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Quantitative Finance · Glossary

What is Non-deliverable forward, fixing source?

Also known as: non-deliverable forward · fixing source

Definition 18.4 Markets II: Rates, FX and Credit · Chapter 18 — Emerging-Market FX and NDFs

A non-deliverable forward (NDF) is a forward on a currency pair that is settled in cash, in dollars, for the difference between the contract rate KK and a published fixing rate SS on a fixing date: on a dollar notional NN, the dollar buyer receives N(S−K)/SN(S - K)/S. The fixing source is the rate the contract names for SS, usually a rate published by the local central bank or an official agent.

CurrencyFixing source (EMTA code)Published by, around
Indian rupeeINR FBILFinancial Benchmarks India, 13:30 Mumbai
Brazilian realBRL PTAXBanco Central do Brasil, 13:15 São Paulo
Chinese renminbiCNY SAECCFETS for the People’s Bank, 9:15 Beijing
Korean wonKRW KFTC18Seoul Money Brokerage, 16:00 Seoul
Taiwan dollarTWD TAIFX1Taipei Forex, 11:00 Taipei
Fixing sources of five NDF currencies, each “for settlement in two business days”, in Annex A to the 1998 FX and Currency Option Definitions (as of June 2023).
The life of a non-deliverable forward. The contract rate is agreed at the trade; two business days before settlement the fixing source publishes the rate, and on the settlement date the difference is paid in dollars. Schematic.
Figure 18.2. The life of a non-deliverable forward. The contract rate is agreed at the trade; two business days before settlement the fixing source publishes the rate, and on the settlement date the difference is paid in dollars. Schematic.

Examples

Example 18.5 (A won NDF)

A fund buys USD 10 million three months forward against won in an NDF at 1 380.00, settling on Tuesday 13 October 2026. The fixing is taken two business days before, on Friday 9 October, at 1 425.50: the fund receives 10 000 000×45.50/1 425.50=USD 319 18610\,000\,000 \times 45.50/1\,425.50 = \text{USD}~319\,186. Had the won fixed at 1 350.00, the fund would have paid USD 222 222.

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