Forex Management And Currency Derivatives Introduction - Forex Management

Foreign exchange refers to the mechanism by which the currency of one country gets converted into the currency of another country. The term foreign exchange, broadly speaking, includes bank deposits denominated in a foreign currency, foreign currency itself (bills and coins), and other short-term claims on foreigners expressed in foreign currency. For an Indian, foreign currency means any currency other than Indian currency, As per the Foreign Exchange Regulation Act of India, foreign exchange means foreign currency and includes (i) all deposits, credits and cheques, letters or credit and bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency; and (ii) any instrument payable, at the option of the drawee or holder thereof or any other party thereto, either in Indian currency or in foreign currency or partly in one and partly in the other.

The Foreign Exchange Market is a market where money denominated in one currency is traded with money denominated in another currency. The need for such trading arises due to buying and selling of goods, services rendered to foreigners, investment in short-term and long-term securities across the international boundaries, foreign bilateral and multilateral assistance, etc.
The primary function of the foreign exchange market is to facilitate trade between different countries and to enable investment being made by one country in another. Therefore a knowledge of foreign exchange market operations and mechanisms is necessary for any fundamental understanding of international financial management.

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