A spot transaction is an agreement to buy or sell currency with immediate delivery. In practice, this means that the currency amount is delivered two banking days after the date of the transaction.
A spot transaction enables you to cover your currency requirement as soon as the need arises.
You can benefit from a rise in the exchange rate (when selling currency) or a fall in the rate (when buying currency), right up until the point of exchange.
However, one important limitation when conducting spot transactions is that the company does not know the exchange rate before the point at which the transaction is carried out, which can make long-term planning and income and expenditure budgeting difficult.
Spot exchanging is not the same thing as hedging. It should therefore be seen as one aspect of your overall currency strategy.
