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Definition and explanation of foreign Exchange rate? What is Spot rate and hedging? Exchange rate effects on business?



Exchange rate =
It can be defined as the value of currency of one country comparing with the value of the currency of other country for the purpose of conversion between them.
Difference between foreign currency and exchange rate =
Foreign currency is that with which transaction is made within a country, every country has its own special currency which is used within a country by general public. However Exchange rate is that value of other country’s currency which can be measured with the value of our country which is also known as translation.
In simple words foreign currency is used within a country and to measure the value of other country’s currency in order to do business.
Foreign Exchange Market =
It is that market through which we can easily avail foreign currency. Anyone can easily get detail of the spot rate of foreign currency, exchange rate movements, profits and losses associated with the currencies of different countries of the world.
What is spot rate?
Spot rate is the rate of foreign currency of today’s date. That means the exchange rate which is available today.
Fluctuation in Exchange rates =
Everyone knows that not every day is the same day similarly Exchange rate fluctuates regularly it moves upward as well as downward according to the economic situation of the country. So many people in order to save them from loss uses different techniques which is somehow helpful.
Hedging
It is the process of minimizing risk of exchange rate losses by using forward exchange rates to deal with the changes come from the spot rate.


The following Five ways are used in order to prevent risk of Loss:
These steps are used according to the suitability of the businessmen and investors.
  1. One can open account in foreign country and deposit the currency of that country for future use.
  2. Or anyone can have required amount of foreign currency.
  3. Do business transactions with the foreign country when their currency value move downward which is sometime difficult to implement.
  4. One more way is that you can asked them to pay in your currency in order to avoid from exchange rate losses because of fluctuation.
  5. You can also request the businessmen to get payment later via agreement in order to avoid losses from exchange rate movement. 

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