What is DNDF?

DNDF (Domestic Non-Deliverable Forward) is a financial instrument used to hedge against currency fluctuations, particularly the Indonesian rupiah (IDR), by allowing investors to lock in a specific exchange rate for a future transaction.

Why It Matters for Indonesian Investors

DNDF is crucial for Indonesian investors as it helps mitigate the risk associated with rupiah volatility, providing a more stable financial planning environment. It is particularly useful for businesses and investors with future foreign currency exposures.

How It Works

• DNDF contracts are settled in rupiah, eliminating the need for physical delivery of the underlying currency.
• They allow investors to hedge against potential losses due to currency fluctuations.
• These contracts are typically used by corporations and financial institutions to manage foreign exchange risk.

Real-World Example

Example: An Indonesian company expects to receive USD 1 million in three months. To protect against potential rupiah appreciation, they enter into a DNDF contract at IDR 14,000 per USD. If the rupiah appreciates to IDR 13,000 per USD, the company can still exchange their USD for IDR at IDR 14,000, avoiding a potential loss.

Related Terms

• Forward Contract - A customized contract between two parties to buy or sell an asset at a specified price on a future date.
• Currency Hedge - A strategy used to mitigate foreign exchange risk.
• Rupiah Volatility - The fluctuations in the value of the Indonesian rupiah against other currencies.