Inter- National Flag Coloring 04 G-L!

What is Meant by Forex or Foreign Exchange?

By Donald Saunders

Most countries have their own national currency such as the US dollar, the UK pound, the Japanese yen and the Thailand baht.

These are of course necessary for making payments for goods and services within each country's borders.

However, in a world where we are traveling more and more and where countries are increasingly trading with one another, foreign currency is required to pay for cross-border sales of goods and services.

This means that there must be some mechanism in place to provide access to foreign currencies, so that payments can be made in a form that is acceptable to the seller, and thus the need for a foreign exchange market (or forex market which is simply short for FOReign EXchange).

In its simplest form foreign exchange refers to money which is denominated in a currency other than your own. For example, if an individual exchanges his own currency for the currency of another nation then he acquires foreign exchange. Of course we often think of foreign exchange in terms of tourism and most of us will have traveled abroad either on holiday or for business and exchanged currency on arrival at our destination to pay hotel and restaurant bills and for taxis, sightseeing and shopping.

However, foreign exchange is not simply limited to the relatively small sums of money handled by tourists, but applies equally to larger transactions such as the exchange of hundreds of millions of US dollars when a US company buys another company which is based overseas....