What is foreign exchange?

Foreign exchange is termed as a any type of financial instrument that is used to make payments between countries is considered foreign exchange.
Examples of foreign exchange assets include foreign currency notes, deposits held in foreign banks, debt obligations of foreign governments and foreign banks, monetary gold, and SDRs.

The foreign exchange market is a global online network where traders buy and sell currencies. It is also commonly referred to as “forex”. The foreign exchange market moves based on how currency valuations change in relation to other currencies through exchange rates. This global market has two tiers.

  • The first is the inter-bank market. It’s where the biggest banks exchange currencies with each other.

  • The second tier is the over-the-counter market where companies and individuals trade.