Finance Essays – Foreign Exchange Currency

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Foreign Exchange Currency

The term foreign exchange is normally used to denote foreign currency surrendered or asked for in any of its current forms, i.e. a currency note or a negotiable instrument or transfer of funds through cable or mail transfer or a letter of credit transaction requiring sale and purchase of foreign exchange or conversion of one currency into another, either at the local center or an overseas center. The banks, dealing in for exchange and providing facilities for conversion of one currency into another or vice versa are known as Authorized Dealers or Dealers in Foreign Exchange.

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A bank is said to buy or sell foreign exchange when it handles the claims drawn in foreign currency or the actual legal tender money, i.e., foreign currency notes and coins of other countries. The theory of Foreign exchange covers different means and methods by which the claims expressed in terms of one currency are converted into another currency and specifically deal with the rates at which such conversion takes place. With partial or complete exchange control, as exercised by countries since World War II exchange markets are no longer free. Exchange rates today are not entirely determined by market forces but are officially fixed and maintained by Central

  • Forex Markets

The foreign exchange market, like the market for any other commodity, comprises of buyers and sellers of foreign currencies. The operations in the foreign exchange market originate in the requirements of customers for making remittances to and receiving them from other countries. But the bulk of transactions take place among banks dealing in foreign exchange for their own requirements as they do cover operations. Banks undertake large and frequent deals with other banks through the agency of Exchange Brokers, and it is these deals which give the market its significance. In addition, there are other transactions which take place in the foreign exchange market. All transactions of the exchange market may be divided into five categories:

  • Transactions between banks and their customers.
  • Transactions between different banks in the same centre.
  • Dealings between banks in a country and their correspondents, and overseas branches.
  • The purchase and sale of currencies between the central bank of a country and the commercial banks.
  • The transactions of the central banks of one country, with central banks of other countries.

There is not much difference between one market and another as far as the international transaction between markets at different centres is concerned. But local dealings, among members of the same market are organized in two different forms. One of them is the pattern adopted in Great Britain, U.S.

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