The spot rate is the current exchange rate at which a currency pair can be bought or sold for immediate delivery. It reflects real-time market conditions and is often used in the settlement of trades within two business days.
Simple Example: TechCorp needs to pay a supplier in euros. The spot rate for EUR/USD is 1.1000, meaning they can buy 1 euro for 1.1000 U.S. dollars for immediate delivery.
Numerical Breakdown:
TechCorp is paying €100,000 at the current spot rate of 1.1000 EUR/USD.
To calculate the cost in U.S. dollars:
€100,000 × 1.1000 = 110,000 USD
TechCorp will need to pay 110,000 U.S. dollars to receive €100,000 at the spot rate.
