Foreign Currency

Foreign currency is simply the legal tender of any foreign country approved by the nation’s government to be circulated within its borders.

For example, the US dollar ($), which is the currency of the United States of America, would be classified as a foreign currency when being imported into or handled inside the United Kingdom, whose national currency is the British pound (£).

Nearly every country, at least in practice, has its own currency. The main exception is that of the euro, which is the European Union’s single currency for Eurozone member states.

Virtually all member states use the euro (€), so in this case, even though German citizens would regard Italy as a foreign country, the currency of Italy however, the euro, is not a foreign currency in Germany, because Germany itself uses the Euro.

Such a monetary union has its advantages and disadvantages.

Foreign currencies are usually not accepted as a means of payment in any country or countries apart from the one or ones in which the currency itself was printed.

For example, the US dollar is not accepted in the United Kingdom. However, the euro, in some of the major UK stores are accepted, in addition to some popular tourist destinations.

Trading Foreign Currencies

Trading foreign currencies is known as trading the foreign exchange or forex market, where one places trades through forex brokers and their platforms.

So, if you felt that the US dollar was going to gain strength against the Japanese yen, you could consider placing a buy trade (known as going long) on the USD/JPY.

By extension, if you felt the Japanese yen was going to gain strength against the US Dollar, you could consider placing a sell trade (known as going short) on the USD/JPY.