Foreign Exchange Study Documents

Courses : Intermediate Macroeconomics Lecturer : Frischa Adellia Semester : 4th Semester, 2022/2023 Sesion FOREIGN EXCHANGE Foreign currency is currency issued by a country other than the currency in effect in the country of residence of a person or a company. Examples of foreign currencies include US dollars, euros, Japanese yen, British pounds, and so on. Foreign currency is often used in international trade transactions, where payments are made using the currency of a foreign country that is recognized by both parties. In addition, foreign exchange is also used in global financial market investments and speculation. Changes in foreign exchange rates can affect a country's exports and imports, foreign investment, and international travel costs. Foreign exchange (foreign exchange) or often abbreviated as forex is the activity of buying and selling currencies between countries that aim to gain profit from the difference in exchange rates between the two currencies. Foreign exchange is an important aspect of international trade and has a very vital role in the global economy. Foreign exchange can be traded on the forex market, which is the largest and most liquid market in the world with an average daily transaction value of more than $5 trillion. The forex market is open 24 hours a day, five days a week, and operates via a worldwide computer network. In foreign exchange trading, currencies are traded in pairs, for example EUR/USD, USD/JPY, and so on. Each currency pair has an exchange rate that shows the price of one currency compared to another. This exchange rate can change at any time depending on the strength of demand and supply in the market. Foreign exchange has an important role in international business, because trade transactions between countries are carried out using different currencies. Business people need to take into account the risk of changes in exchange rates in conducting international business, such as currency risk and transaction risk. Therefore, many companies carry out foreign exchange risk management by using various financial instruments, such as forward contracts, options, and so on. In addition, foreign exchange also has an influence on a country's economy. An increase in the exchange rate of a currency can increase the purchasing power and competitiveness of export products from that country, but conversely, a weakening of the exchange rate can cause inflation and reduce people's purchasing power. Therefore, a country's central bank has an important role in regulating its currency exchange rate by using various appropriate monetary policies. Foreign exchange market Foreign exchange or what is commonly referred to as forex, or what is known in a foreign language as foreign exchange (Forex) is currency that is issued as legal tender in other countries. Foreign currency will have a value if the currency can be exchanged for other currencies without restrictions. For example, a US multinational company that establishes a factory in England, at the end of the financial year always wants to transfer the profit earned from its business in England (in Pounds Sterling) to its head office in the US (in USD form) so to convert British Pounds to in US Dollars it is necessary to have a foreign exchange market. The foreign exchange (forex) market is a type of trade or transaction that trades one country's currency against another country's currency which involves the world's main money markets for 24 hours continuously. Agree with Madura which states that the foreign exchange market is a market that facilitates currency exchange to facilitate international trade and financial transactions. Or if interpreted in a simple way, the forex market is the trading of a country's currency (currency) with another country's currency. While the rate of exchange of this currency is also called the Foreign Exchange Rate, in Indonesia it is known as the Foreign Exchange Rate. Unlike domestic transactions, international transactions involve the currencies of two or more countries. To exchange one currency for another in international transactions, companies rely on a mechanism called the foreign exchange market (the market where currencies are bought and sold and their prices are determined). Financial institutions convert one currency into another at a specific exchange rate (the rate at which one currency is exchanged for another). Prices depend on the size of the transaction, general economic conditions, and sometimes government mandates. In many ways, the foreign exchange market is like markets for commodities such as cotton, wheat and copper. The forces of supply and demand determine the price of the currency, and transactions are made through a process of bid and ask quotes. If someone asks for the current exchange rate against a particular currency, the bank doesn't know whether it relates to a potential buyer or seller. So it quotes two rates: The bid quote is the price at which it will buy, and the ask quote is the price at which it will sell. For example, say that the British pound is quoted in US dollars at $1.5054. The bank can then bid $1.5052 to buy British pounds and sell them for $1.5056. The difference between the two prices is the bid-ask spread. Naturally,