What is the difference between a spot foreign exchange rate and a forward foreign exchange rate? How could an Indonesian exporter use the forward rate to hedge foreign exchange risk?
The rate at which currency exchange takes place today or
immediately is called spot exchange rate . This transaction is
required when there is urgent demand for foreign currency.
The rate at which currency can be exchanged at certain fixed date in future. It helps in hedging against exchange rate fluctuations.
The Indonesian exporter can enter into forward contract to hedge exchange rate. The exporter can enter in a forward rate at specified date in future. Hence the Indonesian currency it will receive is fixed as anticipated. If there is appreciation of Indonesian Currency the forward rate will protect against the loss due to appreciation of Indonesian currency.
Get Answers For Free
Most questions answered within 1 hours.