Foreign Exchange (Forex)

In News

  • The Reserve Bank of India (RBI) has cautioned banks and customers again about unauthorised entities offering foreign exchange trading using the banking channels.

About Forex

  • Foreign exchange (Forex) refers to exchanging the currency of one country for another at prevailing exchange rates
  • Foreign Exchange Rate is the price of one currency in terms of another.
  • It links the currencies of different countries and enables comparison of international costs and prices
  • Need: People demand foreign exchange because: they want to purchase goods and services from other countries; they want to send gifts abroad; and they want to purchase financial assets of a certain country.
  • A rise in the price of foreign exchange will increase the cost (in terms of rupees) of purchasing a foreign good.
  • This reduces demand for imports and hence demand for foreign exchange also decreases, other things remaining constant.