- An FX transaction is the simultaneous purchase and sale of one currency against another currency at an agreed price. Each party promises to pay the other a certain amount of currency on an agreed date called Value Date.
- By convention, this value date is set for two business days after the transaction date, which will enable the two parties to effect payment on good time.
- A transaction conducted on this basis is called Spot quotation, and it may either be a Direct Quotation or an Indirect Quotation.
- Direct quote is when the USD is the base currency, and the exchange rate is expressed as the amount of a currency per one US Dollar, like the USD / KWD pair = 0.29195. This meaning that one USD = 0.29195 from one Kuwait Dinar.
- Indirect quote is when the USD is not the base currency and the exchange rate is expressed as the amount of US Dollars per one unit of the currency, like the EUR / USD = 1.3100 pair where one EUR = 1.3100 Dollars.
- When asked for a quotation, a dealer will give two rates called the 'Bid and Offer rate', in other words the rate at which he is willing to buy and another at which he is willing to sell.
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