Economics Exchange Rates Questions
The main difference between a spot exchange rate and a forward exchange rate is the timing of the transaction.
A spot exchange rate refers to the current exchange rate at which a currency can be bought or sold for immediate delivery. It is the rate at which currencies are exchanged on the spot market, typically within two business days.
On the other hand, a forward exchange rate is the exchange rate agreed upon today for a future transaction, usually taking place at a specified date in the future. It allows individuals or businesses to lock in an exchange rate for a future date, providing certainty and protection against potential currency fluctuations.
In summary, the spot exchange rate is for immediate transactions, while the forward exchange rate is for future transactions.