Foreign exchange is the swapping of one currency for another. It is needed to settle transactions between people or entities located in countries that use different currencies. This exchange is needed to complete international transactions. Examples of foreign exchange are:
A business in England pays a supplier in the United States, which requires the business to convert Pounds (GBP) into U.S. Dollars (USD).
A person travels to Canada from the United States, exchanging U.S. Dollars (USD) at the Canadian border for Canadian Dollars (CAD).