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CSEET · Economic and Business Environment · Indian Financial Markets

In the foreign exchange market, the 'spot rate' of a currency pair refers to the rate applicable to:

The spot rate is the prevailing market exchange rate for a currency transaction settled almost immediately, typically within two working days. It differs from a forward rate, which is fixed today for delivery at a future date, and from an option, which gives a right without any obligation.

  1. AA transaction settled at a price fixed today for delivery after several months
  2. BA transaction in which delivery of currencies is made on a near-immediate basis at the prevailing market rateCorrect
  3. CA transaction in which the buyer has the right but no obligation to buy currency
  4. DA transaction in which the central bank fixes the rate for all banks

Explanation

The spot rate is the prevailing exchange rate for a deal settled almost immediately (usually within two working days). A rate fixed today for later delivery is a forward rate, and a right without obligation describes an option.

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