What are Forex Transactions ?

Posted by admin on July 2, 2009 under Forex Trading | Be the First to Comment

The Forex Transactions is a business in which foreign currency is the commodity. Foreign currency cannot be used in other countries than the mother country. The value of United States dollar is the value of any other commodity. Therefore, the foreign currency can be considered as the commodity in Forex Transactions.

Any forex trading has two aspects – purchase and sale. A trader has to purchase goods from his suppliers which he sells to his customers. Likewise, the bank is authorized to deal in forex purchases as well as sells its commodity. Two points need be constantly kept in mind while talking on Forex Transactions.

1. The transaction is always talked of from the bank’s point of view, and
2. The item referred to is the foreign currency.

Therefore, when we say a purchase, we imply that

1. The bank has purchased, and
2. It has purchased foreign currency

Similarly, when we say a sale, we imply that

1. The bank has sold, and
2. It has sold foreign currency.

The quotation for which manifestation of exchange rate is made as the price per unit of foreign currency in terms of the resident currency is termed as home currency quotation or direct quotation. The quotation wherein home currency’s unit is kept constant such a situation is termed as foreign currency quotation where price per unit and exchange rate are denoted in foreign currencies is termed as foreign currency quotation or indirect quotation or currency quotation.

To sum up, Forex Transactions involves all the above elements that may have to be blended in abundant measure for delivery of best results in making appropriate profits.