Forward rates can be defined as a fixed price given for buying a currency today to be delivered in the future, for example in three months' time, used in international trade to avoid the extra costs that could occur if the exchange rate changes the way the market is feeling about the future movements of interest rates. Spot exchange rates: Also known as "benchmark rates", "straightforward rates" or "outright rates", spot rates represent the price that a buyer expects to pay for a foreign currency in another currency. Spot rates use prices of the securities currently trading on the market. Though the spot exchange rate is said to be settled immediately, the globally accepted settlement cycle for foreign-exchange contracts is two days. Foreign-exchange contracts are therefore settled on the second day after the day the deal is made. The difference between the spot and the forward price is the forward premium or forward discount, generally considered in the form of a profit, or loss, by the purchasing party. Here is an example to better understand forward and spot exchange rates: even if you know tomatoes are cheap in July and will be expensive in January, you can't buy them in July and take delivery in January, since they will spoil before you can take advantage of January's high prices. The July price will reflect tomato supply and demand in July. The forward price for January will reflect the market's expectations of supply and demand in January. July tomatoes are effectively a different commodity from January tomatoes

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