Spot Market

• The spot market or cash market is a public financial market in which financial
instruments are traded for immediate delivery.

• In spot market, settlement happens in t+2 working days.

• Spot transactions in 2010 accounted for about 37% of the market

• A spot market can be:
1. An organized market.
2. An exchange
3. Over-the-counter (OTC)

Now, the challenge is before you

as what is “THE SPOT FOREIGN
EXCHANGE MARKET”
THE SPOT FOREIGN EXCHANGE MARKET
THE SPOT FOREIGN EXCHANGE MARKET

• A foreign exchange spot transaction, also known as FX spot.

• It is an agreement between 2 parties to buy 1 currency against selling another

currency at an agreed price for settlement on the spot date.

• The standard settlement timeframe for foreign exchange spot transactions

is T + 2 days; (i.e., two business days from the trade date)

• A exception is the USD/CAD currency pair, which settles at T + 1.

• Spot exchange rates are determined by DD and SS for currencies being

exchanged.
Execution methods
• Direct – Executed between two parties directly

• Electronic broking systems – Executed via automated order matching system for
foreign exchange dealers.

• Electronic trading systems – Executed via a single bank proprietary platform or a

multibank dealing system.

• Voice broker – Executed via telephone with a foreign exchange voice broker
Forward Market

• An over-the-counter marketplace that sets the price

of a financial instrument or asset for future delivery.
• The forward market is highly customized
• Chief regulator of forwards markets in India is
Forward Markets Commission (FMC)
Background

• Till feb. 1992 forward contracts were permitted only against

related exposures and these contracts can’t be cancelled
• In March 1992, provide operational freedom to corporate
entities, unrestricted booking and cancellation of forward
contracts for all genuine exposures, whether trade related or
not, were permitted.
• Due to the Asian crisis, freedom to re-book cancelled
contracts was suspended.