Non-Deliverable Forward/Swap Contract (NDF/NDS)

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HSBC Innovation Banking only offers this product to clients classified as ‘Professional’ under MiFID regulation.

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.

How it works

UK-based company Acme Ltd is expanding into South America and needs to make a purchase of 2,000,000 Brazilian Real in 6 months. Acme Ltd would like to have protection against adverse movement and secure an exchange rate, however, BRL is a non-convertible currency.

To manage this, Acme Ltd executes a Non-Deliverable Forward (NDF) Contract:

Product variables

Key benefits

An opportunity to mitigate FX risk with non-deliverable currencies

Protection against adverse movements at a predetermined rate, adding clarity on future cashflows

Tailored to specific objectives, giving flexibility to decide the notional amount, currencies and the settlement date

Key risks

  • You are obliged to fulfil the agreed terms under the NDF entered into even if your requirements change during the term of the NDF
  • Unable to participate in favourable market movements with respect to the contract
  • Should the contract no longer be required, the cost of unwind (which may be substantial) will be determined by the prevailing market rate at the time and be payable by the client
  • The mark to market value of the contract will become positive or negative throughout the duration of the contract in line with market fluctuations
  • By entering into a NDF with us, you become subject to our credit risk in respect of our ability to perform our obligations under the NDF. You will not receive any payment under the NDF if we become insolvent or otherwise unable to pay.

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