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Portfolio Representations by Jem Tugwell

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CHAPTER 5. Currency

5.1 Spot FX

5.1.1 Introduction

A spot FX transaction is the purchase or sale of one currency for another for cash settlement. The exchange rate of the transaction is called the spot rate. The spot rate is agreed on the trade date, with cash settlement on the spot value date, which is usually two business days after the trade (T+2). The period between trade date and settlement date allows for deal confirmations and instructions to complete.

The T+2 rule is applied to business days in both countries of the currencies involved. Therefore a trade will not settle on a weekend, or on a non-business day, in either currency. In this case the settlement date is adjusted to be the next day that is a business day in both countries. ...

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