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Definition

Spot Market Time Zones

Although foreign exchange trading is conducted only during normal business hours in a given location, these hours vary among locations due to different time zones. A bank is ready and open to accommodating foreign exchange requests from anywhere around the world at any time on a weekday. Foreign exchange transactions become smooth and easier through the spot market time zones.

Foreign currency transactions are carried on computer terminals with the newest electronic devices and just a push of or click on a button completes the trade. Now traders use electronic trading boards allowing them to register transactions instantly and check the positions of their bank in different currencies.

In the United States, when the foreign exchange market starts, the exchange rate quotations open according to the prevailing quotation rates of banks in London and other locations, where the markets have started earlier. For instance, the British pound’s spot rate was $2.00 at the U.S. foreign exchange market’s previous close but, by this time the U.S. market opens the next day, the spot rate is $1.80. Events taking place before the U.S. foreign exchange market opened could have altered the demand and supply situations for British pounds in the London market, decreasing the quoted price for the pound.

The above problem mentioned in the given example can be solved with the application of spot market time zones. Several banks have started night trading desks for capitalizing on overnight foreign exchange fluctuations and for accommodating corporate requests for foreign exchange transactions. Thus, spot market time zones play an important role in foreign exchange transactions.

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