(Comments)
Let's take an example of a Non-Deliverable Forward (NDF) transaction to make it easier to understand.
Imagine you are a company based in the United States, and you have a subsidiary in a country where the currency is not freely convertible, let's say Country X. You expect to receive a payment of 1 million units of Country X's currency in six months. However, you are concerned about the potential depreciation of Country X's currency against the U.S. dollar, which could reduce the value of your payment.
To hedge against this currency risk, you decide to enter into an NDF contract with a financial institution. The NDF contract specifies the forward rate at which you will exchange the currency in six months. Let's say the agreed-upon forward rate is 1 unit of Country X's currency to 0.02 U.S. dollars.
At the end of the six-month period, the spot exchange rate for Country X's currency has changed, and it now stands at 1 unit of Country X's currency to 0.015 U.S. dollars. Since the spot rate is lower than the forward rate, this means that Country X's currency has depreciated against the U.S. dollar.
As per the NDF contract, the financial institution will pay you the difference between the forward rate and the spot rate multiplied by the agreed-upon amount of 1 million units of Country X's currency. So, the financial institution will make a payment of (0.02 - 0.015) * 1,000,000 = 5,000 U.S. dollars to you.
This payment compensates you for the loss incurred due to the depreciation of Country X's currency. It helps mitigate the risk of receiving a reduced value of your payment in U.S. dollars.
In this example, the NDF contract allowed you to hedge against the potential currency risk and lock in a predetermined exchange rate, regardless of how the spot exchange rate of Country X's currency changed. It provided you with protection and certainty regarding the value of your payment in U.S. dollars.
Unbelievable! Its comfort actually!
read moreAs time went by, this blog was developed for many different purposes. Last time, I had a lot of pleasure in sharing some of my Lego-related hobbies. However, I will mostly upload a blog about bikes and their development in the next few months! Recently, I have so much into ebike cargo. They say this type of bike can replace the car! And I am very into it since my place is crowded with traffic jams! The video above showed a funny situation: I started the review from Brooks's handle! And after nine years! It's still an excellent bike handle and not even destroyed!
read moreKeep Watching
Hi, hi, hi. So, it's been a while for the last couple of weeks since I have considered buying a cargo bike. The reason is that I am often trapped in a traffic jam because I can't get faster in my car.
read moreIndonesia has launched Southeast Asia’s first-ever bullet train, a high-speed rail line connecting two of its largest cities.
Congrats! Indonesia launched Southeast Asia’s first bullet train.
Custom LEGO Transformers Devastator
My faith in humanity is restored! OK, that’s a bit overboard – but you couldn’t blame me if you see an incredibly, exquisitely and wonderfully executed custom LEGO Transformers Devastator such as this by Alex Jones. I feel transported to the 80’s once again, with the same intense childhood wonder when I first saw the Constructicons combine and become the formidable Devastator.
Collaboratively administrate empowered markets via plug-and-play networks. Dynamically procrastinate B2C users after installed base benefits. Dramatically visualize customer directed convergence without
Comments