abhishreshthaa
Abhijeet S
A settlement of any transaction takes place by transfers of deposits between the two parties.
The day on which these transactions are effected is called the settlement date or the value date.
To effect the transfers, the banks in the countries of the two currencies involved must be open for business.
The relevant countries are called settlement locations. The location of the two banks involved in the trade is dealing locations, which need not be the same as the settlement locations.
When we talk about settlements, they are usually of the following types:
Cash – T + 0
Tom – T + 1
Spot – T + 2
Forward – T + n
Where T represents the current day when trading takes place and n represents number of days, usually after two business days but mostly at least after one month.
• Cash – Cash rate or Ready rate is the rate when the exchange of currencies takes place on the date of the deal itself. There is no delay in payment at all, therefore represented by T + 0.
When the delivery is made on the day of the contract is booked, it is called a Telegraphic Transfer or cash or value – day deal.
• Tom – It stands for tomorrow rate, which indicates that the exchange of currencies takes place on the next working day after the date of the deal, and therefore represented by T+ 1.
• Spot – When the exchange of currencies takes place on the second day after the date of the deal (T+2), it is called as spot rate. The spot rate is the rate quoted for current foreign – currency transactions.
It applies to interbank transactions that require delivery on the purchased currency within two business days in exchange for immediate cash payment for that currency.
• Forward – If the exchange of currencies takes place after a certain period after the date of the deal (more than two working days), it is called forward rate.
The forward rate is a contractual rate between a foreign – exchange trader and the trader’s client for delivery of foreign currency sometime in the future, after at least two business days but usually after at least one month.
Standard forward contract maturities are 1,2,3,6, 9, and 12 months.
The day on which these transactions are effected is called the settlement date or the value date.
To effect the transfers, the banks in the countries of the two currencies involved must be open for business.
The relevant countries are called settlement locations. The location of the two banks involved in the trade is dealing locations, which need not be the same as the settlement locations.
When we talk about settlements, they are usually of the following types:
Cash – T + 0
Tom – T + 1
Spot – T + 2
Forward – T + n
Where T represents the current day when trading takes place and n represents number of days, usually after two business days but mostly at least after one month.
• Cash – Cash rate or Ready rate is the rate when the exchange of currencies takes place on the date of the deal itself. There is no delay in payment at all, therefore represented by T + 0.
When the delivery is made on the day of the contract is booked, it is called a Telegraphic Transfer or cash or value – day deal.
• Tom – It stands for tomorrow rate, which indicates that the exchange of currencies takes place on the next working day after the date of the deal, and therefore represented by T+ 1.
• Spot – When the exchange of currencies takes place on the second day after the date of the deal (T+2), it is called as spot rate. The spot rate is the rate quoted for current foreign – currency transactions.
It applies to interbank transactions that require delivery on the purchased currency within two business days in exchange for immediate cash payment for that currency.
• Forward – If the exchange of currencies takes place after a certain period after the date of the deal (more than two working days), it is called forward rate.
The forward rate is a contractual rate between a foreign – exchange trader and the trader’s client for delivery of foreign currency sometime in the future, after at least two business days but usually after at least one month.
Standard forward contract maturities are 1,2,3,6, 9, and 12 months.