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Offshore NDF Market and RBI’s Rupee Defence

16 September 20251 min read
ECONOMYOffshore NDFMarket and RBI’sRupee Defence16 September 2025safalsetu.com

Why in the news

RBI turned more active in the offshore non-deliverable forward (NDF) market to calm a volatile rupee.

Key facts

  • Pressure: exporters held back dollar sales; importers hedged more over US tariff risks.
  • RBI step: intervention resumed, mostly seen in local trading hours, a targeted approach.

About NDF

  • A forward contract at a fixed rate with no physical delivery; only the gap versus the spot rate is paid in a convertible currency, usually USD.
  • Used for currencies with restricted convertibility, like the rupee; traded in Singapore, London, Dubai.
  • Exporters, importers and speculators use it to hedge.

How it steadies the rupee

  • Firms lock exchange rates, cutting uncertainty.
  • RBI buying or selling USD contracts offshore shapes expectations and signals support, deterring speculation, without touching domestic FX reserves.
  • Investor confidence in managed volatility stabilises capital flows.

Exam angle

  • Settlement: usually USD; no delivery of the underlying currency.
  • Applies to restricted-convertibility currencies.

Test yourself

1. In an offshore NDF contract, what is actually exchanged at settlement?

Only the profit or loss, settled in a convertible currency like USD, is exchanged.

2. NDFs are typically used for currencies with what feature?

They suit currencies with restricted convertibility such as the rupee.

3. Which of these is named as a centre where NDF trades take place?

Trades occur offshore in centres like Singapore, London and Dubai.

This topic is part of Daily Current Affairs 16 September 2025 (15 topics).

All topics of the dayDay quizSeptember 2025

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