Foreign Exchange

Foreign exchange (forex or FX) is the purchase or sale of one currency for another.

People and businesses have been exchanging currencies as long as currencies themselves have existed. Nowadays, businesses buy or sell foreign currencies electronically. Banks or other financial service providers quote the exchange rates at which they can buy/see foreign currencies that are delivered in an electronic format.

Free markets drive the exchange rate levels which fluctuate freely for the most popular currencies used in global trade. Numerous factors drive exchange rate fluctuations – from monetary policies to foreign investors’ appetites and trade imbalances between countries, to name a few.

Various FX market participants contribute to the supply and demand of currencies, and the transactions they conduct ultimately determine rates in the foreign exchange market.

As exchange rates fluctuate, the value of invoices, orders, or future payments in foreign currencies changes in terms of what they are worth in your home currency. These fluctuations generate currency exposures, costs and risks that can all be managed.