Foreign exchange market, refers to the trading place engaged in the purchase and sale of foreign exchange, or a variety of different currencies to exchange with each other. The foreign exchange market exists because.

- Trade and investment

Importers and exporters pay one currency when they import goods and receive another currency when they export goods. This means that they receive and pay in different currencies when they settle their accounts. Therefore, they need to convert some of the currency they receive into a currency that can be used to purchase goods. Similarly, a company that buys a foreign asset must pay in the currency of the country in question, so it needs to convert its own currency into the currency of the country in question.

- Speculation     

The exchange rate between two currencies changes as the supply and demand between the two currencies changes. A trader buys a currency at one rate and sells it at another, more favorable rate, so he can make a profit. Speculation accounts for approximately the vast majority of trading in the foreign exchange market.

- Hedging

Because of fluctuations in the exchange rate between two related currencies, companies that own foreign assets, such as factories, can suffer some risk when they convert those assets into their home currency. When a foreign asset denominated in a foreign currency remains constant in value over time, a gain or loss can occur if the exchange rate changes and the value of this asset is translated in the domestic currency. A company can eliminate this potential gain or loss by hedging. This is done by executing a foreign exchange transaction that results in just enough to offset the gain or loss on the foreign currency asset resulting from the change in the exchange rate.

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