What is Foreign Currency Exchange?

Foreign currency exchange also abbreviating as Forex or FX is the conversion of currency of one country into another country’s currency.  In Foreign exchange markets, currencies are traded around the clock over the counter.


Foreign exchange transactions are currencies exchanged by a traveler or by any corporate making payments to financial institutions and governments across the world. Transactions could be made by individuals, corporate or institutions. Importers and exporters or anyone taking speculative positions with no underlying goods or services all transact with currencies. The number of transactions has increased in the recent decades.

Unlike equity and debt markets, the global Foreign Currency Exchange market is the largest and the most liquid financial market, having over trillions of dollars as average daily volumes. Foreign exchange transactions can be done for spot or forward delivery. They are executed over the counter (OTC) and around the clock and there is no centralized market for forex transactions. 

The largest foreign exchange markets are located in major financial centers like Sydney, Tokyo, Hong Kong, Singapore, Frankfurt, London, and New York. The market is open 24 hours a day, on all week days across the world in major financial centers. This means that one can buy or sell currencies at any time during the day. 

In a free economy, a currency is valued according to the laws of supply and demand in that country. In other words, a currency's value can be pegged to another country's currency, such as the US dollar, or even to a basket of currencies. A country's currency value may also be set by the country's government.

The major currency pairs are EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD, USD/CAD, NZD/USD, USD/CNY, USD/INR, etc.

In India, the US dollar is pegged against Indian rupee and thus USDINR is the exchange rate traded in the currency market which determines the rate at which one dollar is converted to rupees. Thus currency rate of USDINR 68.65 means, for every 1 USD, one gets INR 68.65

Read more about Import and Export Rate

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