Foreign Exchange (Forex)

In News

   The Reserve Bank of India (RBI) has cautioned banks and customers again about unauthorized 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.     

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