Sch bk 4, PG 127
The last sentence reads,
NDFS are an alternative to deliverable forwards and require a cash settlement of gains or losses in a developed market currency at settlement rather than a currency exchange.
I am trying to understand the exact process flow meant by referring to ‘at settlement’
Does it mean the intiation of the contract or on the maturity of the contract.
Thank you
at the maturity of the forward, you compare the forward price to the spot price and net. the non-deliverable currency will net to zero, with the other currency being a + or -. Then only one payment is made
At the maturity of the contract.
Instead of delivering the nondelivarable currency, you simply settle (in the other currency) for the difference between the forward (contracted) exchange rate and the spot exchange rate (times the contract size, of course).
75 years of my life got wasted not knowing about this forum.
I came to know about this forum only about 40 days ago.
Unfortunate.
Count those 40 days as a blessing.
I cannot believe that 75 years of your life has been wasted. I’m sure you have some experiences to share.
I liked it.
Positive perspective/outlook.
Thank u very much my friend.
You’re quite welcome.
Best of luck on the exam!
if we get a vignette on this one, make sure to convert the currency which has capital control / currency control to usually (dollars) cause 1 trick would be to put the answer in the non-allowable currency though the right answer would be correct but after converting to diff currency (usually at forward rate).