Why does foreign exchange trading exist?

At the root of it all, international trade is the most obvious reason for the existence of the foreign exchange market. Importers buying goods in a foreign country need to sell their local currency and buy foreign currency to pay for the goods they have bought in the currency of the country in which they have bought them. On the other side of the trade equation, exporters will often receive payment for the goods they sell overseas in the currency of the country to which their goods have been sent. In the majority of cases, these exporters will then need to convert the foreign currency they have earned back to their local currency.

As mentioned in chapter 2, the exchange of currencies from different countries and regions for the purpose of international trade can be traced back thousands of years to merchants travelling the Silk Road through Asia and trading in the bazaars of Mesopotamia. These days, with the advent of globalisation and the ever-growing cross-border trade in goods and services, international mergers and acquisitions, and 24-hour financial markets, FX transactions are even more prevalent.