NDFs are a useful alternative for hedging currency exposure in illiquid or highly regulated markets . Because there is no delivery of the foreign currency at maturity, only the gain or loss in the home currency would be recognized. Pricing is usually based upon supply and demand, rather than interest rate differentials. Participating Options - A participating option allows limited participation in favorable price or rate movements beyond the strike price . You have the right to buy or sell currency at a specified rate.
Participation rate governs the premium.
The CD's length of maturity can range from one month to one year and yield a fixed interest rate at maturity. Spot transactions can include services for foreign drafts and international payments. Variable Date Contracts - Variable date contracts provide the holder the right and flexibility to utilize the contract at any time within a specified period with no change in the exchange rate . Typically obtained for little or no cost, these contracts fix the value date and the maximum cost of the contract, while allowing for some participation in favorable rate movements.