foreign exchange

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foreign exchange

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 payments 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).

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References in periodicals archive ?
The Federal Reserve Bank of the United States regulates the country's foreign exchange market.
The US dollar is considered to be the standard unit or medium of foreign exchange for the global foreign exchange sector because of its high volume of liquidity and global recognition.
The functions of the US foreign exchange market are carried out by a number of institutions: Commercial banks, central banks, foreign exchange dealers, retail foreign exchange brokers, commercial institutions, investment management firms, hedge fund institutions, multinational corporations or MNCs and retail foreign exchange traders.
New York is an important foreign exchange trading center in the United States.
The United States Commodity Futures Trading Commission is responsible for regulating different foreign exchange trading firms conducting businesses in the United States.
Both the Federal Reserve and the United States Treasury Department play a significant role in the US foreign exchange market.
The foreign exchange market in Singapore is a growing market.
The Singapore foreign exchange market is growing simply due the reason that the Singapore dollar is gaining more and more recognition in the global forex market due to its increased level of liquidity.

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