Foreign exchange (Forex or FX) is the only market on planet where brokers, banks, big financial institutes, retail investors swap currencies in staggering volume on daily basis. Forex is highly volatile market. The currencies are changed in value at every second thus it is very difficult to keep a track on currency value. If you have invested large amount in forex currency hedging is very important aspect to protect your hard earned money from the negative fluctuation of currencies. Forex companies offer forward exchange rates and spot rates to hedge your transaction.
Exchange rate of two currencies or a pair of currency is governed by so many factors like interest rates, economical and political stability,etc. A minor change in any of this governing factor can change the exchange rate. If you have invested in more than one currency pair then also a negative movement of one pair can diminish the positive movement of others. If this is the first time you are investing in forex for business growth, you ought to know about forward exchange rates and spot rates. Spot rate should be chosen when you can finish the order within 2 days thus this is widely used by regular traders.
Using forward exchange rates or forward rates, the service provider forex company create a legal document where in two parties seller and buyer fix the rate and date of future transaction based on the current market. The period is decided on the agreement of the forex company which can be 1month, 2month,3months,1 year or anything. Based on the amount involved and the period decided to complete the order, interest is charged by forex. However, for businesses the priority is currency hedging not the profit from their investment thus paying nominal interest on forward rate is best solution for businesses. Choosing this option businesses are reducing the exposure of invested money from negative as well as positive market movement.
Exchange rate of two currencies or a pair of currency is governed by so many factors like interest rates, economical and political stability,etc. A minor change in any of this governing factor can change the exchange rate. If you have invested in more than one currency pair then also a negative movement of one pair can diminish the positive movement of others. If this is the first time you are investing in forex for business growth, you ought to know about forward exchange rates and spot rates. Spot rate should be chosen when you can finish the order within 2 days thus this is widely used by regular traders.
Using forward exchange rates or forward rates, the service provider forex company create a legal document where in two parties seller and buyer fix the rate and date of future transaction based on the current market. The period is decided on the agreement of the forex company which can be 1month, 2month,3months,1 year or anything. Based on the amount involved and the period decided to complete the order, interest is charged by forex. However, for businesses the priority is currency hedging not the profit from their investment thus paying nominal interest on forward rate is best solution for businesses. Choosing this option businesses are reducing the exposure of invested money from negative as well as positive market movement.
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