What is spot and forward Exchange Rates?

Spot Exchange Rate: It is the rate at which two parties agree to trade at different currencies..this rate is based on the current market price because transaction occurs at the same time not in the future.

Forward Exchange Rate: when two parties agree to trade in future both parties save themselves from the decrease in the value of currency then a specific exchange rate is decided in a contract..this exchange rate is said to be forward exchange rate.

'Spot Exchange Rate'

 The rate of a foreign-exchange contract for immediate delivery. Also known as "benchmark rates", "straightforward rates" or "outright rates", spot rates represent the price that a buyer expects to pay for a foreign currency in another currency.

'Forward Rate'

A rate applicable to a financial transaction that will take place in the future. Forward rates are based on the spot rate, adjusted for the cost of carry and refer to the rate that will be used to deliver a currency, bond or commodity at some future time. It may also refer to the rate fixed for a future financial obligation, such as the interest rate on a loan payment.

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The spot exchange rate is the current exchange rate today with immediate delivery.

Forward exchange rate essentially refers to an exchange rate that is quoted and traded today but for delivery and payment on a set future date.

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A rate applicable to a financial transaction that will take place in the future. Forward rates are based on the spot rate, adjusted for the cost of carry and refer to the rate that will be used to deliver a currency, bond or commodity at some future time. It may also refer to the rate fixed for a future financial obligation, such as the interest rate on a loan payment.