Foreign Exchange refers to currencies and other instruments of payment denominated in other countries currencies.
TERMS AND DEFINITIONS
An Exchange rate can be defined as the number of units of one currency that must be given to acquire one unit of a currency of another country. It is the price paid in the home currency to purchase a certain quantity of funds in the currency of another country. It is therefore the link between different national currencies that makes international price and cost comparisons possible.
If the rate is quoted for current foreign currency transactions, it is called the spot rate. The spot rate applies to interbank transactions for delivery within two business days or immediate delivery for over-the-counter transactions that usually involve non bank customers.
If the rate is quoted for delivery of foreign currency in the future, it is called the forward rate. This is a contractual rate between the foreign exchange trader and the trader's client.
The spread in the spot market is the difference between the bid (buy) and offer (sell) rates quoted by the foreign exchange trader.
The forward spread is the difference between the spot and forward exchange rates.
The direct quote is the number of units of the domestic currency for one unit of the foreign currency.
The indirect quote is the number of units of the foreign currency for one unit of the domestic currency.
The cross rate is an exchange rate computed from two other exchange rates.