Spot Foreign Exchange

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Foreign exchange rates are a means of expressing the value and worth of an economy by its currency vis-a-vis that of another. Normal market usage is to quote the exchange rate for spot value, i.e. for delivery two business days from the trade date (except Canadian transactions against the dollar, when the spot date is only one day). The two business days are normally required in order to enable the trade information between the counterparties involved to be agreed and to process the funds through the local clearing systems. The two payments are made on the same date, regardless of the time zone difference (see Figure 7.1).

Figure 7.1 Example of a foreign exchange transaction

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