Cash/ready rate, tom rate, Spot and forward rates are settlement prices of cash, tom, spot & forward contracts. The cross rates are exchange rate between two currencies computed by reference to a third currency, usually the US dollar. For example, USD is used to compute a business transaction between India and Germany although USD is neither the official currency of India nor the Germany. Let us now understand the meaning of various types of currency rates quoted by the forex dealers.
Cash Rate/ready rate: This rate is quoted for the settlement (debit/credit) on the same day (today itself).
Tom rate: The rate is quoted and transacted today for the settlement (debit/credit) tomorrow.
Spot rate: The rate is quoted and transacted today for settlement (debit/ credit) on the second working day i.e. (Trade Day + 2 working days)
Spot date: Spot date is ‘Trade Date + 2 working days’
Tom date: Tom date is ‘Trade Date + 1 working day’
Forward rate: Forward rate is quoted and transacted today for settlement (debit/ credit) on any days after spot date (a date which falls after trade date +2 days)
Examples:
If today is 15, October, then trade date /cash date is 15 October
If today is 15, October, then Spot date is 17, October
If today is15, October then tom date is 16, October
The forex rates that we see in the normal course, quoted on the screens, in forecasts or in the papers, if specifically not mentioned they are all Spot rates.
Direct and Indirect quote: There are two ways to quote a currency pair, known as direct quote and indirect quote. A direct currency quote is simply a currency pair in which the domestic currency is the quoted currency. In the other words, the direct quote varies the domestic currency, and the base, or foreign currency, remains fixed at one unit. For example 1 USD=Rs.74/- is the direct rate. In indirect quote the domestic currency would be fixed and foreign currency varies i.e.1 Re= 0.0135 USD
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