The foreign exchange market consists of the spot market & the forward or futures market.
· The spot market deals with foreign exchange delivered within 2 business days or less. Transactions in the spot market quote rates of exchange prevalent at the time the transactional took place. Typically , a bank will quote a rate at which it is willing to buy the currency (bid rate) & a rate at which it will sell a currency (offer rate) for delivery of the particular currency.
· The forward market is for foreign exchange to be delivered in 3 days or more. In quoting the forward rate of currency, a bank will quote a bid & offer rate for delivery typically 1, 2, 3, or 6 months after transaction date.
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