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