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What is the difference between the Spot Exchange Market and the Forward Exchange Market? Who are...

What is the difference between the Spot Exchange Market and the Forward Exchange Market? Who are the participants in the Forward Exchange Market and for what reason/purpose does each of these parties participate in the Forward Exchange Market?

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The spot exchange market is where investors can buy and sell securities in cash and for delivery. The forward exchange market, on the other hand, is the one where investors, traders and speculators transact for buying/ selling a particular financial product or instrument in the future.

The participants in the forward markets are big banks, institutional investors, investment banks, etc. The forward market is an Over the counter party market and has substantial counterparty risk due to absence of a central clearing member.

The reasons for entering into transactions in the forward market are many:

1: Customized contracts to reduce basis risk

2: Hedging exposure to certain asset

3: Entering into speculative long-short transactions

4: Creating innovative financial intruments such as CDS and interest rate/ currency swaps

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