What Is The Development Of The Foreign Exchange Concept?

No country in the world is self sufficient.  Poor countries produce raw materials but lack in manufactured goods for want of technology.  Rich and developed countries posses' abundance of manufactured goods but are deprived of raw materials.  Thus both poor and rich countries trade with each other.  Trade between countries is referred to as foreign trade.

The most crucial problem in foreign trade is to make payments to the exporting country in its currency.  In those days trading nations were on gold standards, 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.

Now gold standard no longer exists.  Every country possesses its own paper currency which is not convertible into gold and silver, and is quite different from other countries in value, size, shape, design, and mechanism.  The trading countries are not willing to accept each other currencies.  The difference in currency systems creates the need for the development of foreign exchange that refers to a system by trading nations can discharge one another's debts.  However, these countries are inclined, to accept those currencies which enjoy a