An exchange of one (domestic) currency with other (international) currency is called foreign exchange and the rate at which one currency is exchange with another is called as foreign exchange rate.
There are two main types of foreign exchange transactions: spot and forward. Spot transactions involve the exchange of currencies for immediate delivery, while forward transactions involve the exchange of currencies at a predetermined rate on a future date.
Foreign exchange rates are affected by a variety of factors, including economic conditions, interest rates, inflation, and political stability.
With the increase of international trade (and even capital) there is a need to measure the value of the currency of one country (or region) with other country’s currency.
Foreign exchange can be purchased from any authorized dealer (banks). Besides authorized dealers, full-fledged money changers are also permitted to release exchange for business and private visits.
It is a global decentralized market for the trading of currencies. It assists international trade and investments by enabling currency conversion .
It is the world largest market with a trading volume of $ 7.5 trillion per day, operating 24 hours a day. It starts trading at the Sydney open on Sunday at 5 PM EST and then trade until 5 PM EST on Friday when the market in New York closes. The London is the biggest center with market share of 38% and USD is the far most actively traded currency, as one currency in the case of 88% trade.
The main risk associated with foreign exchange is the risk of currency fluctuations. If the value of one currency declines against another, investors can lose money.
