Why Are NDFs Commonly Used in Emerging Markets?
NDFs are commonly used in emerging markets because the local currency is often subject to capital controls or is not freely convertible in the international market. NDFs allow multinational corporations and investors to hedge their currency exposure in these markets without the logistical and legal constraints of dealing with the physical currency.
Glossar
Capital Controls
Restriction ⎊ Capital controls, within cryptocurrency markets, represent measures implemented by national authorities to regulate the flow of capital across borders, impacting derivative trading and overall market liquidity.
Investors
Capital ⎊ These participants deploy capital into the derivatives ecosystem, seeking alpha generation through leveraged or hedged strategies.
Emerging Markets
Opportunity ⎊ These geographic regions present substantial opportunity for the deployment of decentralized finance and derivatives products to unbanked or underbanked populations.
Multinational Corporations
Scope ⎊ These entities operate across diverse regulatory and economic jurisdictions, necessitating complex financial strategies to manage global operations.
NDFs
Settlement ⎊ These instruments facilitate cash settlement based on the difference between the agreed forward rate and the prevailing spot fixing rate at maturity.
Currency Exposure
Volatility ⎊ This quantifies the sensitivity of a derivatives position's value to shifts in the underlying fiat-to-crypto exchange rate.