- This topic has 5 replies, 2 voices, and was last updated 7 years ago by
.
Viewing 6 posts - 1 through 6 (of 6 total)
- Posts
Sir
I understand the principle of the NDF but do not understand how the bulk of the cash changes hands. I see they only pay the difference (rise or fall in rate) in a strong currency, but what about the main amount?
The amount on which the NDF is calculated is a notional amount – the notional amount is never exchanged. The only cash exchanged is the different between the exchange rates as applied to the notional amount.
Yes – it is like a bet (just as buying and selling futures is a ‘bet’).
However financial managers use both of them to hedge against the risk of another transaction.
(Mind you, I don’t recollect NDF’s ever being mentioned in the exam!)
Viewing 6 posts - 1 through 6 (of 6 total)
- You must be logged in to reply to this topic.