ComparisonIntermediate
What is the difference between a spot exchange rate and a forward exchange rate as defined in the chapter?
A spot exchange rate is the rate at which currencies are exchanged for immediate delivery, typically within two days. In contrast, a forward exchange rate is an agreed-upon rate for currency exchange at a specified future date, such as 30, 90, or 180 days from the agreement.
Key points
- Spot exchange rates are for immediate delivery of currency, usually within two days.
- Forward exchange rates are set for delivery at a future date, typically ranging from 30 to 180 days.
- Spot rates reflect current market conditions, while forward rates lock in prices to mitigate exchange rate risk.
Source:Fundamentals of Financial Management, Concise Edition· Multinational Financial Management· p. 634–636
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Fundamentals of Financial Management, Concise Edition
Eugene F. Brigham, Joel F. Houston
9e · Cengage Learning