Transition and Significance of Foreign Exchange

The old form of business is called "barter", a process of exchanging goods; take for example a Chinese merchant exchanges his plate porcelain for a textile from India. Big canals where made and continuously inventing ships bringing different people and nationality to quay on and exchange their products. Moreover businessmen are indulging into business to get their investment back and gain profit more than what they invested.

Businessmen realized that the exchange of goods is quite unfair, take for example, if Mr. X exchanges his banana to Mr. Y's textile the gain to totally disproportional, because there is no standard measurement of those materials. Thus weights, quality and gold became a standard of measurement of exchanging goods and is similitude with the process of buy and sell.

Through continuous modernization of people's lives in this world, population is continuously increasing uncontrollably and transcends unconfined needs to provide the people, because of that international trade has been created by economic scholars. International trade could lead by a countries government leaders or a countries multinationals and free sector of businessman translates a scenario of fulfilling other needs and fulfilling your needs as well.

Say a particular country lacks or can no longer provide the proper amount of demand which their people need therefore they have to import that product from other countries which they have abundant of and could also export products which a particular country have its comparative advantage as well.

Take for example; Asian countries are situated in the tropical zone. Obviously their comparative advantage is more of agricultural products like rice, vegetables and fruits, inherently tropical zones hardly produce oil and have to import from Middle East countries. As the saying goes, "no man is an island". There are 193 countries in the world that need each other existence. In that case every country has to adopt Foreign Exchange (FOREX).

Mr. Gregorio S. Miranda defines Foreign Exchange as a "foreign currency and money claims expressed in the units of accounts of another country". It is either paper or metallic, produce of circulated and managed by Central Bank of each country. The process of Foreign Exchange is called "rate of exchange".

Domestic to foreign currency, say Peso, Won, Yuan, Yen and etc. to dollar. The exchange currencies are usually to the US dollar simply because the United States is the superpower dominating the large economy. There is also what we called "multi-exchange rate", cases usually happen to poor countries, their currencies have to exchange to second currency which is exchangeable to dollar.

Foreign exchange is very important for International Trade businessmen. As to what we called "short-term business or portfolio business" by which businessmen are situated in his country and investing to foreign country. Foreign exchange has been one of their determinants whether to pull out their money to a countries stock exchange market. If that countries unit of currency is appreciating then why bother to pull out the business?

Foreign exchange is not just important for every businessmen but to those travelers also. Foreign exchange will be their rice determinants, take for example; brandy X worth 100 in your domestic currency and when you go abroad the same brandy X but the price doubled, this is what the so-called "price-structure theory", comparing prices through rate of exchange.

Tourist expenditures and workers abroad spice up their domestic currency, especially those workers abroad, there is the so-called "repatriation", so as the investment and salary are counted to a country's Gross Domestic Products (GDP). The higher the GDP the more it attracts investors.

In addition, foreign exchange markets are commercial banks authorized by the Central Bank of your own country.