What factors influence the spot and forward exchange rates in the forex market?
loren d asked:
Basically an understanding of what goes behind the decisions of selecting to go for a spot rate of exchange or a forward rate of exchange.
This entry was posted
on Thursday, April 9th, 2009 at 12:00 am and is filed under Investing.
You can follow any responses to this entry through the RSS 2.0 feed.
You can leave a response, or trackback from your own site.
Basically an understanding of what goes behind the decisions of selecting to go for a spot rate of exchange or a forward rate of exchange.
April 9th, 2009 at 4:17 pm
They depend on the interbank interest rates of the 2 currencies
at the time of the deal is booked.
April 10th, 2009 at 3:13 pm
The spot and forward exchange rates are related to each other through the interest rate parity. In other words, the difference between the spot and forward rates is the interest rate differential between two currencies.
Forward rates are used to hedge foreign exchange exposure risk.
April 11th, 2009 at 10:44 am
Spot is now and immediate and there is no time factor involve. You like the rate you deal on the spot. Pun intended.
Forward contract is to locked in a price for a period in time. There is a premium added to it on the spot rate. Its kind of an insurance. You use it when you cannot decide immediately whether you will transact or not but want a comfort to know that today’s price will still be there for you. Of course you have to pay a cost for that
If it helps at all visit