The formula to calculate the spot rate (SR) is:
\[ SR = \frac{FP}{(1 + r)^t} \]
Where:
A spot rate, also known as the "spot price," is the current market price at which a particular asset, such as a security, commodity, or currency, can be bought or sold for immediate delivery and payment. It reflects the value of an asset at a specific point in time and can fluctuate based on supply and demand dynamics in the market.
Spot rates are used in financial markets for trading purposes and are also used to calculate forward rates and future cash flows.
Let's assume the following values:
Using the formula to calculate the spot rate:
\[ SR = \frac{1000}{(1 + 0.05)^2} \approx 907.03 \text{ $} \]
The Spot Rate (SR) is approximately $907.03.