Non-Deliverable Forwards: Where Do the Dollars Go?

A US company expects to pay rupees, buys an offshore hedge and then learns that the derivative will settle only in US dollars. The company still has a rupee invoice to pay. The derivative can offset a change in dollar cost without delivering a single rupee to the supplier.

Start with non-deliverable forward confirmation and rupee invoice. Look for notional denomination, fixing source and settlement currency. The calculation you want is the dollars left to pay after the fixing settlement. A common reason for a discrepancy is conversion spread on the separate purchase of invoice currency. The first worked figures below are illustrative. The historical section identifies the actual observations used and lets you change one assumption at a time.

Build the payoff from the underlying obligation

A company that owes INR 8,340,000 wants a dollar cost comparable to fixing 83.40 INR per USD. The contracted equivalent is USD 100,000. If the fixing later is 81.75, its rupee obligation is worth about USD 102,018.35 at that rate. A matching long-rupee hedge would pay the company about USD 2,018.35 before fees under this fixed-INR illustration. Reverse the trade direction and the same cash difference is payable.

For a fixed rupee amount N, write the dollar value as N divided by the quoted INR-per-USD rate. Under this orientation the long-rupee hedge payoff is N/Fixing minus N/Forward. Other confirmations express the notional in dollars and present a different-looking formula. Translate both cash flows into the same currency before comparing contracts. Multiplying by a direct difference between two INR-per-USD numbers leaves the wrong units.

Plan the invoice payment separately

The fixing sets the derivative cash settlement under its terms. The company’s actual purchase of rupees may occur later, against another rate and through a different institution. A one-day delay, liquidity difference or bank spread can leave a residual even at a matched nominal amount. Cash paid on the NDF can also be due before the company receives the offsetting commercial cash flow.

For a practical file, reconcile the hypothetical locked cost, fixing conversion, cash settlement, actual remittance and all fees. Record the settlement sign from the company’s perspective at every stage. A loss on a hedge paired with a cheaper underlying payment can be consistent with the original purpose. Conversely, a profitable derivative by itself does not establish savings on the total invoice.

What to do with a postponed invoice

The original fixing may still occur even if the supplier postpones payment. After the derivative settles, the rupee obligation can remain exposed until the revised payment date. Mark that interval on the cash calendar. If the invoice is canceled entirely, a settlement payment or receipt may remain due on the derivative. An offsetting contract, where available, has its own price and rights.

A confirmation can specify fallbacks when the scheduled fixing is unavailable. Use those provisions and preserve the notice of any change. A spreadsheet that silently substitutes the next available public chart price will usually still return a number. It might nevertheless fail to match the signed contract. Record the exact fixing identifier, date, publication status, settlement date and whether the formula uses rupee or dollar notional.

How to check the figures yourself

Use two bank ledger rows. The first buys the actual rupees to pay the vendor subject to applicable market access. The second records only the NDF cash settlement in its specified currency. Depending on the fixing, that settlement can be either a receipt or a payment.

If the trade confirmation uses a dollar notional, convert the specified notional and payoff convention before applying an example written for fixed rupees. A misplaced denominator can produce a plausible-looking but wrong cash settlement. Verify the sign by asking whether a stronger rupee made the original payable dearer.

Historical cases and a reproducible dollar comparison

To see what changes the dollar decision, take one clearly defined exposure: INR 7,486,000 payable. The historical column follows USD/INR, using daily Federal Reserve exchange-rate observations distributed through FRED as DEXINUS. The exercise uses 96 complete or selected calendar months from 2017-01 through 2024-12. The fixed research window runs from January 2017 through December 2024. Rates are publicly observed. Retail fees, contract terms and decision rules in the examples are assumptions.

Divide the specified rupee notional by the daily INR-per-dollar observation. This is the unhedged invoice leg before charges. Subtract a separately calculated NDF receipt, or add a payment, to reconstruct the hedged cash requirement under the chosen fixing terms.

The modeled output is measured in US dollars. Its sign and units are essential when you work backward from a chart. Write the initial reference, the final reference, their dates and the modeled result in separate columns. Calculate with unrounded inputs, then round for display. A dollar-cent display may conceal small changes in the reference, especially where the model floors an outcome at zero. The first cash flow can be large even when the net outlay tracks the forward rate closely. A treasurer who budgets only the derivative gain may lack the currency needed for the underlying payment.

Across these months the exchange quote rose 54 times, fell 42 times and was unchanged 0 times. The median absolute endpoint change was 0.76%. The 25th and 75th percentiles of signed endpoint returns, using the sorted observation at the floor of the fractional rank on a zero-based scale, were -0.46% and 1.13%. These are descriptive sample figures. A frequency of rising quotes is neither a rate of profitable trades nor the chance of a favorable outcome on a future payment.

