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Philippines : PHILIPPINE NATIONAL BANK receives approval from BSP for issue of NDFs

May 27, 2014

Philippine National Bank's (PNB) proposal to issue non-deliverable foreign exchange forwards (NDFs) has secured approval from the Bangko Sentral ng Pilipinas (BSP).

PNB in a disclosure to the Philippine Stock Exchange, stated that the central bank has specifically authorized it as a Type 2 limited dealer, allowing it to handle NDF transactions and engage in interest rate swaps (IRS).

The Philippines is one among few Asia Pacific countries to use NDFs, a short-term, cash-settled currency forward between two counterparties.

On the basis of the contracted settlement date, the profit or loss is adjusted between the two counterparties considering the difference between the contracted NDF rate and the prevailing spot forex rates on an agreed notional amount.

IRS, is a well known and highly liquid financial derivative instrument where in both the parties agree to exchange interest rate cash flows, based on a specified notional amount from a fixed rate to a floating rate (or vice versa) or from one floating rate to another. Majorly, these interest rate swaps are used for hedging.

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Source: TendersInfo (India)

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