Foreign Currency Exchange Rates By Date – What is a Foreign Exchange Transaction?
Posted in Currency Exchange Rates on August 22nd, 2010 by admin – Be the first to comment
Foreign Currency Exchange Rates By Date – What is a Foreign Exchange Transaction?
Foreign Currency Exchange Rates By Date
An FX transaction may be useful in managing the currency risk associated with importing or exporting goods and services denominated in foreign currency, investing or borrowing overseas, repatriating profits, converting foreign currency denominated dividends, or settling other foreign currency contractual arrangements.
How does an FX transaction work?
When you enter into an FX transaction, you nominate the amount (the contract amount) and the two currencies to be exchanged. These currencies are known as the currency pair and must be acceptable to your foreign exchange provider.
You also nominate the maturity date on which you want the exchange of currencies to take place. Your FX provider will then determine the exchange rate, known as the contract rate, based on the date and currencies nominated by you. The contract rate is the rate at which the currencies will be exchanged.
On the contract date the contract amount must be exchanged with your FX provider at the contract rate, irrespective of where the foreign exchange rate is at the time. Foreign Currency Exchange Rates By Date
How does your FX provider determine your contract rate?
It is the agreed exchange rate at which the currency pair will be exchanged on the date of maturity. Your currency provider determines the contract rate, taking several factors into account including:
the currency pair and the time zone you choose to trade in
the maturity date set by you
inter-bank spot foreign exchange rates
the contract amount, and your currency providers ability to trade small amounts on the inter-bank market
market volatility
inter-bank interest rates of the countries of the currency pair.
Contract rates are quoted as spot exchange rates, value today exchange rates, value tomorrow exchange rates, or forward exchange rates, depending on the maturity date nominated by you. Foreign Currency Exchange Rates By Date
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