ACCA Applied Skills · Financial Management · The nature and role of financial markets and institutions
Which of the following best describes the main function of the foreign exchange spot market?
The spot foreign exchange market is where currencies are exchanged at the prevailing rate for settlement normally within about two business days. Forward contracts fix a rate for later delivery, futures are exchange-traded, and interbank deposits belong to the money market.
- ATrading currencies for delivery at a fixed future date at a rate agreed today
- BTrading currencies for settlement within about two business days at the prevailing exchange rateCorrect
- CTrading standardised currency contracts on a regulated exchange with daily margin
- DLending surplus currency deposits between banks for periods under one year
Explanation
The spot market deals in currencies for settlement normally within two business days at the current rate. Option A describes a forward contract. Option C describes currency futures. Option D describes the money market.
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