In foreign exchange terminology, foreign exchange, or forex for short, refers to a transaction whereby the currency of one country is exchanged or traded for the currency of another country. Typically, this foreign exchange trade is done at a particular rate and for value “spot” or delivery of the two currencies in two business days, except for USD/CAD which typically delivers in just one business day.
Foreign exchange enables international transactions to occur between participants located in countries that use different currencies internally.For example, a foreign exchange transaction might involve one counterparty buying 10 Million U.S. Dollars value spot and selling 90,000,000 Japanese Yen at a rate of 90.00 from another counterparty. Some participants in the foreign exchange market, notably corporations, wish to hedge or protect against foreign exchange fluctuations, while others, like many hedge funds and forex traders, wish to speculate on them.