Foreign Currency Services

Spot Contracts

What are Spot Contracts?

The Spot Contract is the most basic and popular foreign exchange product. It is an agreement to buy or sell one currency in exchange for another. You settle the contract the same day, at a price based on the prevailing “spot exchange rate” – the current value of one currency compared to another.

What are the benefits/risks?

Although the spot market lets your company buy or sell currency as you need it, spot exchange rate movements are highly unpredictable, even during a single trading day. Relying on the spot market for future foreign currency requirements is highly speculative. It can expose your company’s cash flow to the risk of unfavourable changes in foreign currency values.

An example

You purchased inventory from a company in the United States and payment is due in three months. You decide to wait until the closing day to purchase U.S. funds at the prevailing spot exchange rate.