Using Appropriate Evidence

Introduction

Melvin and Stefan (2013) believed that International finance is one of the growth areas of the finance and economics curricula, and the financial marketplace become more and more global. As the a large number of similar industries and multinational firms appeared, therefore, the market economy and finance mushroom growth, the market situation and currency rate changed every second, for those reasons, traders and investors have been using many trading tools in whole globe market. There are many trading tools usually have been used in the globe market trading, such like spot trading, forward trading and option trading as well. The forward market and spot market have a very special relationship. In this report, it will define forward rate market and sport rate market at first, secondly, it will discuss the relationships and using examples and evidences to analysis, proof forward market is an unbiased predictor of the spot market; finally, it will discuss some disadvantages from forward and spot market.

There an exchange rate which is the ratio between one unit of currency to another unit of currency, which means that an exchange rate is built by different currencies to promote inter-country trades? The exchange rate is undulate every hour of every business day, for this reason, the firms and traders are enslaved to exchange rate undulate risk. Therefore, the Spot exchange and Forward exchange are very important in a foreign exchange market.

Spot Market

Dun& Bradstreet (2007) consider that Spot market is the market where transactions are conducted for spot delivery of currencies, which means that spot trade is the exchange of one currency for another currency fixable and immediately. On other hand, the spot exchange rates are the rates that are applicable for buy and sale of foreign exchange on spot delivery basis or immediate delivery basis. The spot rates include two rates for a currency, which are bid and offer. Dun& Bradstreet (2007) also suggest that the bid and offer can be understood as buy and sell as well, and bid quite is the price at which the exchange dealer agrees to but the currency and the sell quote indicates the price at which the dealer agrees to sell the currency, the direct quotes and indirect quotes are two ways that the quotations are expressed. For example,

U.S. $ equivalent Foreign currency per U.S.$

bid offer bid offer

BP£ 1.4365 1.6451 0.6961 0.6078