What is Foreign Exchange? Definition and Functions

Foreign exchange is an economic term widely used for state revenues in exporting and importing goods or services. With the existence of foreign exchange, the country can get income through various kinds of tax costs, so this is a positive value for international economic growth.

Through foreign exchange, it can also be measured the economic development of a country with a lot or not of international cooperation in trade so that from the trade results, many positive things can be obtained between the two mutually beneficial countries.

For those looking to find out what foreign exchange is and the types of foreign exchange, in this article, we will briefly review it so that you understand more in economic terms about the meaning of foreign exchange. Check out our review below.

What is Foreign Exchange?

Foreign Exchange is a means of payment used by the state to carry out a trade exchange between countries in the form of foreign or foreign currency. The means of exchange must pass international standards and recognition, for example, the United States dollar.

The United States dollar currency is used as a means of payment internationally because it already has recognition in the eyes of the international community, so that it can be used as a medium of exchange for international trade.

A country's currency can be valued based on the law of supply and demand. Based on economic conditions, government policies, and global economic conditions, currency values can quickly rise and fall. In addition, a country's currency can be pegged based on the money of other countries, such as the United States dollar.

International trade currency must be recorded at the central bank, for example, the United States dollar. Besides that, there are the Japanese Yen which can also be used for trade and many others.

The function of foreign exchange is

to be a medium of trade and a means of state income. Foreign exchange has other tasks for a country that you must know. Here are the functions of foreign exchange in full.

As a means of financing imported goods into the country, for example, electronic goods, products and other household goods,
As a means of financing education for foreign scholarships.
As a means of official travel related to state duties.
As a means of state income through labour.
As a means of financing institutions that dispatch abroad for various purposes.
As a means of income through service channels such as tourism.

Types of Foreign Exchange

The exchange has several types that you must know. Here are the types of foreign exchange that you must know.

1. General Foreign Exchange

This foreign exchange is obtained from other countries that export to our country through service delivery activities or investment, so the state does not need to return capital or services to the exporting country.

2. Credit Foreign Exchange

The next type of foreign exchange is foreign credit exchange, where the source of this foreign exchange comes from countries that make loans to other countries. This can happen because a country imports goods for trade processes or makes loans to the world bank.

3. Forex Card

Forex Card Foreign exchange is a type of foreign exchange in the form of money or metal, this type of foreign exchange must have international recognition as a medium of exchange, as

we have reviewed in the previous discussion examples of this type of foreign exchange: the exchange rate against the dollar, yen, euro etc.

4. Foreign Exchange Demand

Foreign Exchange Demand are types of foreign exchange in the form of securities. This type of foreign exchange must have world recognition, such as money orders, Special Drawing Rights (SDR), etc.

Sources of Foreign Exchange

There are various types of sources of state income through this foreign exchange. From these various foreign exchange sources, tax increases can be used to manage state development. The following are sources of foreign exchange for the country.

1# Tourism

Tourism is an excellent source of foreign exchange for state tax revenues. In the tourism sector, foreign exchange is obtained from tourism services offered to international countries. Apart from that, the tourism sector can also feel the movement of the economy to the community directly.

2# Exports

export sector goods. The state carries out revenue from exports to support open economic trade, so the more countries export goods, the more foreign exchange they get.

3# Import Duty/Import

Another source of foreign exchange is from the import sector or import duty, where every item that enters the country in large quantities will be subject to import duty tax on each item. This aims to maintain the stability product's domestic

4# Services

Another source of foreign exchange is obtained from the service sector, which is very influential on state income. An example of revenue from the service sector is the distribution of labour to countries needing income for the country's foreign exchange.

Closing

The various foreign exchange sources described above will help in the income of state taxes so that the money from foreign exchange can be used to develop a country.

Thus our review of this foreign exchange explanation, hopefully, the reviews we convey are helpful for you. Our review of foreign exchange above will undoubtedly add to your insight into what foreign exchange is and its function for state income.

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