THE onshore or domestic US dollar-ringgit trade has increased markedly ever since Bank Negara started to scrutinise currency-hedging trades and require banks to adhere to rules that were already in place where the offshore or non-deliverable forwards (NDF) trade is concerned.
The NDF or offshore market rate is used as a hedge by traders where there are restrictions over the currency’s trading, that is convertibility, or where there is very little liquidity for the currency. As a hedging instrument, it is used as a benchmark or guide on the ringgit’s direction versus the US dollar. The trades, operating on a 24-hour basis, are settled in US dollars.