An empirical study on the relationship between NDF and DF

Combining theories and using real data, this paper empirically analysis the dynamic relationship, transmission mechanisms, information impact between RMB NDF (Non-deliverable Forwards) exchange rate and domestic DF (deliverable forward foreign exchange) rate. The purpose of this study is not intending to propose pricing mode, but finding the relationship under diversity of investors and capital bound situation, which helps the investors and regulators to make better decisions. The research shows that after the reformation of the exchange market of China, there is conduction relationship between NDF rate and DF rate. In the price transmission mechanism, DF rate and the NDF rate influences and interacts each other in the short and medium term. Conduction in the volatility, the domestic DF rate has a one-way causality to DNF in 5 to 10 days.