All countries around the world have their own currency such as the UK pound, the US dollar and Japan yen, all of them are required as method of payments for services and goods in the boundaries of each country. However with globalization, increasing more people has been traveling all over the world and will be involved in trade. As a result, foreign exchange will be necessary in order to make payments for products and services amongst different countries.
Therefore, this created a need for some kind of system that would provide easy access to foreign currencies and merchants can accept it as a method of payment, which is the forex market or foreign exchange.
To put it in simpler terms, foreign exchange will be required for trade amongst different countries. Whilst trading across borders, a person would have to exchange his own currency to the currency for the country that he is trading with, so he would need to get foreign exchange. It’s a common for people to look at foreign exchange only when they referring to money used on holidays overseas or in tourism.
When on holidays, we have to exchange currency at holiday destinations to pay restaurant bills, shop for souvenirs and taxi fares. However the simple truth is that, foreign exchange will not be focused on small amount of funds exchanged by travelers on vacations, but will be more involved with huge amount of money traded between countries, like millions of US dollar exchanged when somebody from US purchase a business overseas.
In addition, this is not just about cash which is used in a transaction. Currency exchange includes transactions in the form traveler’s checks and credit cards. To be exact, foreign exchange will be any kind of negotiable instrument that is denominated in any currency besides US dollar. It is best to remember that currency exchange will be more about large amount of transactions amongst two different nations. For instance, let’s say that a banking institution in America wants significant amount of Japanese yen in order to transact business and the other way around. Foreign Exchange
Nowadays thanks to accessibility to foreign currency or forex, increasingly more small investors in addition to big traders are also getting into international trade and generating huge profits because the rates for exchanging currencies in different countries continue to increase and decline against one another. As a result, foreign currency plays an important role in modern day economy around the world helping to make our lives much easier and better.