Countries of the world have been exchanging goods and services amongst themselves from time immemorial. With the invention of money, the rigours and problems of barter trade have disappeared.
The barter trade has given way to exchange of goods and services for currencies instead of exchange for goods and services.
In today’s world no country is self sufficient, so there is a need for exchange of goods and services amongst the different countries.
However, unlike in the primitive age the exchange of goods and services is no longer carried out on barter basis. Every sovereign country in the world has a currency, which is a legal tender in its territory, and this currency does not act as money outside its boundaries. So whenever a country buys or sells goods and services from or to another country, the residents of two countries have to exchange currencies.
So we can imagine that if all countries have the same currency then there is no need for foreign exchange. As every sovereign nation has a distinct national currency, international trade has necessitated exchange of currencies and this exchange of currencies necessitated exchange rate.
International monetary system denotes the institutions under which payments are made for transactions that reach across national boundaries. In particular, the international monetary system determines how foreign exchange rates are set and how the government can affect the rates.
The barter trade has given way to exchange of goods and services for currencies instead of exchange for goods and services.
In today’s world no country is self sufficient, so there is a need for exchange of goods and services amongst the different countries.
However, unlike in the primitive age the exchange of goods and services is no longer carried out on barter basis. Every sovereign country in the world has a currency, which is a legal tender in its territory, and this currency does not act as money outside its boundaries. So whenever a country buys or sells goods and services from or to another country, the residents of two countries have to exchange currencies.
So we can imagine that if all countries have the same currency then there is no need for foreign exchange. As every sovereign nation has a distinct national currency, international trade has necessitated exchange of currencies and this exchange of currencies necessitated exchange rate.
International monetary system denotes the institutions under which payments are made for transactions that reach across national boundaries. In particular, the international monetary system determines how foreign exchange rates are set and how the government can affect the rates.