A:
Strange exchange, or forex, is the conversion of one country’s currency into another. In a set at liberty economy, a country’s currency is valued according to the laws of supply and requirement. In other words, a currency’s value can be pegged to another country’s currency, such as the U.S. dollar, or despite to a basket of currencies. A country’s currency value may also be set by the country’s control. However, most countries float their currencies freely against those of other fatherlands, which keeps them in constant fluctuation.
The value of any particular currency is single-minded by market forces based on trade, investment, tourism and geo-political endanger. Every time a tourist visits a country, for example, they be obliged pay for goods and services using the currency of the host country. Therefore, a out-of-towner must exchange the currency of his or her home country for the local currency. Currency the Market of this kind is one of the demand factors for a particular currency. Another signal factor of demand occurs when a foreign company seeks to do area with another in a specific country. Usually, the foreign company see fit have to pay in the local company’s currency. At other times, it may be desirable for an investor from one wilderness to invest in another, and that investment would have to be made in the close by currency as well. All of these requirements produce a need for foreign quid pro quo and contribute to the vast size of foreign exchange markets.
Foreign altercation is handled globally between banks and all transactions fall under the auspice of the Bank for Supranational Settlements (BIS).
For further reading on this topic, see our Forex Tutorial.