What is Foreign Exchange?
Foreign exchange, also known as forex or FX, refers to the global marketplace where currencies are traded against each other. It plays a crucial role in business being able to operate internationally. Business may need to utilise foreign currency for paying suppliers and or converting revenues generated outside of the business geography, back into their home currency.
What type of Foreign Exchanges products are there?
There are a significant number of ways that foreign currency exchange risk can be managed. A business can convert based on the current rates distracted by the market, also referred to as the ‘spot rate’, or they can use financial instruments, often referred to as ‘options’ to give a business a different scenarios where a different exchange rate can be achieved. This offers opportunities for profit but also carrying significant risks.
What is a currency pair?
In forex trading, currencies are quoted in pairs, such as EUR/USD (Euro/US Dollar) or USD/JPY (US Dollar/Japanese Yen). The first currency in the pair is called the “base currency,” and the second is the “quote currency.” The exchange rate represents the amount of the quote currency needed to purchase one unit of the base currency.
What is the spot rate?
The spot market involves the immediate exchange of currencies at the current market rate.
What are currency options?
Foreign currency traders can use financial instruments called derivatives to give you flexibility in how, when and at what rate you might want to buy currency. As the name suggests, it provides you options with how you buy currency.
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