Foreign Exchange

foreign exchange, methods and instruments used to adjust the payment of debts between two nations that employ different currency systems. A nation's balance of payments has an important effect on the exchange rate of its currency. Bills of exchange, drafts, checks, and telegraphic orders are the principal means of payment in international transactions. The rate of exchange is the price in local currency of one unit of foreign currency and is determined by the relative supply and demand of the currencies in the foreign exchange market. Buying or selling foreign currency in order to profit from sudden changes in the rate of exchange is known as arbitrage. The chief demand for foreign exchange within a country comes from importers of foreign goods, purchasers of foreign securities, government agencies purchasing goods and services abroad, and travelers. Exchange rates were traditionally fixed under the gold standard and later by international agreements, but in 1973 the major industrial nations of the West adopted a system of "floating" rates that allowed for fluctuation within a limited range. The currencies of Western nations are generally allowed to fluctuate freely, although central banks will intervene in the foreign exchange markets in an attempt to control excessive or undesirable appreciation or depreciation.

See S. W. Arndt et al., ed., Exchange Rates, Trade and the U.S. Economy (1985); N. Abuaf and S. Schoess, Foreign-Exchange Exposure Management (1988).

The Columbia Encyclopedia, 6th ed. Copyright© 2014, The Columbia University Press.

Selected full-text books and articles on this topic

Foreign Exchange in Practice: The New Environment
Steve Anthony.
Palgrave Macmillan, 2003 (3rd edition)
The History of Foreign Exchange
Paul Einzig.
St. Martin's Press, 1962
Fundamental Determinants of Exchange Rates
; Jerome L. Stein; Polly Reynolds Allen.
University of Oxford, 1997
The Economics of Exchange Rates
Lucio Sarno; Mark P. Taylor; Jeffrey A. Frankel.
Cambridge University Press, 2002
Librarian’s tip: Chap. 2 "Foreign Exchange Market Efficiency" and Chap. 9 "Foreign Exchange Market Microstructure"
Floating Exchange Rates: Theories and Evidence
Ronald Macdonald.
Routledge, 1993
Arbitrage, Hedging, and Speculation: The Foreign Exchange Market
Ephraim Clark; Dilip K. Ghosh.
Praeger, 2004
Triangular Arbitrage in the Foreign Exchange Market: Inefficiencies, Technology, and Investment Opportunities
Marios Mavrides.
Quorum Books, 1992
Official Exchange Rate Arrangements and Real Exchange Rate Behavior
Parsley, David C.; Popper, Helen A.
Journal of Money, Credit & Banking, Vol. 33, No. 4, November 2001
Peer-reviewed publications on Questia are publications containing articles which were subject to evaluation for accuracy and substance by professional peers of the article's author(s).
The Japanese Foreign Exchange Market
Beate Reszat.
Routledge, 1998
Foreign Exchange Black Markets in Latin America
Robert E. Grosse.
Praeger Publishers, 1994
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