Definition & Importance of Foreign Exchange

Definition of Foreign Exchange.

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Foreign exchange means converting  the money or coin of a country to the money or coin of another country. The coin of a country is invalid to another country. But in foreign trade the payment must be with foreign currency. So, in which mechanism, system & process the currency of a country is needed to be converted in foreign currency is called foreign exchange.

"The mechanism, through which payments ate effected between two countries having different currency systems is turned as foreign exchange." (M N Mishra)

"Foreign exchange is bought and sold in foreign exchange markets." (Oxford Dictionary of Finance and Banking)

"Foreign Exchange is the mechanism by which commercial, investment and other transactions between countries are settled." (C J Woelfel)

At last it is said that, foreign exchange means-

* converting coin of a country to the coin of other countries.

* a recognized system to settle foreign payment.

* such exchange is performed through various transferable documents.

* Bank and other approved financial institutions perform the foreign exchange activities. 

Importance / Objectives /Causes of foreign Exchange.

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There are many causes to create debt-owe of a county with another countries. such debt- owe are paid with foreign currency. In this way one county uses foreign currency to pay the owe of another country. The process of converting the currency of a country to the currency of other countries is called foreign exchange. The importance of foreign exchange in the development of a country are given below with detail.

1. Completion of foreign trade :

Foreign exchange is very important and obligatory to settle the the debt-owe created from foreign trade. The import - export trading is easily performed with foreign exchange.

2. Foreign investment :

Foreign exchange is performed with foreign currency. So, the importance of foreign exchange is compulsory to increase the foreign trade.

3. Foreign remittance :

The persons working in abroad sends their earnings to their native land with foreign currency which raises the foreign reserve in country.

4. Foreign aid :

Many countries also financially aids to another county. Such aid given by various foreign organizations & government is paid with foreign currencies.

5. Machinery purchase :

The machineries of large & small scale of industries are to be imported from abroad. Such machineries are to be purchased with the help of foreign currencies. 

6. Foreign tour :

To visit into abroad the foreign currency of that country where you will make a tour, is very needed. such tour is easy and extended through foreign currency.

7. Credit payment :

The credit obtained from foreign countries are to be compulsorily paid with interest through foreign currency which is the result of foreign exchange.

8. Salary of foreigners :

There are many specialized foreigners & foreigner officers doing their jobs in a county. The salaries, bills, arrears & opportunities are to be paid with foreign currencies.

9. Payment of foreign tuition fees :

Foreign tuition fees of those person who are studding in abroad are to be paid with foreign currency.

10. Import improved technology :

To import the improved & modern technology from abroad the foreign currency is to be needed.

At last it is said that, a country is to pay the due money to other countries for various reasons. With the help of foreign currency such debts- owes is to be settled.