In Finance there is an exchange rate that is applied between two independent countries, which ultimately states how much of one unit of currency in a specified country is worth compared to another unit of currency. Exchange rates are a vital part of international trade, because we need a determinant of purchasing power in a foreign market. The exchange rate is that determinant or more a like a guideline to show how much power one currency has in another currency’s market, it levels the playing ground. Currencies are floating constantly every day. For example, today the British pound compared to the United States dollar is quoted at $1.6347/£, and this quote shows that it takes $1.6347 to buy or exchange for £1. What is this quote referred to as? Well this specific quote would be referred to as the spot exchange rate for the British pound compared to the United States dollar. Spot exchange rate merely suggests the quoted price traded today, compared to a forward exchange rate. To classify a spot exchange rate the transaction must be immediate and recorded within two business days. The forward exchange rate on the other hand is more of a contract. These contracts consist of agreements between the buyer and seller such as: a specified amount of currency against another currency, a specified future date, and a fixed exchange rate. The spot and forward exchange rates are a huge part of the currency market in helping corporations who conduct business oversees to hedge against potential losses from converting currencies.