Lesson 3 of 11
Spot Transaction: Definition
A spot FX transaction is a purchase or sale of one currency for another, for delivery usually two business days after the dealing date (the date on which the contract is made).
Value Date for Spot Transactions
The exchange rate at which a spot transaction is made is the ‘spot rate’, because this is the day when each party to the transaction will deliver the funds with good value to the counterparty’s account.
Business days do not include Saturdays, Sundays or bank holidays in either of the countries of the two currencies concerned.
If a spot deal is made on Monday, Tuesday or Wednesday, delivery (value date) will be two days later on Wednesday, Thursday or Friday respectively.
If a spot deal is made on Thursday or Friday, delivery will be two business days later on Monday, or Tuesday respectively.
There are some exceptions to the general rule:
A transaction in USD/CAD is for immediate settlement usually implies delivery on the next working day after the dealing day. This is referred to as ‘Funds’. The large volume of foreign exchange between these two currencies has led to the evolution of an efficient system, and there is no time difference between the main money centers, New York and Toronto. A spot price (value two working days after the dealing date, as usual) can normally requested as an alternative to Funds.
FX markets in the Middle East are closed on Friday but open on Saturdays. A USD/SAR transaction could therefore have a split settlement date, with the US dollars delivered on the Friday and the Saudi riyals delivered on the Saturday.
The spot value date for cross-currency deals (transactions involving two currencies not including the US dollar) might be deferred by the US public holidays.