ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -A forward exchange occurs when two parties agree to exchange currency and execute the deal at some specific date in the future. Exchange rates governing such future transactions are referred to as forward exchange rates.

Detailed explanation-2: -The forward exchange rate (also referred to as forward rate or forward price) is the exchange rate at which a bank agrees to exchange one currency for another at a future date when it enters into a forward contract with an investor.

Detailed explanation-3: -In general, a spot rate refers to the current price or bond yield, while a forward rate refers to the price or yield for the same product or instrument at some point in the future. In commodities futures markets, a spot rate is the price for a commodity being traded immediately, or “on the spot".

Detailed explanation-4: -A foreign currency swap is an agreement between two parties to swap interest rate payments on their respective loans in their different currencies. The agreement can also involve swapping principal amounts of loans.

Detailed explanation-5: -Exchange rates of a currency can be either fixed or floating. Fixed exchange rate is determined by the central bank of the country while the floating rate is determined by the dynamics of market demand and supply.