Real-Life Communication -- Solution
Foreign exchange is basically the value that any money (bills and
coins or bank balances) has in a foreign country.
For example, people
in Britain use the pound as their legal tender, but a pound is considered
foreign exchange in the U.S., where we use American dollars.
Another
example would be a deposit of $1,000 done in an American bank to the account
of a French company. That deposit is foreign exchange in France.
The
term foreign exchange is also used to describe the transaction when you convert
one country's money into that of another. For example, if you went to
the bank and asked to have $300 US converted to Canadian dollars, that would
be a foreign exchange.
The term also applies to international transfers
of money and credit.
Basically, we use foreign exchange
because different countries have different kinds of money. Since we can't
use a universal money system, it becomes necessary to convert money into the
currency of other countries in order to pay for goods and services in that
country.