Foreign exchange — commonly called forex or FX — is the process of converting one currency into another. It is essential for international trade, travel, and investment.
The forex market is the largest financial market in the world with a daily trading volume exceeding $7.5 trillion. Exchange rates fluctuate based on factors like interest rates, inflation, political stability, and economic performance.
For businesses, foreign exchange matters when buying or selling goods internationally. If a US company buys materials from Japan, it needs to convert dollars to yen — and the exchange rate directly impacts the cost.