How The CBN Naira-Settled OTC FX Futures Market Will Work
The proposed Naira-settled OTC FX Futures are Non-Deliverable Forwards. (i.e. a contract where parties agree to an exchange rate for a predetermined date in the future, without the obligation to deliver the underlying US Dollar (notional amount) on the maturity date i.e. the settlement date). On the maturity date, it will be assumed that both parties would have transacted at the Spot FX market rate. The party that would have suffered a loss with the Spot FX rate will be paid a settlement amount in Naira. This ensures that both parties enjoy the rate that had been guaranteed to each other through the OTC FX Futures……..