Check sibling questions

What is Currency?

It is medium of exchange of goods and services.

Example

Dollar, Rupee

What is Currency - Teachoo.JPG

Do All Countries have Same Currency - Teachoo.JPG

What is Foreign and Domestic Currency?

Currency which is used in own country is called Domestic Currency

All currencies other than domestic currency is called Foreign Currency

Hence, in India INR (Indian National Rupees) is Domestic Currency and Pound ,Dollar etc are Foreign Currency

Difference between Domestic and Foreign Currency - Teachoo.JPG

In what currency Foreign Trade happens?

Foreign currency generally happens in international accepted currencies like Dollars or Euros

Domestic Currencies like INR are not accepted for foreign trade

In which currency will Payment be made in following cases - Teachoo.JPG

Example of Foreign Exchange Conversion - Teachoo.JPG

What is Foreign Exchange Rate?

It is the price of one currency in terms of another

What is Foreign Exchange Rate - Teachoo.JPG

What is Foreign Exchange Market?

It is the market in which national currencies are traded with one another

It has 3 major Participants:

  1. Commercial Banks
  2. Foreign Exchange Brokers and Authorized Dealer
  3. Monetary Authority (RBI in India)

What is Foreign Exchange Market - Teachoo.JPG

Suppose a Person wants to exchange his Rupees with Dollar, he will approach his Bank/Money Exchange Agent

Similarly, RBI also holds foreign currency and purchases and sells it regularly

 

What is purpose of Foreign Exchange Rate/Market?

It links currencies of different countries.

(What is the cost of one currency in terms of other?)

It enables comparison of international cost and price

(Suppose we purchase a Burger for 5 Dollar in USA, It costs 70*5 = 350 in India)

What is the Purpose of Foreign Exchange - Teachoo.JPG

NCERT Questions

No questions in this part

Other Books

Question 1

In the following questions, select the correct answers:

By 'Exchange Rate' we mean:

  1. Quantum of domestic currency needed to pay for foreign currency
  2. Quantum of foreign currency needed to pay for another foreign currency
  3. Rate at which foreign currency is bought and sold
  4. All of these
View Answer

Oswaal Questions

Question 1

Foreign exchange refers to:

  1. the price of one currency in terms of gold in the domestic market.
  2. the price of one currency determined by government of other country.
  3. the price of one currency in relation to other currencies in the international money market.
  4. none of the above.
View Answer

Question 2

Exchange rate is the price of a currency expressed in terms of:

  1. gold.
  2. metal.
  3. another currency.
  4. none of the above.
View Answer

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Transcript

What is Currency? It is medium of exchange of goods and services Example of Goods Shopkeeper Iphone Customer Example of Service Teacher Student Rs 2000 Note Currency is a system of money Followed in particular country Do All Countries have Same Currency? No Each Country has different Currency Example This currency is accepted in India This currency is accepted in Pakistan Pakistani Rupee US Dollar This currency is acceptable worldwide (and not only USA) Difference between Domestic and Foreign Currency CurrencyDomestic Currency Foreign Currency It is Currency which is used in own Country All currencies other than Domestic Currency Example INR in India Pakistan Rupee in Pakistan US Dollar in USA Example In India, US Dollar and Pakistani Rupee are Foreign Currency In USA, Indian Rupee and Pakistani Rupee are Foreign Currency In which currency will Payment be made in following cases? Indian company exporting to USA India Goods Dollars USA Indian company importing from USA USA Goods India Indian company importing from Pakistan Pakistan Goods (and not Rupees) India Only few currencies accepted Worldwide like US Dollar, Euro etc. Indian Rupee and Pakistan Rupee not accepted, so they need to be converted Example of Foreign Exchange Conversion Suppose an Indian Citizen wants to purchase Electric Car from Tesla USA . Car Cost is $100,000 How will payment be made?Tesla USA Indian Citizen $ 100,000 Rs 75 lacs $100000 Bank Tesla will ask money in Dollar Indian Citizen will convert its Rupees into Dollars through bank/ moneychanger at Exchange Rate Suppose 1 $ =Rs 75 $100000 =75*100000 =75 lacs What is Foreign Exchange Rate?It is the price of one currency in terms of another Example 1 Exchange Rate of Dollar is Rs 75 per Dollar It means 1 Dollar = Rs 75 In other words, we can also say that Rs 75 = 1 Dollar Rs 1 = 1/75 Dollar Rs 1 = 0.013Dollar Example 2 Exchange Rate of Pound is Rs 100 per pound It means 1 Pound = Rs 100 In other words, we can also say that Rs 100 = 1 Pound Rs 1 = 1/100 Pound Rs 1 = 0.01 Pound What is the Purpose of Foreign Exchange?It facilitates International Trade by linking currencies (We need to convert our currency to import or export or travel) It enables Comparison of International Cost and price (Suppose a Car cost 100,000 Dollar in USA, It will cost Rs75,00,000 in India) What is Foreign Exchange Market? Foreign Exchange MarketDifferent Currencies Place For Trading It is the market in which national currencies are traded with one another It has 3 major Participants: Commercial Banks Foreign Exchange Brokers (Money Changers) Monetary Authority (RBI) Only these two deal With Public They do not deal with Public directly

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CA Maninder Singh is a Chartered Accountant for the past 12 years. He also provides Accounts Tax GST Training in Delhi, Kerala and online.