The largest rise | 2020-03

Start with the largest signed monthly rise in this sample. At the last observation of 2020-02, the quote was 72.53000. At 2020-03-31 it was 75.39000, a signed change of 3.94%. Applying the exposure rule to the earlier price gives 103,212.46 US dollars. Applying it to the later price gives 99,296.99 US dollars. The resulting difference is -3,915.47 US dollars. The quote and the modeled amount need not move in the same direction. Read the numerator and denominator of the actual contract before interpreting a rising candle as a higher bill.

For a plausible contemporaneous alternative, use the first observation of the new month, 72.88000 on 2020-03-02, as the budget anchor. The modeled change to the same ending date becomes -3,419.81 US dollars. You have altered only the starting timestamp. That small adjustment matters when the prior month ended before a weekend or holiday. A report that chooses the better anchor afterward mixes performance evaluation with hindsight. Use the timestamp of the actual invoice, forecast or mandate if one exists.

Balance an NDF payment against the rupee bill

Assume a US importer has INR 820,000 due and a contract giving protection against a stronger rupee. Use the original reference plus 0.3% to construct an illustrative forward of 72.74759 INR per dollar. Treat the final reference 75.39000 as the exercise fixing for this simulation. The signed dollar settlement received is INR notional divided by fixing minus INR notional divided by forward, which is USD -395.08.

A separate purchase of rupees at the fixing would cost USD 10,876.77. Net of the signed settlement, the debit is USD 11,271.85, exactly the forward budget before rounding. If actual rupees are available at only 75.23922, buying them costs USD 10,898.57 and the combined debit rises to USD 11,293.65. That residual is execution basis. It survives an otherwise matched amount and date. The historical reference is not represented as any particular contract’s official fixing.

The largest decline | 2018-11

The steepest fall among the remaining months went from 73.95000 to 69.62000. The cross rate expressed in reverse would instead move from 0.01352 to 0.01436. Its signed percentage change is 6.22%, whereas the original quote changed by -5.86%. Reversing a percentage sign is only an approximation. Arithmetic returns in reciprocal currencies have different denominators. Use full-precision quotes when translating a dollar budget in either direction.

In the working example the unchanged exposure generated a modeled 107,526.57 US dollars at the end, against an original 101,230.56 US dollars. At the arithmetic midpoint of the two observed rates the modeled result would be 104,283.62 US dollars. By comparison the mean of the two modeled endpoint amounts is 104,378.57 US dollars. A linear conversion can make these coincide; a reciprocal or an option-like floor can separate them. This is a practical unit test for a budget spreadsheet built by averaging rates before conversion.

The quietest finish | 2024-05

A quiet monthly finish concealed a sequence of 22 observations. The first budget mark and last mark differed by only 0.01% in absolute quote terms. Between them, the lowest sampled exchange rate was 83.09000 on 2024-05-24 and the highest was 83.54000 on 2024-05-10. Their ordering is observable at the daily reference frequency. It says nothing about whether a stop or limit was touched first inside an individual trading day.

Including the original budget mark, the lowest and highest modeled amounts were 89,609.77 US dollars and 90,095.08 US dollars. A payment falling due inside this interval would use the terms available on its own date. Picking the cheapest date after seeing the month grants an option the original decision maker may never have had. Ask whether the underlying agreement allowed early settlement, whether the counterparty would accept it, and what financing or fees would accompany changing the date. The end-to-end change alone leaves out all three questions.

The widest daily range | 2019-08

For the widest remaining sample range, compare the recorded low of 69.00000 with the high of 72.02000. That spread is 4.39% of the previous month-end reference. If the exposure were valued separately at those two observations, the modeled amounts would be 108,492.75 US dollars and 103,943.35 US dollars. A full intraday high-low range could be larger than this sampled range. Treat these as independent reference valuations, not executable bid and offer quotes sitting on a dealer screen at the same instant.

Now place an administrative review on the middle observation, 2019-08-15. At 71.79000 the modeled amount was 104,276.36 US dollars. The remaining change to the final observation was 496.21 US dollars. This separates currency exposure before and after the person responsible could act. It is especially useful when a headline about the full month sounds alarming but the invoice was approved or the policy decision released much later. Use an actual approval timestamp for a real case.

