foreign exchange

System by which the money of one country can be converted into the money of another; US dollars, French francs, and Spanish pesetas are all foreign currencies into which a holder of pounds sterling may convert their money.

The daily amount of money exchanged is estimated at £625 billion or $1 trillion (1995), of which $800 billion is in speculative exchanges, the rest being used to finance trade between different countries. Currency speculation daily involves sums larger than the combined foreign-exchange reserves of all the G7 countries.

Between 1971 and 1991 the proportion of all foreign-exchange transactions which were speculative rose from 10% to around 90%.

foreign exchange

See FOREX.