420. Non-deliverable forwards (NDFs) are cash-settled foreign exchange forward contracts. Such a cash-settled forward contract specifies an exchange rate against the currency of delivery (the convertible currency), typically the US dollar, a notional amount of the non-convertible currency and a settlement date. A cash-settled FX forward contract is akin to a classical physically-settled FX forward contract, but with the former there is no physical delivery of the designated currencies at maturity. On the settlement date, the spot market exchange rate is instead compared to the forward rate and the cash-settled contract is settled on a net basis, in the convertible currency based on the notional amount.

421. Considering a currency non-deliverable forward (NDF) with the following setup:

- Banks A and B enter in a BRL/USD NDF instrument on 1 June 2018

- notional of the contract: 1M BRL;

- maturity date of the contract: 31 December 2018;

- the forward is cash-settled because of its non-deliverable nature;

- Bank A delivers or receives the difference (according to its sign) in USD between the spot and the forward at the settlement date;USD is populated in Settlement Currency 1.

- the forward exchange rate is 0.29 BRL/USD.