The busiest path | 2018-12

This month has the greatest remaining sum of absolute observation-to-observation log changes: 10.30 percentage points. Its net endpoint change in ordinary percentage terms was -0.06%. Offsetting moves can make the first number large while leaving the second small. Absolute log movement is a path statistic. It includes both directions and must never be booked as the return someone earned by holding the exposure. Collecting every move would require knowing each reversal and being able to execute it after costs.

The annualized sample standard deviation calculated from the 18 log changes was 12.61%, using 252 observations per trading year. The mean level across this month’s daily exchange marks was 70.83311, whereas its median was 70.56500. Valuing the exposure at those two central rates gives 105,685.04 US dollars and 106,086.59 US dollars. The mean answers a question about evenly weighted observations and the median is the middle observation or average middle pair. Neither is necessarily the benchmark named in a specific agreement.

A month near the middle | 2020-11

Extreme outcomes attract attention. This case was chosen for being close to the median absolute monthly move among the remaining candidates, with an absolute change of 0.78%. Its 18 daily marks give an average modeled value of 100,848.34 US dollars. Valuing the same exposure only at the last mark produces 101,148.49 US dollars. The final observation therefore differs from the typical daily valuation measured by that average by a signed 300.15 US dollars. The difference can go either way; the average has no privileged status for a one-date settlement.

Suppose a report allowed one person to choose a monthly average and another to use the last observation. They could disagree by that amount while applying identical formulas and the same published data. Settle the disagreement by identifying the decision the figure supports. A month of evenly spread expenses calls for transaction weights or a stated approximation. A single invoice calls for its conversion date. A policy announcement needs a timed quote. The right measurement rule follows from the economic event and should be fixed before examining the answer.

Balance an NDF payment against the rupee bill

Assume a US importer has INR 7,300,000 due and a contract giving protection against a stronger rupee. Use the original reference plus 0.3% to construct an illustrative forward of 74.81377 INR per dollar. Treat the final reference 74.01000 as the exercise fixing for this simulation. The signed dollar settlement received is INR notional divided by fixing minus INR notional divided by forward, which is USD 1,059.70.

A separate purchase of rupees at the fixing would cost USD 98,635.32. Net of the signed settlement, the debit is USD 97,575.62, exactly the forward budget before rounding. If actual rupees are available at only 73.86198, buying them costs USD 98,832.99 and the combined debit rises to USD 97,773.29. That residual is execution basis. It survives an otherwise matched amount and date. The historical reference is not represented as any particular contract’s official fixing.

A sharp single step | 2018-08

The largest remaining single-step move was from 68.88000 on 2018-08-10 to 70.02000 on 2018-08-13. In ordinary percentage terms that is 1.66%. Against the exposure rule, this step changes the modeled amount by -1,769.45 US dollars. Because the observations can be separated by nonbusiness days, describe this as an observation-to-observation change. The file cannot reveal which hour accounted for it or whether liquidity was available at either published level.

To check a claim about that step, identify the calendar of releases and local holidays for both currencies, then match each event with its precise published time. Look for an independent price series that actually traded in the proposed interval. A gap between daily reference marks invites a hypothesis; following the sequence of executable quotes is how you could test it. Changing an amount solely because of the two marks is an accounting exercise. Attributing the difference to a particular trader, institution or economic release needs additional evidence.

A split-date budget | 2017-03

Take the average modeled valuation on the first five available dates, 112,200.40 US dollars, and on the last five available dates, 115,297.16 US dollars. Their difference is 3,096.76 US dollars. This case has the largest remaining absolute gap by that definition. A plan fixed in advance to value half the exposure against each group would give a weighted amount of 113,748.78 US dollars if the exposure and its charges can be divided proportionately. The result is a comparison of timing policies. It does not reveal an optimal execution date.

A fixed charge can break that proportional assumption if two actual transactions each incur the full charge. An indivisible futures contract or option can prevent splitting the quantity at all. An announcement time cannot be averaged across ten dates. Before applying the exercise, identify the specific constraint: conversion spread on the separate purchase of invoice currency. Then identify which of the two windows an actual mandate would allow. Where the timing choice is unavailable, read the two amounts as a sensitivity range instead of an executable plan.

Why a net hedge can still require cash in two places

A company may receive its dollar settlement in New York after local banking hours and need rupees in a different account earlier the same day. The final net economics can match the forward budget while an operational funding gap remains. Put both cash flows on a time line with local cutoffs, amount, currency and bank. A positive expected hedge receipt should not be counted as money available for a payment that precedes the credit.

A useful second test reverses the fixing direction while holding the contract rate fixed. If rupees become cheaper and the importer still receives a positive hedge settlement in your formula, inspect the sign. The intended hedge should offset the benefit on the invoice leg with a derivative payment in that branch. Use this two-direction test before adding optional fees, discounted mark-to-market calculations or partial notional. Complex adjustments can obscure a sign error that is obvious on a two-line cash statement.

