, then an arbitrage opportunity

exists.

VOILATION OF iRP

Cash-settled , short term

forward contract.

NDF market is an OTC market.

Contract traded on non-

convertible foreign

currency

NON DELIVERABLE FORWARDS

Calculated by taking the difference between

exchange rate and spot rate

Typically quoted with the USD as the reference currency, and the settlement amount is also in USD.

Speculation

Hedging

REASONS FOR EXECUTING NDF

CONCLUSION

Aniket Waje

Wilona Tuscano Amee Rathod