June 27, 2008, Newsletter Issue #60: What is the Difference Between Spot Rates and Forward Rates?
Tip of the Week
FXClub.com Tip: A currency exchange rate is often quoted as spot rates, and future or forward rates. What does this mean?
Spot rates are the rate of exchange at the moment, and fluctuate quite a bit over the course of a day.
In contrast, forward exchange rates are rates that are quoted today for delivery and payment on some specified date in the future. No currencies change hands on the date the contract is signed for forward exchange transactions.
A forward premium or discount is calculated using the interest rate differential between the two currencies being traded.
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