Spot Transaction

Spot Transactions
A spot foreign exchange deal is a transaction in which one currency is exchanged directly for another for settlement two working days later (to allow each party time to arrange payment
to the other). The price at which a deal takes place is known as the spot rate. This is expressed as the value of a unit of one of the two currencies in terms of the other currency. For example, the spot rate for an exchange between the US dollar and the Swiss franc would be quoted as 1 dollar = 1.6000 francs. In this example the dollar is the unit or base currency and every dollar is worth 1.6 francs. The general practice in the spot market is to measure the value of currencies against the US dollar and so, when the US dollar is one of the currencies being exchanged, it is normally the unit or base currency in the exchange rate. There are some exceptions to this rule, notably the pound sterling and the euro.
A spot rate of exchange
Foreign exchange rates are quoted in currency pairs. The first currency named in the pair is always the unit currency. For example:-
EUR/USD: = 1.1670/80 (i.e. 1.1670 to 1.1680)
EUR/USD are the two currencies. The codes are the international three letter codes used by financial institutions. EUR = Euros; USD = US dollars. Every currency has been assigned such a code.
• Rates quoted are two-way. The left-hand side (i.e. 1.1670) is where the dealer will buy the unit currency. This is known as the bid. The right-hand side (i.e. 1.1680) is where the dealer will sell the unit currency. This is known as the offer.
• Most prices are quoted to four decimal places (exceptions include JPY which is usually quoted to two decimal places).In the above example 1.16 is called the big figure and 70/80
are the points or ticks.
• The difference between the bid rate and the offer rate is known as the spread. The exchange rate in this example has a ten point spread.