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Your email address will not be published.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

demographics segmentation definitiontheory of collective bargainingdelegation of authority matrixarithmetic straight line methodskimming price policy definitionfayol theory of managementdefinition of seasonal unemploymentgeocentric attitudeforclose definitiondebenture defintionexample of diminishing marginal utilitynps national pension systemproperties of indifference curve with diagramnike distribution channel strategydefine pavlovdefinition of inventory turnovermeaning of forex in hindilinear programing problemdefine expansionismdefine whistleblowingleasing meaning in hindiwhat is the delphi techniquecorrelational analysesindifference curve definition economicswhat is meant by payback perioddeposit schemes in post officeexample of semantic barriers in communicationvictor vroom expectancy theoryautocratic meanssalient means in hindimoratorium period meaning in loanfranchiser meaningadministrative theory of henri fayollaw of diminishing marginal utility definitiontarget return pricingadvantages of vestibule trainingexamples of prestige pricingspearman formulatheories of wages in labour economicsmotivation theory of herzbergliquidity adjustment facilitydefine marketing environmentmarginal costing in accountingdefinition of divestitureholistic brandingkarl pearson correlation coefficient formulaethnocentric perspectiveneo classical meaningwhat is straddle strategyexamples of denotation sentenceswhat is cobb douglas production functionsensitivity analysis npvpsychoanalytic theoriesdefine substitutes economicsorientation and induction programphysiological barriers in communicationmeaning of delegation in hindisales and leaseback definitionguerrilla warfare meaningordinal versus cardinalmeaning of stringent in hindidefinition of lessee and lessorhiree definitionstructure unemploymentbargaining theory of wagesanti takeover strategiesdefinition of bank chequespan of control advantages and disadvantagesadvantages and disadvantages of narrow and wide span of controlmeaning of liabilities in telugucontractual vmseffective communicator definitionformal and informal communicationdefinition of equity theory