PathSet Publications
Kinds of Foreign Exchange Market
1. Spot market:
Meaning: It refers to the market in which the receipts and payments are made immediately.
- If the operation is of daily nature, it is called spot market or current market
- The exchange rate that prevails in the spots market for foreign exchange is called spot rate.
- In other words, spot rate of exchange refers to the rate at which foreign currency is available on the spot.
2. Forward market:
Meaning: It refers to the market in which sale and purchase of foreign currency is settled on a specified future date at a rate agreed upon today.
- A market for foreign exchange for future delivery is known as forward market.
- Exchange rate that prevails in a forward contract for purchase or sale of foreign exchange is called forward rate.
- Thus, forward rate is the rate at which a future contract for foreign currency is bought and sold.
