Currency and Foreign Exchanges
This section discusses currency exchange, exchange rates, and how currency exchange rates are determined based on the direct and indirect currency quotes (also known as the US and European terms, respectively). It also discusses spot rates, forward rates,
and cross rates. Why might companies use these tools?
What Is the Purpose of the Foreign Exchange Market?
The foreign exchange market (or FX market) is the mechanism in which currencies can be bought and sold. A key component of this mechanism is pricing or, more specifically, the rate at which a currency is bought or sold. We'll cover the determination of
exchange rates more closely in this section, but first let's understand the purpose of the FX market. International businesses have four main uses of the foreign exchange markets.