Spot exchange rate is meant for instant deliveries

what is market exchange rate Visitors: 67

Trade between countries depends on the demand for the country's goods, political stability and interest rates but one of the most important factors is exchange rate. Basically, market exchange rate is how much your currency is worth when you trade it for another country's currency. Currencies are always traded in pairs and the exchange rate demonstrates the relation between them.

Suppose the US-Mexico exchange rate is 15 pesos to 1 dollar. If an American buyer wants to purchase something for 6,000 pesos, they will have to trade 400 dollars for that amount. If the exchange rate went up to 20 pesos per dollar, it would cost them $300. Thus, we can say that the dollar has appreciated. If the dollar became less powerful, it would have depreciated. Most currencies like peso or dollar have floating exchange rates that change depending on the supply and demand. However, some countries decided to peg their currency to another currency; this is when a country's central bank wants to keep it in a certain range and they buy and sell currencies to keep it that range. The Chinese government was well-known for buying US dollars to keep its currency artificially depreciated.

Spot exchange rate is meant for instant deliveries. The spot rates depict the prices buyers pay in one currency to acquire another currency. Typically, spot transactions in the market deal with bigger transactions and bank settlement takes place on the 2nd following business day. Moreover, spot transactions account for 43% of the total international exchange transactions.

Forward rate is calculated according to the spot rate but used for a financial transaction that is going to take place later. In Forex, the forward rate stated in a contract is a lawful responsibility that must be honored by the parties affected. For example, supposing a European exporter with a big export order for the USA offers to sell 1 million euros in exchange for dollars at a forward rate of 1.20 euros per US dollar in a year's time. The exporter is obliged to transfer 1 million euros at the stated forward rate on the stated date regardless of the export order or the spot exchange rate in the market at that time.

There are several factors affecting the currency exchange rate:

Comments (0)

Trading on the stock exchange in a crisis

Crises and various global changes are part of our lives. They have always been, and always will be, and with the passage of time and an increase in the intensity of the vital rhythm

How to choose right air conditioner for your home

Choosing an air conditioner for your home is a responsible task.

How to vacuum products at home

Here we will talk about the real average storage time of chilled meat, fish, vegetables, cheese, as well as herbs, mushrooms, coffee beans.

Volume in Forex and Its Application on Forex

Volumes can tell when to enter a trade or refrain and predict a strong move.