MBA (General)IV – Semester, International Business Unit 1
Features of Spot Market
In the spot market, currencies are traded for immediate delivery at a rate existing on the day of transaction. For making book-keeping entries, delivery takes two working days after the transaction is complete.
Features
In the spot
market, currencies are traded for immediate delivery at a rate existing on the day of transaction. For making
book-keeping entries, delivery takes two working days after the transaction is complete. If a particular market
is closed on Saturday and Sunday and if transaction takes place on Thursday, delivery
of currency shall take place
on Monday. Monday in
this case is known as the value date or settlement date. Sometimes there are short-date contracts where the time zones permit the delivery of
the currency even earlier. If the
currency is delivered the same day, it is known as the value-same-day contract.
If it is done the next day, the contract
is known as the value-next-day contract.
In view of the
huge amounts involved in the transactions, there is seldom any actual movement of currencies. Rather, debit and credit entries are made in the bank accounts
of the seller and the purchaser. Most of the markets do the transfer
of funds electronically thus saving
time and energy. The system existing in New York is known as the Clearing House Inter-Bank Payment System (CHIPS).
