Definitely, there occur a large number of transactions on a daily basis in the vast market of foreign exchanges. Some of them include
- Spot transferring: This type of transaction requires an instant effect delivery and that too instantaneously at the spot itself. The settlement takes place for the spot rate and at the spot market.
- Forward transferring: Everything is pre-fixed for a characteristic value in advancing future date by mutual consent. So it can be said that a contract delivery takes place at a forward market for the forward exchange rate. The point to be noted is each republic owns a set of principles for working with this type of transfer.
Other characteristic features include the OTC contracts, the payoff profiles of vendor and purchaser, credit understanding and so on.
- About the future: A focus on a future contract indicates its dependence on standardized size and maturity dates. Margins are not at all a requirement for this. Only a particular security amount has to account for assuring the futures title.
- An optional contract: This is a type of contract or financial device that transfers a holder right to get or give a specific asset quantity on basis of a pre-fixed future date and price.
An option associated with acquiring an asset is known to be as a call option and that requires a giving is referred as a put. These two process accounts for the exercising of the option.
Further, the specific price given or obtained is called as an exercise or striking price and the option price is called the premium. In addition to this, the buyer involved in the long and the seller is the short or writer of the option.
There exist options varieties like the one exercised only at the maturity period or at expiry and the second can be established at any period during the contract term.
- Swap operation: Sometimes, the forward transferring business operated by commercial banks may switch to a swap to better adjust their forward financial position. The whole process involved in the sale and get off a spot currency is known to be the swaps or twin deals because the spot is switched against the forward.
- Arbitrage: This includes the instantaneous process of purchasing and vending of external currencies with the profit motivation offered from its difference with existing exchange rate at the various markets at the same time.