If you are new to forex market, you must be wondering what are spot rates and future or forward exchange rates? Whenever currency conversion takes place such terminologies are often used. What do these terminologies mean? Spot rates are the rate of currency exchange at the moment, and fluctuate quite a bit over the course of a day. Whereas, forward exchange rates are rates that are quoted today for delivery and payment on some specified date in the future. No currencies change hands on the date the contract is signed for forward exchange transactions. Forward exchange rates and spot rates are actually two methods of trading currency in forex market.
Let's understand Forward exchange rates (also called forward rates) method. In Forward rate contract, two parties made an agreement and fix the currency exchange rate for the transaction which going to be held in the future. Forward rates provide 100% currency hedging for your earned money. The forex company has a team of market analysts who research on the all the factors governing currency rates of the different countries. The major six factors are inflation, interest rates, speculation, change in competitiveness, relative strength of other currencies and balance of payment.
Foreign exchange companies continuously monitor all these factors and design a model which can predict the currency rates of future. Most of the foreign exchange companies are in colloboration with the international banks. Thus they buy foreign currency in a large size at the fix rate. Even if the market foreign exchange rates gets fluctuated thenafter forex companies can still offer best deal for your business transaction. If you have signed a forward contract and locked a rate for the future transaction, you can complete your transaction at any time within the decided period in agreement. Business transactions involves large amount thus currency hedging is a key consideration for overseas money transfer.
Let's understand Forward exchange rates (also called forward rates) method. In Forward rate contract, two parties made an agreement and fix the currency exchange rate for the transaction which going to be held in the future. Forward rates provide 100% currency hedging for your earned money. The forex company has a team of market analysts who research on the all the factors governing currency rates of the different countries. The major six factors are inflation, interest rates, speculation, change in competitiveness, relative strength of other currencies and balance of payment.
Foreign exchange companies continuously monitor all these factors and design a model which can predict the currency rates of future. Most of the foreign exchange companies are in colloboration with the international banks. Thus they buy foreign currency in a large size at the fix rate. Even if the market foreign exchange rates gets fluctuated thenafter forex companies can still offer best deal for your business transaction. If you have signed a forward contract and locked a rate for the future transaction, you can complete your transaction at any time within the decided period in agreement. Business transactions involves large amount thus currency hedging is a key consideration for overseas money transfer.
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