The market price is called the forward rate . The main social use of the forward market is to allow exporters and importers to hedge. The spot rate and forward rate are usually not the same. In other words, a positive difference between the forward rate and the spot rate is called a forward premium, and a negative difference is called a forward discount. The value of the fixed exchange rate is called the parity .
Central banks use their foreign exchange reserves to smooth temporary excess demand conditions.
One method for coping with excess demand for foreign currencies is to restrict purchases of foreign currencies. Usual practice is to allocate licences for purchasing foreign exchange. The formation of a black market is almost inevitable. This ensures, as we have seen, market consistency. The profits made from arbitrage can be rationalized as the cost of organizing markets and ensuring the flow of information.