What is spot rate?

The spot rate refers to the current exchange rate at which a particular currency can be exchanged for another currency. It is the rate at which a foreign exchange transaction takes place immediately in the present moment. This exchange rate is determined by various economic factors, including supply and demand, inflation rates, interest rates, and political stability.

Spot rates are usually used for immediate currency exchanges, such as when travelers exchange money at a currency exchange booth at an airport. They are also used by businesses engaging in foreign trade to purchase goods or services from foreign countries or to pay their foreign suppliers.

Spot rates are dynamic and constantly changing, as they are influenced by various events and factors that affect the exchange rate. Spot rates are typically quoted for major currency pairs, such as the US dollar and Euro, the US dollar and Japanese yen, and the US dollar and British pound. Spot rates are also used as a benchmark for other foreign exchange instruments such as forward contracts, futures, and options.