Foreign Exchange Basics

In very simple terms, foreign exchange refers to all currencies in the world, except the local currency in use in one’s own country. It includes all payment instruments like paper notes, checks etc that are used to pay dues to other countries. Foreign exchange is also used for transactions in international monetary business between companies belonging to different countries or governments, and also for a simple exchange of one currency for another. When any tourist or businessman steps beyond his own country to enter a new one, he needs access to funds in the visiting country’s currency. Therefore, he will have to exchange his own currency for that of another country, which is done at a specific rate determined by market forces and international monetary authorities.