Foreign exchange transactions – spot


Spot is a cash operation, which is directed at making a purchasing or selling operation. It is connected with instant payment and as quick as possible delivery. In other words, monetary exchange is carried out, as a rule, in two days after a prior agreement.

“What is spot?” – specialists have another answer to this question – this is the value of an commercial transaction within a purchase or sell of an actual product, valuable assets or currency in the “here and now” regime based on demands of prompt delivery and synchronized fulfillment of responsibilities, which were taken by partners in the transaction.

Definition of spot

As we already know, spot transaction is a quick realization of a commercial operation, in contrast to the futures system. Spot transactions are carried out according to specific objectives:

  1. The execution of converted requirement of a bank client audience.
  2. The realization of procedure of bank money transfer from one currency to another to ensure liquidity.
  3. The realization of speculative converted actions.
  4. The organization of control over the actual currency composition in order to prevent residual amounts on clients’ accounts being unpaid.
  5. The aiding in the sphere of minimally necessary working balances in foreign banking institutions on the basis of “nostro” accounts to reduce the level of excessive amounts of one currency and the satisfaction of requests with another currency form.

Initially, spot transactions were classified as transactions connected with spot goods. It led to the emergence of the spot-market, within which the work on selling based on cash was carried out. After some time it transferred to the transactions with financial assets – currency.

Currency spot is a transaction, directed at immediate provision of currency. In the sphere of such transaction the currency, which is actively bought, has to be present obligatory. Prompt delivery involves an efficient and high-quality delivery of currency forms by a banking institution on the second working day after a financial transaction is completed. The transaction course (spot-course) demonstrates an extent of currency value outside the country in the process of transaction realization. This method of work occupies more than 60% of the total value of the interbank market.

Formation of exchange rates

The main feature of the spot-market is a rate of exchange, or a value of a currency, which is represented in the unit of measurement of another currency form.

Exchange rates are influenced by such aspects as:

  1. The purchasing power of national and foreign currency.
  2. The situation of governmental capacity to pay.
  3. The level of expectations.
  4. Inflationary phenomena.
  5. The extent of a business activity in a country.
  6. The correspondence of demand and supply of foreign currency.
  7. Political and military spheres.
  8. The competitiveness of national goods on the global market.
  9. The level of development of the national earnings.
  10. The value of interest rates of banks.
  11. The growth level of the market of valuable assets.
  12. The development of telecommunications and the participation of a government in the world market of the gold standard.
  13. The process of regulation within a country.

The currency spot-market has a high level of a financial risk. This is because of the necessity of prompt finding outlets from different situations within operative cooperation of its participants. Despite this fact, such type of market occupies more than 40% of the world trading currency exchange process.

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