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pohnpei397 eNotes educator| Certified Educator

Foreign exchange is the currency of other countries with which firms or people wish to trade.  In other words, if you are in Country A and you wish to buy from Country B, Country B's currency is foreign exchange from your perspective.

You will often hear references to the foreign exchange rate.  This is the rate at which your country's money can be exchanged for the money of some other country.  This figure is important because it has a lot to do with determining how affordable goods from one country are for people in another country.

As an example, China is criticized for artificially maintaining a low foreign exchange rate.  Critics say it keeps its currency very cheap so that other countries may buy from China at low prices.