Question

How can an E-commerce business use the spot market? Please provide an example.

Answer 1

Electronic commerce market usess the spot market to-

1. Hedge different type of transactions related exposure- electronic commerce businesses who operates into other countries and they have a lot of exchange rate risk so they can get through spot Market by entering into contract into foreign market and spot market by equal proportion. It can be alternatively called money market hedging.

2.it can also use the spot market for different types of price discovery hence it helps in fixation of the price of the product to a competitive range.

3.it helps in different pricing power strategies formation as they are exposed to a lot of risk by directly fixing the price so they can go through a sample in spot market.

4.spot market also helps to find out different competitive strategies of their peers which helps them to keep updated in order to sustain and survive in the market

5. Spot market always helps them to stay competitive as it helps in fixation of price and retention of customer and designing of strategies which can be at par with their competitors.