WHAT “FOREIGN EXCHANGE” MEANS

“Foreign exchange” refers to money denominated in the currency of another nation or group of nations. Any person who exchanges
money denominated in his own nation’s currency for money denominated in another nation’s currency acquires foreign exchange.


That holds true whether the amount of the transaction is equal to a few dollars or to billions of dollars; whether the person involved is a tourist cashing a traveler’s check in a restaurant abroad or an investor exchanging hundreds of millions of dollars for the acquisition of a foreign company; and whether the form of money being acquired is foreign currency notes, foreign currency denominated bank deposits, or other short term claims denominated in foreign currency.

A foreign exchange transaction is still a shift of funds, or short-term financial claims, from one country and currency to another.
U.S. dollar is, broadly speaking, “foreign exchange.”


Foreign exchange can be cash, funds available on credit cards and debit cards, traveler’s checks, bank deposits, or other short-term claims. It is still “foreign exchange” if it is a short-term
negotiable financial claim denominated in a currency other than the U.S. dollar. But, in the foreign exchange market described in this book—the international network of major foreign exchange dealers engaged in high-volume trading around the world—foreign exchange
transactions almost always take the form of an exchange of bank deposits of different national currency denominations.

If one bank agrees to sell dollars for Deutsche marks to another bank, there will be an exchange between the two parties of a dollar bank deposit for a DEM bank deposit. In this book, “foreign exchange” means a bank balance denominated in a foreign (non-U.S. dollar) currency.