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What is a spot currency contract?

Currencies Unplugged
Merk Mutual Funds sheds light on key concepts relating to the currency market.

Can any currency be converted into any other currency?

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The process to purchase a currency through a spot currency contract is no different than buying a security, say, for instance, IBM, on an exchange. When you buy shares of IBM, you agree to pay a certain amount of U.S. dollars for an agreed upon number of shares today, and the transaction is typically settled in three business days (i.e. you transfer the funds and receive the shares three business days from today). Similarly, when you buy a currency you can enter into a spot currency contract today, where you agree to pay a certain amount of U.S. dollars in exchange for an agreed amount of currency, with settlement of the trade typically in two business days (i.e. you pay for the currency and take delivery of the currency in two business days).

The Merk Hard Currency Fund has historically gained currency exposures through the use of spot currency contracts.

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