Question

Why is foreign exchange important?

Answer 1

1. Without the ability to trade in different currencies, companies’ prospects would be limited.
2. As a result, global economic growth would suffer.
3. Investors also use the forex market.
4. Those who seek international diversification benefits need to trade currencies to buy and sell foreign assets and securities.
5. Foreign exchange reserve increases the confidence in the monetary and exchange rate policies of the government.
6. Foreign exchange reserves come to the rescue of any country to absorb the distress related to such a crisis.
7. In doing so the foreign exchange market is the mechanism that transfers purchasing power from one country to another.