Context: The Reserve Bank of India (RBI) has barred banks from offering non-deliverable derivative contracts involving the rupee to curb speculation and stabilize the currency amid global uncertainties, especially due to West Asia tensions.
- Forex (foreign exchange) market deals with currency trading and exchange rate determination.
- A Non-Deliverable Forward (NDF) is a type of foreign exchange (forex) derivative contract where two parties agree to exchange the difference between a pre-agreed exchange rate and the prevailing market rate on a future date – without actual delivery of the underlying currency.
- Deliverable forwards involve actual exchange of currencies at maturity.
- RBI regulates forex markets under the Foreign Exchange Management Act (FEMA), 1999.
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