Spot exchange rate is the form of exchange rate set for immediate delivery. It represents what the person buying it would pay for or expects to pay for a foreign currency in another currency. Its also refer to as “benchmarks rates”. It’s generally accepted to be a form of contract that must be settled in two days. Forward foreign exchange represents the kind of exchange rate today set for foreign currency transaction which involves the payment at some future date.
It does not involve immediate settlement unlike spot exchange rate. From the current exchange rate, if I’m to use spot exchange rate at 0. 009035, then I would have to spend US $ 903. 50. I can converts the dollars and lock it but since I’m meant to pay in a months time I would choose the forward exchange rate transaction and then lock it in the price of US $ 904. 80 (using the exchange rate of 0.
00904), but I wouldn’t make the delivery of the payments of the Yen till the due date which is next month. Considering the fact that I’m meant to pay the amount of money in a month’s time, I will choose forward foreign exchange. The factors influencing my decisions are ? Time factor in decision taking ? The banking exchange rate also influences the decision in going for the forward exchange rate. ? If the exchange rate does not change