Spot Transactions

M.D. Adamson - OTP

A spot exchange rate is the price to exchange one currency for another for immediate delivery. The spot rates represent the prices buyers pay in one currency to purchase a second currency. Although the spot exchange rate is for delivery on the earliest value date, some transactions can take up to T+2 Business days depending on geographical locations and international payment systems E.g Swift.(Society for Worldwide Interbank Financial Telecommunications) Global communication network that facilitates 24-hour secure international exchange of payment instructions between banks, central banks, multinational corporations, and major securities firms. A member owned cooperative organized in 1977 Remember, these may extend over public holidays and weekends.

This value is in turn based on how much buyers are willing to pay and how much sellers are willing to accept, which depends on factors such as current market value and expected future market value. As a result, spot rates change frequently and sometimes dramatically.

The spot rate is also used in determining a forward rate—the price of a future financial transaction.