Spot transactions in the foreign exchange market are
increasing in volume. These transactions are primarily in forms of buying/
selling of currency notes, encashment of traveler’s cheques and transfers
through banking channels. The last category accounts for the majority of
transactions. It is estimated that about 90 per cent of spot
transactions are carried out exclusively for banks. The rest are meant for
covering the orders of the clients of banks, which are essentially enterprises.
The
Spot market is the one in which the exchange of currencies takes place within
48 hours.
This market functions continuously, round the clock. Thus, a spot transaction
effected on Monday will be settled by Wednesday, provided there is no holiday
between Monday and Wednesday. As a matter of fact, certain length of time is
necessary for completing the orders of payment and accounting operations due to
time differences between different time zones across the globe.
Magnitude of Spot Market
According to a Bank of International Settlements (BIS)
estimate, the daily volume of spot exchange transactions is about 50 per cent
of the total transactions of exchange markets. London market is the first
market of the world not only in terms of the volume but also in terms of diversity
of currencies traded. While London market trades a large number of currencies,
the New York market trades, by and large, Dollar (75 per cent of the total),
Deutschmark, Yen, Pound Sterling and Swiss Franc only. Amongst the recent
changes observed on the exchange markets, it is noted that there is a relative
decline in operations involving dollar while there is an increase in the
operations involving Deutschmark. Besides, deregulation of markets has
accelerated the process of international transactions.
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