The foreign exchange market is where currencies are traded. Currencies are important because they allow us to purchase goods and services locally and across borders. International currencies need to be exchanged to conduct foreign trade and business. If you are living in the United States and want to buy cheese from France, then either you or the company from which you buy the cheese has to pay the French for the cheese in euros (EUR). This means that the U.S. importer would have to exchange the equivalent value of U.S. dollars (USD) for euros. The same goes for traveling. A French tourist in Egypt can’t pay in euros to see the pyramids because it’s not the locally accepted currency. The tourist has to exchange the euros for the local currency, in this case the Egyptian pound, at the current exchange rate. 

What is the form of exchange rate, in which delivery of currency happens on the same day, known as?

Spot market

The correct answer is option 1: Spot market

Spot market: This is where currencies are bought and sold for immediate delivery. Transactions are executed at the current exchange rate, which is known as the spot rate.