ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Central banks buy and sell foreign exchange to stabilize the international value of their own currency. The central banks of major industrial nations engage in so-called “currency swaps, ” in which they lend one another their own currencies in order to facilitate their activities in stabilizing their exchange rates.

Detailed explanation-2: -Because every country does not use the same type of money, international trade requires a system for exchanging currencies between nations. Money from one country must be converted into the currency of another country to pay for goods in that country. This system is called foreign exchange.

Detailed explanation-3: -If a country experiences inflation, the prices of its exports increase, making them less attractive to foreigners. Inflation can also decrease domestic demand for domestic goods, leading a country’s importers to exchange their currency for foreign ones in order to buy cheaper goods from abroad.

Detailed explanation-4: -Foreign exchange, also known as forex, is the conversion of one country’s currency into another. The value of any particular currency is determined by market forces related to trade, investment, tourism, and geopolitical risk.

Detailed explanation-5: -The international currency market is a market in which participants from around the world buy and sell different currencies. Participants include banks, corporations, central banks, investment management firms, hedge funds, retail forex brokers, and investors.