Spot Forex

In Spot Forex a company or individual may become involved in forex through a simple trade transaction. For example an American manufacturer may discover a Japanese outlet for its product. It decides to export the product to Japan either because such a product does not exist in the local Japanese market or because of the competitive advantage over domestic manufacturers.

Markets Close Change Dollar Index 89.2200 0.1000 Euro/British Pound 0.6848 -0.0008 Euro/Japanese Yen 139.6600 0.2700 Euro/Swiss Franc 1.5498 -0.0009 US Dollar/Canadian Dollar 1.1640 0.0057 Australian Dollar/US Dollar 0.7522 -0.0018 US Dollar/Japanese Yen 115.3800 0.4200 British Pound/US Dollar 1.7676 -0.0009 Swiss Franc/US Dollar 1.2801 0.0014 Euro/US Dollar 1.2105 -0.0021 Closing prices for 1/17/2006

Initially, the Japanese importer may choose to ignore the risk or may be unaware of its implications relative to the cost in Japanese Yen at payment date. It might simply ask its Bank before the due date to buy, in the spot forex market, the required amount of dollars needed to meet its payment.

If the Bank is one of the many or so Japanese or international banks that maintain an active foreign exchange dealing room, the Bank will perform the transaction directly.

Otherwise the Bank will execute the transaction via one of its correspondent banks. This outright - spot forex - purchase or sale of foreign exchange is probably the most common of foreign exchange transactions.

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