Given all the preset block time, could some one kindly advise how crypto exchanges go about handling the instant transfer of crypto pair between buyers and sellers? Do the trades and the change in cryptos as a result of the trades just resides on database server within the centralize exchanges?
This one should be pretty obvious. Those are off-chain transactions like johnn said above. You deposit your coins into the exchange and they set your account balance (in the database) to the equivalent amount. When you sell your coins, there is no on-chain transaction. They simple change a few values in their database (-BTC balance and +USD balance).
How does exchange go about handling withdraw from clients? Do they have hot wallet to keep a float to allow for instant withdrawal when requested? If that's the case, how can they ensure they don't over/underestimate the required float?
Usually they have a small amount in their hot wallet so they can handle daily withdrawals and the majority of the funds in a cold wallet. If they need more, they can simple fund more coins in the hot wallet.
E.g: Poloniex keeps over 90 of its customers funds in cold storage[1]
[1]
https://steemit.com/money/@ackza/ever-wonder-how-poloniex-and-coinbase-keep-most-of-their-customers-bitcoins-so-extremely-safe-in-cold-storage-here-are-some
