Foreign Exchange FAQ & Glossary

Currency FAQs

How do I buy and sell foreign currency?
How can I avoid currency fluctuation?
What is a Forward Contract?
Why are Forward Contracts used?
Should I buy or sell on specific days of the week?
Why do currency trading companies offer different rates than those published in the UK newspapers?
What is the effect of interest rate changes on currency values?
Can you explain how currency exchange and currency speculation differ?
What is a spot transaction?
Are Spot prices the same as Forward prices?

The settlement and arrangement of funds traded around the world is known as foreign exchange.  You buy and sell currencies by placing an order with a foreign exchange service such as Cambridge Mercantile. Trillions of British Pounds, Euro and Dollars are exchanged daily by thousands of banks and foreign currency traders all over the world.

How can I avoid currency fluctuation?

The most effective way to minimize currency instability is through the purchase of foreign currency Forward Contracts. They enable you to get a guaranteed exchange rate. Then you can use these forward contracts to make your International payments over a series of dates in the future.

What is a Forward Contract?

A Forward Contract is an agreement between currency traders to buy or sell currencies at a future date, possibly as far as one year. Traders agree to deliver currencies for settlement at least three days later, at predetermined exchange rates. This type of transaction is often used by businesses to reduce their exchange rate risk.

Why do people use Forward Contracts?

By buying or selling (forward contracts) in the forward market, one can protect the present value of a particular currency from exchange rate volatility. You lock in today's exchange rate instead of a volatile currency exchange rate in the future that could significantly devalue your purchasing power.

Should I buy or sell on specific days of the week?

The answer could be yes or no depending on circumstances. Today's international currency marketplace operates around the clock and this tends to equalize demand and currency supply throughout the day. Of course, you may enjoy an advantage in trading on a particular day of the week if the rate is in your favour. For example, your personal trader may suggest not buying or selling at the beginning of the week such as on a Monday. They may advise you to wait until the end of the week since the currency rates may be in your favour by the end of the week (e.g. Friday). In this scenario, it may be in your favour to trade on a specific day of the week. Having your own personal currency trader can be very helpful in this regard especially if you keep in touch with him or her regularly.

Why do currency trading companies offer different rates than those published in the UK newspapers?

Foreign currency exchange rates published in newspapers are from international wire services, based on the dealing price, usually of the preceding day. With currencies being traded online 24 hours a day the newspaper rates will always be unreliable and out of date. Rely on our account representatives for reliable currency rate quotes.

What is the effect of interest rate changes on currency values?

In search of superior returns, foreign investors know that higher interest rates attract investment and therefore increase the flow of money into a country. The resulting flow of money in or out of that country's economy will raise or lower the value of that country's national currency.

Can you explain how currency exchange and currency speculation differ?

Currency speculation is a profitable activity for some. You may have heard it called day trading, and it is all about making a quick profit. The currency speculator is actually willing to take risk on currency trading values and some may lose millions of dollars in speculative trading. Cambridge Mercantile does not do currency speculation. As a commercial client this is the exact type of risk you want to avoid.  Cambridge Mercantile exchanges currency - Foreign Exchange. We help you control the risk associated with exchanging one currency for another at any point in time. Since we 'buy and sell' currencies for our clients on such a large scale, we can offer better exchange rates to you.

What is a spot transaction?

An agreement to buy or sell currency at the current exchange rate is known as a spot transaction. Generally, spot transactions are undertaken for an actual exchange of currencies and delivered or settled within two business days.

Are Spot prices the same as Forward prices?

Usually, they are not the same. Theoretically, a spot price could be the same as a forward price, however, interest rates affect both uniquely. The interest rates applicable to different currencies usually varies.  A Forward price could be lower or higher than (at a premium or discount to) a spot rate.

CambridgeFX UK can obtain the lowest foreign exchange rates, whether in Euros, Pounds, Francs or US dollars. You'll receive friendly, efficient foreign exchange services including money transfers, account management information, and transaction reporting. Are you purchasing Spanish properties and need fast, secure transfer of your funds from Britain to Spain? Our UK or Spanish traders are ready to help you with this transaction.