It stands for non-deliverable cross currency swap; a swap agreement (cross currency swap, XCS) that is entered into, and between, two parties to exchange a stream of interest payments and the notional principal amount (NPA) denominated in one currency for another stream denominated in another currency on a non-deliverable basis.

Non-deliverable swap (NDS) constitutes a cash-settled contract (cash-settled swap) which doesn’t involves delivery of the underlying, i.e. there is not physical exchange of the two currency cash flows. Instead, the parties net the difference between the exchange rate set out in the swap contract and the spot rate, and one party pays the other that difference. NDSs are usually settled in U.S. dollars. Multinational corporations and countries with minor currencies (like emerging markets) sometimes use non-deliverable swaps to hedge transfer risk (profit repatriation risk) associated with comparatively illiquid currencies, and to avoid the cost of local market exchange.

The exchange usually takes place between a currency that is fully convertible (major currency) and another (known as a restricted currency) that is not fully convertible and hence can only be settled on a non-deliverable basis.

It is also known as an ND XCS.