And forward exchange markets

Spot and forward-exchange markets. Currencies may be bought and sold in the foreign exchange

market either “spot” or “forward.” In the former case the transaction takes place immediately, and it

Is in this market that exchange rates are kept at their managed levels by government intervention. In

The forward-exchange market, currencies are bought and sold for transacting at some future date, i.e.

in three months or six months’ time. The difference between the “spot” rate of exchange and the

“forward” rate is determined by the rate of interest and the exchange risk; that is, the possibility of

Appreciation or depreciation of the currencies transacted. Therefore, the size of the premium or the

discount of, for instance, “forward” sterling compared with “spot” sterling indicates the strength of

the market’s expectation of an appreciation or depreciation of sterling and its extent.

Finally, let us discuss international currency liquidity. From the point of view of world economy,

mternational currency liquidity is of primary importance. What is the international currency liquidity?

The international liquidity consists of the total of gold and foreign exchange reserves and special

Drawing rights of all countries, that is, the amount of gold, reserve currencies and special drawing