Definition, Type and Function of Foreign Exchange
In international trade, there are export and import of goods and services. When importing goods from abroad, we must pay to the origin country of imported goods. Currency that we use to pay cannot be used or sold, we should use foreign exchange.
Thus, foreign exchange is a means of payment used in international trade.
The definition of Foreign Exchange:
All tools or goods received by international community as a means of payment abroad. The forms of foreign exchange are foreign currency, foreign notes, gold and bills (credit) abroad.
Foreign exchange types:
Types of foreign exchange based on how to obtain it can be divided into two:
1. General Foreign Exchange
It is obtained without any obligation to return.
For example: Export of goods, tourism, and service providers.
2. Credit Foreign Exchange
It is obtained by the obligation to return.
Foreign exchange function:
Every country in the world requires foreign exchange. A country that has a lot of foreign exchange will be easy to perform activities related to foreign countries, for example export-import and obtaining services from abroad. On the other hand, the country which has little income will have difficulty in making payments among countries.
