foreign exchange

(noun)

The changing of currency from one country for currency from another country.

Related Terms

Examples of foreign exchange in the following topics:

  • International Exchange of Money

    • The foreign exchange market is a form of exchange for international currencies that determines the relative values of different currencies.
    • In finance, an exchange rate (also known as the foreign-exchange rate, forex rate or FX rate) between two currencies is the rate at which one currency will be exchanged for another.
    • The foreign exchange market (forex, FX, or currency market) is a form of exchange for the global decentralized trading of international currencies.
    • The foreign exchange market determines the relative values of different currencies.
    • The foreign exchange market assists international trade and investment by enabling currency conversion.

  • Introducing Exchange Rates

    • In finance, an exchange rate (also known as a foreign-exchange rate, forex rate, or rate) between two currencies is the rate at which one currency will be exchanged for another.
    • Exchange rates are determined in the foreign exchange market, which is open to a wide range of buyers and sellers where currency trading is continuous.
    • The spot exchange rate refers to the current exchange rate.
    • The buying rate is the rate at which money dealers will buy foreign currency, and the selling rate is the rate at which they will sell the currency.
    • Explain the concept of a foreign exchange market and an exchange rate

  • A Central Bank Intervenes with its Currency Exchange Rate

    • Foreign-exchange market is the largest international market in the world.
    • When a central bank tries to control the foreign-exchange rate of its currency, economists call this foreign-exchange market intervention.
    • Treasury Department intervene in the foreign-exchange markets, manipulating the U.S. dollar exchange rate.
    • If the Fed let these foreign exchange transactions change the monetary base, then we call this unsterilized foreign-exchange intervention.
    • The Federal Reserve can prevent changes to the monetary base, when it influences the U.S. dollar exchange rates, called sterilized foreign-exchange intervention.

  • Types of Exchange Hedges: Forward, Money Market, and Future

    • Foreign exchange of currencies are among the more common money market instruments, exchanging a set of currencies in a spot date and the reversal of the exchange of currencies at a predetermined time in the future.
    • The most common use of foreign exchange swaps occurs when institutions fund their foreign exchange balances.
    • A foreign exchange swap consists of two legs: a spot foreign exchange transaction and a forward foreign exchange transaction.These two legs are executed simultaneously for the same quantity, and therefore offset each other.
    • Once a foreign exchange transaction settles, the holder is left with a positive (or long) position in one currency, and a negative (or short) position in another.
    • The exchange rate of GBP/ USD decreased from 1985 to 1987.

  • Global finance: initial considerations

    • The price of one country's currency in units of another country's currency is known as a foreign currency exchange rate.
    • If an exchange rate is an indirect quote, the exchange rate is stated as the number of foreign units per one unit of domestic currency (Beenhakker, 2001).
    • The foreign exchange (Forex) market is the mechanism, which facilitates the purchase and the sale of foreign currencies.
    • Currency risk is the potential consequence from an adverse movement in foreign exchange rates (Coyle, 2000).
    • Companies will as a result suffer losses due to adverse exchange rate movements when exposed to foreign currencies (Coyle, 2000).

  • Types of Exchange Exposure: Short-Run, Long-Run, and Translation

    • A firm has transaction exposure/ short-term exposure whenever it has contractual cash flows (receivables and payables) whose values are subject to unanticipated changes in exchange rates due to a contract being denominated in a foreign currency.
    • To realize the domestic value of its foreign-denominated cash flows, the firm must exchange foreign currency for domestic currency.
    • As firms negotiate contracts with set prices and delivery dates in the face of a volatile foreign exchange market with exchange rates constantly fluctuating, the firms face a risk of changes in the exchange rate between the foreign and domestic currency.
    • As all firms generally must prepare consolidated financial statements for reporting purposes, the consolidation process for multinationals entails translating foreign assets and liabilities or the financial statements of foreign subsidiaries from foreign to domestic currency.
    • Translation gives special consideration to assets and liabilities with regards to foreign exchange risk, whereas exposures to revenues and expenses can often be managed ex ante by managing transactional exposures when cash flows take place.

  • Exchange Rate Systems

    • An exchange rate regime is how a nation manages its currency in the foreign exchange market.
    • A floating exchange rate, or fluctuating exchange rate, is a type of exchange rate regime wherein a currency's value is allowed to fluctuate according to the foreign exchange market.
    • To ensure that a currency will maintain its "pegged" value, the country's central bank maintain reserves of foreign currencies and gold.
    • They can sell these reserves in order to intervene in the foreign exchange market to make up excess demand or take up excess supply of the country's currency.
    • In dealing with external pressure to appreciate or depreciate the exchange rate (such as interest rate differentials or changes in foreign exchange reserves), the system can meet frequent but moderate exchange rate changes to ensure that the economic dislocation is minimized.

  • Foreign Exchange Rates

    • Foreign-currency exchange market is traders exchange currency of one country for another country's currency.
    • Finally, international investors invest in foreign countries, seeking greater profits in foreign countries.
    • Foreign exchange market is the largest market in the world, and traders exchanged nearly $3.2 trillion daily in 2007.
    • Foreign exchange market has retail and wholesale markets.
    • Supply and demand analysis for foreign currencies assumes no government interference and flexible exchange rates.

  • Exchange Rates

    • The price of one country's currency in units of another country's currency is known as a foreign currency exchange rate.
    • A foreign currency exchange rate between two currencies is the rate at which one currency will be exchanged for another.
    • Exchange rates are determined in the foreign exchange market.
    • Exchange rates can be quoted in two ways: (1) A direct quote, is to state the number of domestic units of currency per one unit of foreign currency; (2) If an exchange rate is an indirect quote, the exchange rate is stated as the number of foreign units per one unit of domestic currency.
    • A currency pair is the quotation of the relative value of a currency unit against the unit of another currency in the foreign exchange market.

  • Fixed Exchange Rates

    • A fixed exchange rate is a type of exchange rate regime where a currency's value is fixed to a measure of value, such as gold or another currency.
    • This is one reason governments maintain reserves of foreign currencies.
    • If the exchange rate drifts too far above the desired rate, the government sells its own currency, thus increasing its foreign reserves.
    • This method is rarely used because it is difficult to enforce and often leads to a black market in foreign currency.
    • China is well-known for its fixed exchange rate.