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Chapter 5: Q5DQ (page 679)

Differentiate between the spot exchange rate and the forward exchange rate.

Short Answer

Expert verified

The spot exchange rate is the current price, and the forward exchange rate is the instrument's price at some point in the future.

Step by step solution

01

Definition of Exchange Rate

The exchange rate refers to arateat whichone country's currency can exchange with the other country's currency.

02

Step 2Difference between the spot exchange rate and forward exchange rate

The Spot exchange rate is the rate at which the exchange of currency is on an immediate basis, while in the forward exchange rate, the money will exchange on some future date.

Spot exchange rate shows the immediate requirement of the purchasing of the property, while in the forward exchange rate; they fix the currency rate by estimating its increase in future.

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