NDF Contracts

  • June 7, 2023
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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NDF Contracts

Subject: Economy

Section: Monetary Policy

A non-deliverable forward (NDF) is an outright forward or futures contract in which counterparties settle the difference between the contracted NDF price or rate and the prevailing spot price or rate on an agreed notional amount. It is used in various markets such as foreign exchange and commodities.

  • RBI has permitted AD Category-I banks operating IFSC banking units (IBU) to offer non-deliverable forward (NDF) utilizing rupees to resident non-retail users for hedging. The step has been taken in order to:
    • Develop onshore rupee NDF market and
    • To provide residents the flexibility to plan their hedging.
  • The transactions shall be cash settled in rupees or foreign currency and shall have flexibility of cash settlement
Authorised Dealer(AD) category 1 bank is one of the three types of authorised money changer approved by the RBI under Foreign Exchange Management Act(FEMA)

IFSC Banking Unit or an “IBU” means a bank permitted by the Reserve Bank of India under the Banking Regulation Act, 1949 to operate from an International Financial Services Centre (IFSC).

economy NDF Contracts