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June 14, 2026
The Dispatch

Definition

Spot vs Forward Exchange Rate

The spot rate is the price for settling a currency trade in the next two business days, while the forward rate is the agreed price today for delivery on a future date.

When you book USDINR at the spot rate, settlement happens on T+2. A forward rate locks in a price for delivery weeks or months later, so an importer who must pay dollars in 90 days can fix the cost today and remove uncertainty.

In India, forward rates trade at a premium to spot because Indian interest rates are higher than US rates, so the rupee is expected to depreciate over time. This forward premium is quoted in paise per dollar and reflects the interest rate differential, not a forecast of where the rupee will actually go.

Exporters and importers use authorised dealer banks to book forwards under RBI's hedging framework. The gap between spot and forward is the cost of carry for a currency position.

Related terms

  • Forward Premium / DiscountA currency trades at a forward premium when its forward rate is higher than spot, and at a discount when lower, driven mainly by the interest rate gap between the two countries.
  • USDINRUSDINR is the exchange rate of the US dollar against the Indian rupee, the most-watched currency pair in India and a key barometer of capital flows and import costs.
  • Covered Interest Rate ParityCovered interest rate parity holds that the forward exchange rate must offset the interest rate gap between two currencies, otherwise risk-free arbitrage would be possible.
  • Hedging Forex RiskHedging forex risk means using forwards, futures, options or swaps to lock in or limit the exchange-rate cost of future foreign-currency cash flows.

Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.