Foreign Exchange

AAA

DEFINITION of 'Foreign Exchange'

The exchange of one currency for another, or the conversion of one currency into another currency. Foreign exchange also refers to the global market where currencies are traded virtually around-the-clock. The term foreign exchange is usually abbreviated as "forex" and occasionally as "FX."

INVESTOPEDIA EXPLAINS 'Foreign Exchange'

Foreign exchange transactions encompass everything from the conversion of currencies by a traveler at an airport kiosk to billion-dollar payments made by corporate giants and governments for goods and services purchased overseas. Increasing globalization has led to a massive increase in the number of foreign exchange transactions in recent decades. The global foreign exchange market is by far the largest financial market, with average daily volumes in the trillions of dollars.

RELATED TERMS
  1. Spot Exchange Rate

    The rate of a foreign-exchange contract for immediate delivery. ...
  2. Authorized Forex Dealer

    Any type of financial institution that has received authorization ...
  3. Equity Linked Foreign Exchange ...

    A put or call option that protects an investor from foreign-exchange ...
  4. Foreign Exchange Market

    The market in which participants are able to buy, sell, exchange ...
  5. Forex - FX

    The market in which currencies are traded. The forex market is ...
  6. Base Currency

    The first currency quoted in a currency pair on forex. It is ...
RELATED FAQS
  1. Which are the most popular mutual funds that target the financial services sector?

    Among the top-rated and most popular mutual funds that invest in the financial services sector are the Royce Financial Services ... Read Full Answer >>
  2. How does inflation affect the exchange rate between two nations?

    The rate of inflation in a country can have a major impact on the value of its currency and the rates of foreign exchange ... Read Full Answer >>
  3. What skills should I acquire to take advantage of arbitrage trading?

    The primary skills required for an arbitrage trader are the ability to research and speculate, good risk management, observation ... Read Full Answer >>
  4. How do I find out my bank's bid-ask spread for currency conversions?

    Most major banks provide their currency conversion rates and fees online. Additionally, banks usually have a foreign exchange ... Read Full Answer >>
  5. Why is a Free on Board (FOB) designation important for freight transportation?

    A free on board (FOB) designation specifies whether the buyer is responsible for freight charges and determines the obligations ... Read Full Answer >>
  6. How does the International Chamber of Commerce define the term 'Free on Board' (FOB)?

    The International Chamber of Commerce (ICC) is one of world's largest business organizations and has published a set of trade ... Read Full Answer >>
Related Articles
  1. Forex Education

    Currency Exchange: Floating Rate Vs. Fixed Rate

    Baffled by exchange rates? Wonder why some currencies fluctuate while others are pegged? This article has the answers.
  2. Forex Education

    Forex: Wading Into The Currency Market

    We go over the ground rules and available resources needed for this undertaking.
  3. Forex Education

    Top 7 Questions About Currency Trading Answered

    Whether you're puzzled by pips or curious about carry trades, your queries are answered here.
  4. Forex Education

    The Foreign Exchange Interbank Market

    Can your forex broker offer you the most competitive pricing? Learn how the market's biggest players affect you.
  5. Economics

    Explaining the Human Development Index

    The Human Development Index (HDI) is a metric developed by the United Nations to take the emphasis off economic growth and focus on human wellbeing.
  6. Economics

    Gaining Market Influence-- The Case of US Shale

    A convergence of sustained bank financing, falling production costs and rising oil prices might position the US shale industry for a greater market role.
  7. Investing Basics

    Understanding Non-Deliverable Forward (NDF)

    A foreign exchange hedging strategy where the parties agree to settle the profit or loss in a foreign currency futures contract before the expiration date.
  8. Forex Education

    How To Lock In An Exchange Rate

    Currency risk can be effectively hedged by locking in an exchange rate through the use of currency futures, forwards, options, or exchange-traded funds.
  9. Economics

    Infrastructure Investment & Institutional Reforms

    There has been a lot of buzz in the market lately about the prospect for growth and stability in Latin America.
  10. Forex Education

    Top Economic Factors That Depreciate The $US

    A variety of factors contribute to currency depreciation, including monetary policy, inflation, demand for currency, economic growth and export prices.

You May Also Like

Hot Definitions
  1. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  2. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  3. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  4. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  5. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  6. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
Trading Center