Kembara’s Financial Solutions - Foreign Exchange
Foreign exchange (Forex, or FX) is the simple act of exchanging a certain amount of one currency, such $100 in US dollars, for a specific amount of another currency, like €90. There are many different foreign currencies in use today, and the most prevalent instance of the requirement for foreign exchange is when people travel to other countries. Instead of their more familiar US dollars, an American traveling across the Atlantic to France for vacation will need euros. They will likely visit their bank ahead of time and buy a few hundred US dollars' worth of euros to acquire some. With an appropriate exchange rate of 0.86, their $200 would buy them €172. Travel by individuals therefore contributes to some foreign exchange activity, but this is overwhelmed by the impact of enterprises transacting business internationally. A major order for surfboards is placed by a European retailer who wants to pay in euros at an American company called SurfBoards of America (SBoA). The European client pays SBoA thousands of euros when the surfboards are shipped. As a result, SBoA contacts the foreign exchange dealer at its neighborhood bank and offers to convert the euros for the US dollars it requires. Since the US dollar is widely recognized as the most significant currency in the world, it is usual for foreign exchange rates to be given in terms of how many units of a certain currency one US dollar is worth. Offering foreign exchange quotes is appealing to banks and their dealers because it satisfies client needs resulting from global trade and travel, in particular. As a result, the banks and their dealers will receive fees. A draw for banks and dealers is that, according to reports, daily foreign currency activity in 2019 is estimated to approach a staggering $6.6 trillion (that's $6,600 billion), indicating the size of global trade.
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