Identifier: C3T6L3 · Revision: 2026-10-26 · Classification: restricted

Decision and objectives

Distinguish deliverable and nondeliverable principal paths. The decision record must connect the exposure, cash dates and implementable contract, rather than stop at a favorable price forecast.

By the end, you can distinguish deliverable and nondeliverable principal paths; calculate a supplied lira-settled difference; identify residual fixing and payment-time exposure.

Prerequisite: C3T6L2; completed Classes 1 and 2 and the Stock Market School foundation or Forex School foundation. All cases below are hypothetical; their prices, costs, rates, dates, contractual assumptions and collateral amounts are teaching inputs, not current offers.

Mechanics

A deliverable FX forward exchanges both currency amounts. A nondeliverable forward (NDF) settles a difference using a contractual fixing and payment currency. The label alone does not determine the formula: a dollar-settled NDF and a lira-settled difference can use different arithmetic. Read the confirmation before treating them as equal hedges.

The CBRT educational article describes lira cash-settled forward structure, not a current universal investor access route. A business with an invoice still needs the invoice currency; difference settlement provides money for a purchase rather than physical dollars.

Price and return drivers

In this lesson's explicitly hypothetical lira-settled convention, a long dollar hedge receives USD reference amount × (fixing TRY/USD − contracted TRY/USD). A dollar-settled convention might divide by a fixing; it is not used here. Distinguish final contractual settlement from pre-maturity replacement value, which discounts remaining cash and includes credit and dealer spread.

Worked case

Hypothetical USD 100,000 long at K = 42 TRY/USD. Deliverable version pays TRY 4,200,000 and receives USD 100,000 at maturity. Lira-settled version with fixing 45 pays the investor TRY 300,000. Buying USD 100,000 at actual bank ask 45.10 costs TRY 4,510,000, so effective payment after settlement is TRY 4,210,000. Add supplied NDF service charge TRY 2,000 and funding TRY 3,000: TRY 4,215,000 before tax. The TRY 10,000 fixing-to-execution gap remains.

Adverse case

At fixings 38, 42 and 45, final lira settlements are −TRY 400,000, zero and +TRY 300,000. These are expiry outcomes, not today's values. At fixing 38, an actual purchase at 38.10 still gives 3,810,000 + 400,000 = TRY 4,210,000 before charges; but the TRY 400,000 debit may be due before invoice dollars are bought. A delayed settlement or counterparty default can leave the business funding the full invoice before receiving any hedge cash.

Practical use

Confirm fixing source/time, fallback, settlement currency, netting and exact payment dates. Verify provider authorization, credit availability and current product access. Include spot conversion spread, service charges, collateral and payment-timing funding, transfer cost and applicable tax. Do not generalize an official auction or foreign NDF convention to a domestic customer contract.

Reconcile the confirmation, position register and cash statement separately. Costs include the quoted bid/ask spread, brokerage and clearing charges, collateral or principal financing, currency conversion, custody where relevant, and exit or termination charges. A mark is not a fill. Any amount explicitly excluded below remains outside the reported result. Tax is excluded from these teaching cases: an actual comparison requires income year, investor residence and individual/corporate status, contract and acquisition dates, settlement form and effective law. The GIB guide, checked 2026-10-26, covers 2025 individual investment income, so its publication date alone does not settle a 2026 derivative liability.

Decision boundaries

Choose deliverable settlement when the actual currency receipt and operational conditions match the payment; choose cash settlement only with a funded conversion plan. Decline a comparison that leaves the fixing formula or currency of payment unspecified. Equal final economic results can have very different cash and counterparty risks.

Practice and references

Exercise: hypothetical lira-settled long USD 25,000 at 36; fixing 39; actual USD purchase 39.20. Calculate final hedge settlement and effective invoice cost; then stress a fixing of 34. Solution: settlement = 25,000 × (39 − 36) = +TRY 75,000; invoice TRY 980,000; effective payment TRY 905,000 before charges. Fixing 34 instead gives −TRY 50,000. These are final values; no pre-maturity price can be inferred without remaining forward rates and discounting.

Takeaway: Identify residual fixing and payment-time exposure using the actual cash schedule, with every excluded cost and remaining exposure stated.

Reference card: cash-settled-fx-forward. Formula: Hypothetical lira-settled forward difference. Glossary: Nondeliverable forward, Fixing. Next lesson: C3T6L4. Topic test.

Sources and verification date (2026-10-26):

Shared reference guide