Monday, August 10, 2009


The most crucial problem in foreign trade is to make payments to the exporting country in its currency. In those days when trading nations were on gold standard, there was no problem in discharging each other's debts. The transactions were settled through paying or receiving gold coins or currencies convertible into gold and silver.

But now gold standard no longer exists. Every country possesses its own paper currency which is not convertible into gold or silver, and is quite different from other country's in value, size, shape, design, and mechanism. the trading countries are not willing to accept each other's currencies. The difference in currency systems creates the need for the development of foreign exchange that refers to a system by which trading nations can discharge one another's debts. However, these countries are inclined to accept those currencies which enjoy a great demand, readily convertible into any currency, and enjoys the confidence of businessman, common men, and Governments around the world. On this standard come dollars, pounds, marks, yens, etc. All trading nations are ready to accept these currencies in imports and exports which enjoys the status of foreign exchange.

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