What is an exchange rate, a spot rate and forward rate? What is the bid-ask spread...

What is an exchange rate, a spot rate and forward rate? What is the bid-ask spread and give an example from real data? What are the drivers of the bid-ask spread? What is a forward premium and discount and use real data to show an example of one of them and interpret the result?

Expert Solution

Spot rate is the rate at which contracts are traded into the cash market or spot market and deliveries of the contract are made immediately.

forward rate is the rate at which contractor trade into the Forward Market and delivery that made at future date.

bid ask spread is the difference between the buying price in the selling price which have been quoted by buyer as well as sellers.

Drivers of spread is volumes in the market, liquidity in the market, volumes in the market etc.

When share is trading at a discount to the future price it is called the spot market discount, when spot market is trading at a premium to the futures rate it is called the spot market premium for future market discount.

If there is trading at 20 rupees in spot market and it is trading at 20.20 in future market, the share would be trading at a discount to the futures market and it can be said spot market discount or future market premium.

jeff jeffy answered 1 year ago

What is an exchange rate, a spot rate and forward rate? What is the bid-ask spread...

What is an exchange rate, a spot rate and forward rate? What is the bid-ask spread and give an example from real data? What are the drivers of the bid-ask spread? What is a forward premium and discount and use real data to show an example of one of them and interpret the result?

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What is an exchange rate, a spot rate and forward rate? What is the bid-ask spread...

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