Business

Two Main Functions of the Foreign Exchange Market

The foreign exchange market is a global marketplace, where buyers and sellers of different currencies can buy and sell their currency. This exchange of currency moves the purchasing power of different parties. For example, an Indian exporter can pay for his products in dollars. By using the foreign exchange market, the Indian exporter can buy and sell dollars and receive a better price for his goods. The two main functions of the foreign exchange market are to settle payments and move funds.

Basic functions.

The foreign exchange market has two basic functions. First, it transfers purchasing power between countries by facilitating the conversion of one currency into another. This function is performed by converting one currency into another. The second purpose of the foreign exchange market is to provide credit for domestic and international trade. By using the foreign exchange market, the importer can receive a credit for a three-month maturity period.

Short-term credit for importers

The foreign exchange market also provides short-term credit for importers. This enables the smooth flow of goods and services between countries. For example, a company in India wants to buy machinery in the United States. To purchase this machinery, the Indian company can issue a bill of exchange in the foreign exchange market with a maturity of three months. In this way, the Indian company can finance the purchase.

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