An agreement that allows you to lock in a rate of exchange for a pre-agreed period of time, similar to a Forward or the far leg of a Swap Contract.
The rate is calculated using the spot rate and a forward point adjustment for the tenor of the contract.
On the settlement date, the currency will not be delivered and instead, the difference between the NDF/NDS rate and the fixing rate is cash settled. The fixing rate is determined by the exchange rate displayed on an agreed rate source, on the fixing date, at an agreed time.
NDF/NDSs are primarily used to hedge non-convertible currencies or currencies with trading restrictions.