Intoduction :

The Foreign exchange Market serves two main functions. The first is to convert the curency of one country into the currency of another. The second is to provide some insurance against foreign exchange risk, by which we mean the adverse consequences of unpridictable changes in exchange rates.

 

Currency Conversion :

Each country has a currency in which the prices of goods and services are quoted. In the united states Its the dollar in Great Britianthe pound in france, Germany and other members of the euro zone it is the euro in japan , the yen in pakistan, the rupeee and so on. In general, within the borders of a particular country one must use a particular currency. A us tourist cannot walk into a store i Edinburgh, Scotland And use dollars to buy a bottle of milk. The tourist can go to a bank and can convert those dollars into pounds. When a toursit exchange one currency into another, He or She is participating in exchange market. For example, an exchange rate of 1 euro = 1.30 dollars specifies that one euro buys 1.30 dollars. The exchange rate allows us to compare the relative prices of goods and services in different countries. Tourists are minor participants in the foreign exchange market, Companies engaged in international trade and investment are major ones.