Foreign exchange (abbreviated "FX" or "forex") refers to foreign exchange transactions, also known as foreign exchange margin contracts. In layman's terms, it is a market where one country's currency is exchanged for another country's currency. Foreign exchange transactions may be very simple, such as going to a certain country and exchanging a certain country's currency through a bank. It can also be very complicated. For example, global investment banks conduct multi-currency multilateral option strategies on multiple settlement dates through electronic trading platforms. The following are the types of foreign exchange:
According to the degree of restriction: freely convertible foreign exchange, limited freely convertible foreign exchange and accounting foreign exchange
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Types of foreign exchange |
Definition |
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Freely convertible foreign exchange |
It is the foreign exchange that is most used in international settlements, can be freely bought and sold in the international financial market, can be used to pay off debts in international finance, and can be freely exchanged for other countries' currencies. For example, US dollars, Hong Kong dollars, Canadian dollars, etc. |
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Limited freely convertible foreign exchange |
Refers to foreign exchange that cannot be freely converted into other currencies or paid to a third country without the approval of the currency issuing country. The International Monetary Fund stipulates that any currency that has certain restrictions on international payments and fund transfers is a limited freely convertible currency. More than half of the national currencies in the world are limited freely convertible currencies, including the CNY. |
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Bookkeeping foreign exchange |
Also known as clearing foreign exchange or bilateral foreign exchange, it refers to the foreign exchange booked in the bank accounts designated by both parties, which cannot be converted into other currencies, nor can it be paid to a third country. |
Purpose by source: trade foreign exchange, non-trade foreign exchange and financial foreign exchange
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Types of foreign exchange |
Definition |
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Trade foreign exchange |
Also called physical trade foreign exchange, it refers to foreign exchange derived from or used in import and export trade, that is, an international payment method formed by the circulation of international commodities. |
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Non-trade foreign exchange |
Refers to all foreign exchange other than foreign exchange for trade, all foreign exchange that is not derived from or used in import and export trade, such as Labor foreign exchange, overseas remittances, and donated foreign exchange. |
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Financial foreign exchange |
Different from trade foreign exchange and non-trade foreign exchange, it is a kind of financial asset foreign exchange. For example, foreign exchange bought and sold between banks is not derived from tangible or invisible trade, nor is it used for tangible trade, but for various currency positions. Management and manipulation |
At the same time, according to market trends: called strong currency and weak currency