How to identify a usable USD/INR setup on a chart

Open a five-minute USD/INR replay and hide everything to the right of your intended decision. This is a hypothetical long case, constructed to show how conversion spread on the separate purchase of invoice currency fits into an execution record. Use New York local time for the chart, retaining the actual offset for the date. For a restricted or offshore currency, this drawing describes a price sequence, not the availability of a US retail contract. An economic reference period, a release time and a bar timestamp belong in separate fields.

In the first diagram the reference low is 83.42847. The candle that trades below it reaches 83.42792 before price returns into the range. To describe that move as a sweep in ICT terminology, mark the existing level first. If the level only becomes obvious after the reversal, save the observation as a retrospective pattern. An increase in volume or a financial headline cannot reveal whose orders traded there.

The displaced leg reaches beyond 83.42983. Read bars five, six and seven as a sequence. A gap between the outer wicks brackets the interval from 83.42940 to 83.42974. It is a chart definition of an imbalance. Price could fill that interval, pass straight through it or never revisit it. Only the first return that satisfies a rule written in advance can provide a candidate entry for this particular exercise.

How to trade the idea on demo and define failure

For the rehearsal, a buy at 83.42956 follows a return into the marked interval. If the order fails to fill, record an unfilled setup and retain the original timestamp. Moving the order toward the next favorable candle after that candle forms changes the test. Keep the macro or account question separate: The independent document check concerns conversion spread on the separate purchase of invoice currency. A convincing answer about that issue cannot make a missed entry executable.

The protective exit is 83.42761, beyond the sweep, and the planned target is 83.43395. For this long idea the favorable direction in the pair is higher. A live position can experience partial fills, a spread jump or a gap past the stop. For this drawing only we assume all levels execute exactly as stated. The second chart displays one favorable sequence so that the accounting can be checked. It supplies no evidence about how often such a sequence occurs.

Set an expiry for the entry and cancel the study if the invalidation trades before entry or if the spread makes the gross plan infeasible. If a coarse chart touches stop and target within one bar, lower-frequency OHLC cannot settle the order of events. Use properly timestamped executable quotes if available. Otherwise keep a separate ambiguous sample, and state that rule before counting wins. For this rehearsal the underlying document remains the source for the dollars left to pay after the fixing settlement.

Worked example in a US dollar account

Calculate the distance before calculating the money. The entry-to-stop distance is |83.42956 minus 83.42761| = 0.00195, or 19.5 pips. The target distance is |83.43395 minus 83.42956| = 0.00439, or 43.9 pips. Keeping absolute distances here avoids giving a short setup a negative risk amount. The sign of the actual result belongs on the fill record after closing.

At 14,000 base units, the distance to the stop represents 27.30 INR and the distance to the target represents 61.46 INR. Convert to a USD result separately at each assumed exit by dividing by 83.42761 or 83.43395 INR per US dollar. The conversion is slightly different on the two outcomes. Gross reward divided by gross risk is USD 0.74 / USD 0.33 = 2.25. Written as risk:reward this is 1:2.25.

Assume a round-trip cost of USD 2.00 on either completed outcome. We use executable entry and exit prices, so a spread already inside those prices must not be charged again. The simplified net reward is USD 0.74 minus USD 2.00 = USD -1.26. Net planned loss is USD 0.33 plus USD 2.00 = USD 2.33. Net R:R is 1:-0.54 because USD -1.26 / USD 2.33 = -0.54. Financing, slippage and tax are excluded from this short rehearsal.

Check the losing branch with the same care as the winning one. If the exit slips by one additional pip against you, the quote-currency impact on this size is 1.40 INR before any conversion. A plan denominated in dollars should reserve for an adverse fill or skip a setup that cannot fit the intended budget. Keep the original quote and the executed price alongside the size and currency of the exposure.

To annotate the rehearsal, mark the existing swing first, then identify displacement and the interval between the outer candle wicks. For definitions and session context, see the school’s lessons on fair value gaps, order blocks, the London session, market structure shifts, and the Judas swing.

Sources and calculation notes

BIS definition of non-deliverable forwards. BIS study of NDF markets.

Historical series and original records. DEXINUS observations and units. The calculations use observations available when checked on November 14, 2026. Subsequent revisions can change retrospective comparisons.

Frequently asked questions

To check an exchange quote from another angle, see inverse currency quotes, broker quote differences, forex chart reading, and the trading journal.