What is Foreign Exchange?
Foreign exchange refers to foreign currency. For example, for an Indian resident Indian rupee(₹) is a domestic currency that can be used as a medium of exchange in India. But the Indian rupee (₹) can not be used as a medium of exchange outside India. The currency used in other countries is treated as foreign currency for India. Therefore, in the case of international transactions, the domestic currency is converted into foreign currency. For example, if a person visits New York for vacation, he/she can not use the Indian rupee (₹) in New York for economic transactions. The person has to convert the Indian rupee into US Dollars ($), only then he/she can stay there. For that reason, it is important to know at what price domestic currency can be converted into foreign currency. This price is known as the exchange rate. The market in which domestic currency is traded for others is the “Foreign Exchange Market”.
Foreign Exchange Rate:
“The rate at which the domestic currency can be exchanged for the foreign currency is known as Foreign Exchange Rate“.
The foreign exchange rate is the price paid in the domestic currency (₹) for buying a unit of foreign currency. It links the currencies of different countries and enables the comparison of international prices. For example, to buy a unit of $(dollar), if you have to pay ₹60, then the exchange rate is ₹60 per dollar. It can be written in the form; of $1=₹60.
Table of Content
- Determination of Foreign Exchange Rate
- Changes in Exchange Rate
Contact Us