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Spot Transactions

How It Works


A spot FX transaction is an agreement between your company and Square 1 Bank to exchange a specific amount of currency for another at the prevailing market exchange rate.

Physical delivery of most currencies typically occurs two days after the trade date (t+2), often known as Value Date.

Example

XYZ Company purchases components from a Japanese supplier at a cost of JPY 9 million. The invoice is due in 30 days. 

XYZ Co: Buys JPY / Sells USD
Amount: JPY 9.0 MM
Spot Rate: 0.01087

Two days prior to the invoice due date XYZ Co will enter into a Spot transaction with Square 1 Bank where XYZ Co. will exchange 0.01087 USD per each JPY received. In this example XYZ Co will exchange USD 97,830 with Square 1 Bank and receive JPY 9.0 MM on Value Date to fulfill the invoice. 

Square 1 Bank can arrange drafts or wire payments for spot delivery at competitive rates to settle a company’s foreign currency payables. As well, a company’s foreign currency receivable payments may be directed through Square 1 Bank's network of correspondent banks for credit to a company’s US dollar account.

Considerations

  • Easily implemented for both foreign payables and receivables and remitting foreign balances.
  • Typically Spot trades are the most liquid and transparent of all foreign exchange market tools.
  • Immediately translates foreign currency balances to a client’s main operating currency allowing for higher productivity uses and advantageous interest rates.
  • Client remains exposed to fluctuations in exchange rates from the date of realization of the foreign liability or asset until the FX Spot trade date.

To learn more, please contact Stasia Harris , SVP, Treasury Management.