Question

Choose the correct code for the following statements being correct or incorrect.

Statement I : FX Spot is an agreement between two parties to buy one currency against selling another currency at an agreed price for settlement on the spot date.

Statement II : The date of maturity of a forward contract is more than two business days in future. 

1. Both the statement I and II are correct.
2. Both the statement I and II are incorrect.
3. Statement I is correct, but II is incorrect.
4. Statement II is correct, but I is incorrect.

Answer 1

Correct Answer - Option 1 : Both the statement I and II are correct.

Statement I: FX Spot is an agreement between two parties to buy one currency against selling another currency at an agreed price for settlement on the spot date.

Explanation: 

1. A foreign exchange spot transaction, also known as FX spot, is an agreement between two parties to buy one currency against selling another currency at an agreed price for settlement on the spot date.
2. The exchange rate at which the transaction is done is called the spot exchange rate.
3. Thus, the statement I is correct.

Statement II: The date of maturity of a forward contract is more than two business days in the future. 

Explanation: 

1. A forward contract is a customized contract between two parties to buy or sell an asset at a specified price on a future date.
2. A forward contract or simply a forward is a non-standardized contract between two parties to buy or sell an asset at a specified future time at a price agreed on at the time of conclusion of the contract, making it a type of derivative instrument. 
3. The date of maturity of a forward contract is more than two business days in the future.
4.  Thus, statement II is correct.

Option 1 is the correct answer.