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Definition

Foreign Exchange Transactions

A foreign exchange transaction is an agreement between a buyer and seller that a fixed amount of one currency will be delivered for some other currency at a specified rate.

The "foreign exchange market" should not be thought of as a specific building or location where traders exchange currencies.Companies normally exchange one currency for another through a commercial bank over a telecommunications network.The most common type of foreign exchange transaction is for immediate exchange at the so called spot rate. The market where these transaction occur is known as the spot market. The average daily foreign exchange trading by banks around the world now exceeds $1.5 trillion. The average daily foreign exchange trading in the United States alone exceeds $200 billion.

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