TARF allows currency exchange at more attractive rates than traditional forwards. TARF consists of consecutive legs with fixed strike rates. Model uses Monte Carlo simulation for future spot exchange rates
NDF is a short-term cash-settled forward contract for differences between contracted and spot rates. Contracts typically range from one month to one year, with IMM dates most common. Settlement is usually made in US dollars. Notional amount is never exchanged, only difference between rates is settled
NDFs emerged in early 1990s to protect against less liquid currencies. Used by companies importing from countries with limited currency access. Dollar is most common currency for NDF transactions
Bid rate represents market's willingness to buy, ask rate represents market's willingness to sell. Spread is the difference between bid and ask prices, ensuring broker profit. Arbitrage opportunities exist when buying rate is lower than selling rate