Question : What is the term used to describe the process of converting one currency into another currency at a specific exchange rate for immediate delivery?
Option 1: Spot transaction
Option 2: Forward transaction
Option 3: Cross transaction
Option 4: Swap transaction
Correct Answer:
Spot transaction
Solution : The correct answer is a) Spot transaction
The term used to describe the process of converting one currency into another currency at a specific exchange rate for immediate delivery is a spot transaction. In a spot transaction, the exchange of currencies takes place "on the spot" or immediately, typically within two business days.
A forward transaction, option b, refers to an agreement to exchange currencies at a predetermined exchange rate on a specified future date. It involves a contractual arrangement between two parties to buy or sell currencies at a future date, providing protection against potential currency fluctuations.
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