Sunday, September 6, 2009

Spot,Forward,and Contracts

Earlier in this blog we distinguished between the spot market, or market for immediate delivery of a currency, and the forward market, where contracts are made for future currency delivery. Trading in the spot market results in spot contracts, which are agreements to deliver a specified amount of foreign currency at an agreed-upon price, usually within one or two business days and sometimes on the same day. In contrast, a forward contact is an agreement to deliver a specified amount of foreign currency at a set price on some future date (usually within 30, 90, or 120 days).
In the forward market, therefore, the currency is purchased or sold now at a price agreed upon today, but delivery and payment are made in the future. The actual delivery date is referred to by traders as the value date. In the event customers do not know when they will receive or will need foreign currency, then an option forward contract frequently is used

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