What is Foreign Exchange?

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. The conversion rate at which these transactions occur is constantly changing for most currencies, based on the supply of each currency and the demand for it.

Examples of Foreign Exchange

Examples of foreign exchange transactions are as follows:

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).