What Is Spot Rate And How Is It Calculated?

By Remitbee - Apr 3, 2019

“That has something to do with exchange rates, right?”

It’s not the first time we’ve heard this at Remitbee Online Money Transfer. The spot rate is essential to understanding exchange rates and online remittances… but it’s not the most interesting thing to read about.

When you’ve spent all day at work and you want to spend those last hours with your family, learning spot rate is the last thing on your mind.

So, here’s our quick guide to understanding what spot rate is, so you can get on with your online money transfer as quickly as possible!

What Is Spot Rate?

Think of it as the exchange rate “on the spot”. The exchange rate at the exact moment you decide to send money.

Here’s an example.

Say you want to send dollars to India. First, you check the exchange rate from CAD to INR. But the exchange rate is fluctuating as markets and demand for a currency change. These changes are tracked by banks and financial institutions (read more about how below).

When you click to get your exchange rate, you get the spot rate for that second. It’s also called the spot price.

So, the spot rate ensures that even though the currency exchange is always fluctuating, you get the spot price you agreed at the moment you clicked to send an online money transfer.

The Remitbee exchange rate is fixed with a daily spot rate. That means you don’t have to sit watching minute numbers fluctuate all day waiting for the best moment.

Today 2nd January 2019, for example, the rate is 1 CAD = 50.90 INR to send dollars to India.

How Does Spot Rate Effect My Online Money Transfer?

In most cases, the spot rate doesn’t have much of an effect. Unless something disastrous or miraculous happens to an economy, the exchange rate won’t change a significant amount from one minute to the next.

So, why use a daily spot rate instead of a live spot rate that changes every minute or second?

The answer: because it’s simpler and allows you to calculate your online remittance and any fees payable very quickly.

Convenience is a huge part of what we do!

How Spot Rate Is Calculated

Most businesses calculate their daily spot rate at a fixed time. For example, we could set the spot rate at 00:01 a.m., so whatever the exchange rate is at that moment is the same until 00:01 a.m. the next day.

This makes the Remitbee exchange rate much more reliable and easier to calculate… for you and us!

But how do they calculate the exchange rates, to begin with?

That’s a little more complex, but it all comes down to demand for a currency. Higher demand = higher cost.

If we use us ‘I want to send dollars to India’ example, and you need to spend money on the day of the Indian general elections, you might find that this changes the exchange rate.

If the financial institutions and banks all over the world think that this election is going to strengthen the Indian economy, the Indian rupee will get stronger. As a result, you’ll get less INR for every CAD you send. And vice versa.

But there’s no need to research economies to work out an exchange rate! Just head to Remitbee to check the exchange rates. Now you can do your online money transfer in a matter of seconds.

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