foreign exchange

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foreign exchange,

methods and instruments used to adjust the payment of debts between two nations that employ different currency systems. A nation's balance of paymentsbalance of payments,
balance between all payments out of a country within a given period and all payments into the country, an outgrowth of the mercantilist theory of balance of trade.
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 has an important effect on the exchange rate of its currency. Bills of exchange, drafts, checks, and telegraphic orders are the principal means of payment in international transactions. The rate of exchange is the price in local currency of one unit of foreign currency and is determined by the relative supply and demand of the currencies in the foreign exchange market. Buying or selling foreign currency in order to profit from sudden changes in the rate of exchange is known as arbitrage. The chief demand for foreign exchange within a country comes from importers of foreign goods, purchasers of foreign securities, government agencies purchasing goods and services abroad, and travelers. Exchange rates were traditionally fixed under the gold standard and later by international agreements, but in 1973 the major industrial nations of the West adopted a system of "floating" rates that allowed for fluctuation within a limited range. The currencies of Western nations are generally allowed to fluctuate freely, although central banks will intervene in the foreign exchange markets in an attempt to control excessive or undesirable appreciation or depreciation.


See S. W. Arndt et al., ed., Exchange Rates, Trade and the U.S. Economy (1985); N. Abuaf and S. Schoess, Foreign-Exchange Exposure Management (1988).

References in periodicals archive ?
According to the CBE's letter, each bank should work to arrange credit facilitations in foreign exchange with correspondents abroad to finance letters of credit, and work to increase their resources of foreign exchange.
While National Bank Governor Dimitar Bogov said he expected the positive trends in the foreign exchange market to continue, the IMF stressed the declining trend in the foreign exchange reserves in its latest report.
During the five years, foreign exchange regulatory departments across the country have also clamped down on 65 illegal private banks, 26 cases of Internet-based speculation in foreign exchange and 119 cases of illegal foreign exchange trading involving more than 100 billion yuan in capital.
Elwood Kackley said: "In our years of providing trading services to our existing clients, we have seen a constant increase of demands for foreign exchange and other services from the marketplaces, including inclination for products associated with foreign exchange from small-time financial institutions and individual investors.
Deutsche Bank's Currency Return Index, which tracks the performance of a diverse foreign exchange investment portfolio, indicates that foreign exchange generated higher annualised returns between 1980 and 2006 than either the S&P 500 or the MSCI.
Senior Trader Fred Maurer has twenty-five years experience in corporate and institutional foreign exchange with Swiss Bank Corp, Bank of America, Thomas Cook and Associated Foreign Exchange.
Travelex is the world's largest non-bank provider of commercial foreign exchange, providing foreign exchange dealing, payments & collection services and risk solutions to over 16,000 international companies and financial institutions.
Shrink the world a little, says Denny Thompson, principal of Canoga Park High School, which has six foreign exchange students this year.
It could also help to restrain the rand by accumulating another $15-20 billion of foreign exchange reserves.
When the economic imbalances finally got out of hand, the adjustment required was more painful than it would have been had the foreign exchange markets been able to discipline policymakers.
Throughout the quarter, the yen was pressured by anticipation of renewed capital flows out of Japan after the March 31 conclusion of the Japanese fiscal year, the beginning of Japan's liberalization of its foreign exchange laws, and continued weakness in the Japanese economy and financial system.

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