A Business Encyclopedia

Types of Foreign Exchange Market

Definition: The market in which the foreign currencies are bought and sold is called a Foreign Exchange Market. Here the buyers and sellers are involved in the sale and purchase of currencies of different countries.

Types of Foreign Exchange Market

Broadly, the foreign exchange market is classified into two categories on the basis of the nature of transactions. These are:

Types of foreign Exchange Market

  1. Spot Market: A spot market is the immediate delivery market, representing that segment of the foreign exchange market wherein the transactions (sale and purchase) of currency are settled within two days of the deal. That is, when the seller and buyer close their deal for currency within two days of the deal, is called as Spot Transaction.

    Thus, a spot market constitutes the spot sale and purchase of foreign exchange. The rate at which the transaction is settled is called a Spot Exchange Rate. It is the prevailing exchange rate in the market.

  2. Forward Market: The forward exchange market refers to the transactions – sale and purchase of foreign exchange at some specified date in the future, usually after 90 days of the deal. That is, when the buyer and seller enter into a contract for the sale and purchase of foreign currency after 90 days of the deal at a fixed exchange rate agreed upon now, is called a Forward Transaction.

    Thus, the forward market constitutes the forward transactions in foreign exchange. The exchange rate at which the buyers or sellers settle the transactions in the forward market is called a Forward Exchange Rate.

Thus, the spot and forward markets are the important kinds of foreign exchange market that often helps in stabilizing the foreign exchange rate.

1 Comment

Leave a Reply

Your email address will not be published. Required fields are marked *


Related pages

linear isoquantprocess of training in hrmretrenchment strategies in strategic managemententrepreneurship as a theory of business was propounded bythe law of diminishing marginal utility states thatdividend definition economicsmeaning of surplus in hindiflanker brand examplesdefine fixed deposit accountdefinition of poachretrenchment definitioncalculate profit margin ratioparachute definitionleast preferred coworker scalewhat is meant by critical pathtypes of demand in managerial economicsoligopoly markets examplesentrepreneurial ventures definitionrural marketing strategywhat is organizational communication definitiongeocentric meaningwhat is deontology theoryvertical marketing system exampledelegated defhow to trade using demat accountcourteous hindi meaningtheory x and theory y motivationstructual unemploymentdividend theoriesmonetary theory definitionwhat does vestibule meandefine deontology theoryperfect competition meaningbases for segmenting business marketshenri fayol management theory summaryasnoff matrixethnocentrism meaning in hindimeaning of quick ratioaffluence definitionoperant conditionsstrategic hrm planning processinelastic commoditymarginal costing techniqueexport factoring definitiondefine trainingsmarkup prices14 principles of henri fayolmeaning of autocratictheories on organisational structureoligopoly characteristics pdfpayed meaningclassical theory of management henri fayolwhat is meant by market segmentationdepreciable amount definitionlaw of diminishing marginal utility curveteleological explanation definitionreturn on capital employed ratio formulawhistling blowingwhat is the meaning of fiscal deficitwhat does seasonal unemployment meanwhat is sole proprietorship meandiversification marketing definitionmeaning of job enlargementlaissez faire coaching style in sportgate examslikert scale strongly agreedelfi techniquemeaning chitequity theory adamssegmentation definition in marketingrbi msfdefine demand functionfixed asset turnover rationdefine inductlpc leadership theoryvariable costing approachstick and carrot policytypes of formal and informal groupsadvantages of demand forecasting