People buy most goods with their domestic currency, but sometimes a seller from another currency area wants payment in their domestic currency, not that of the buyer. German automobile manufacturers, for example, need to pay their workers in euros, so they might want to be paid in euros even if the buyer is an American accustomed to transacting in dollars. Here again, the financial system helps to facilitate real-world trade via intermediaries and markets. Foreign exchange markets allow for the exchange of currencies that have different, and often rapidly fluctuating, values.
A Market Like Any Other
Foreign trade implies a market for foreign currency. Trillions of U.S. dollars worth of currencies are traded daily, more ...
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