All the financial transactions of company are recorded in the form of journal entries in the books of accounts. Journal entries have two accounts namely debit and credit account so every business transaction is debited and credited as well. Only the transactions related to a business are recorded.
Foreign currency transaction:
It refers to all the international business activities carried out by a company or individuals of a domestic country that are denominated in the currency of another company of a foreign country. Hence, all the payments and receipts between domestic and foreign companies are carried out in the currency of that foreign company. It mostly involves purchase or sale of goods and services, loan payment or receipts in a foreign currency.
Forward contract:
It is a contract that is customizable by both the buyer and the seller. It is an agreement between a buyer and a seller where the buyer agrees to buy an asset at a fixed price in the future on a specific date and seller in turn agrees to pay at a fixed price in the future on a specific date.
Spot rate:
It is also called as spot price since the settlement is done on the spot. It refers to the current market price of any foreign or local currency that is traded at present. In simple words, the spot rate shows the supply and demand of a particular currency in the market for the buyers and sellers to trade. Spot rates have a tendency to change regularly and frequently.
Foreign Exchange Market:
It is a market where all the buyers and sellers engage in buying and selling of foreign currency units. This is where all the currencies of different countries are sold and purchased. The structure of the foreign exchange market includes importers and exporters, exchange brokers, commercial banks. Apart from buying and selling, the exchange of one currency for another currency also happens.
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