In this article I have discussed the uses of non-deliverable forward.
Synthetic Foreign Currency Loans
A foreign currency loan can be created in a currency which may not be of interest to the lender and this can be done by using NDFs.
Here I explain you with example, there is a borrower who wants dollars but he is willing to make repayments in a second currency. So, a dollar sum will be received by the borrower and still the repayments will be calculated in dollars, but the borrower will make the payment in another currency using the current exchange rate at time of repayment.
The lender is willing to lend dollars and wants to receive repayments in dollars. So, while disbursing the dollar sum to the borrower,simultaneously the lender enters into a non-deliverable forward agreement with a counterparty (for example, on the Chicago market) that matches the cash flows from the foreign currency repayments.
