Non-Deliverable Forwards: 2013 and Beyond

14 Pages Posted: 23 Jun 2014

See all articles by Robert N. McCauley

Robert N. McCauley

Bank for International Settlements (BIS)

Chang Shu

Independent

Guonan Ma

Bruegel

Date Written: March 2014

Abstract

Non-deliverable forwards (NDFs) allow investors and borrowers to take positions in currencies that are subject to official controls. Turnover in NDFs has risen in recent years as non-residents use them to hedge increasing investment in local currency bonds. Pricing in deliverable forward and NDF markets is segmented, with NDFs leading in times of strain. Experience shows that NDF markets tend to fade away gradually after liberalisation. But, looking ahead, market centralisation might reduce the costs of maintaining them. In a unique development, offshore deliverable renminbi forwards are gaining on the established NDF.

JEL Classification: F31, G15, G18

Suggested Citation

McCauley, Robert N. and Shu, Chang and Ma, Guonan, Non-Deliverable Forwards: 2013 and Beyond (March 2014). BIS Quarterly Review March 2014. Available at SSRN: https://ssrn.com/abstract=2457109

Robert N. McCauley (Contact Author)

Bank for International Settlements (BIS) ( email )

CH-4002 Basel, Basel-Stadt
Switzerland

Chang Shu

Independent ( email )

No Address Available

Guonan Ma

Bruegel ( email )

Rue de la Charité 33
B-1210 Brussels Belgium
Belgium

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