Define foreign exchange.    

What is Foreign Exchange? Simply put, foreign exchange means foreign currency. And foreign currency is any currency other than domestic currency of a country. For Indian, American dollar, Japanese yen and British pound are foreign exchange. Every country has its own currency which is used as a medium of exchange within the national border of that country (and not outside the country). For instance, currency of India is Indian Rupee, of America is US Dollar, of UK is British Pound, of Japan is Yen, etc. There is no problem of payment if transactions (sales and purchases) are made within the national border of a country. For instance, if a seller in New Delhi sells goods to a buyer in Bangalore, he is paid in rupees. There is no problem because both use the same currency in spite of big regional difference. But if a seller sells goods to a buyer in England, the problem of foreign currency occurs because the seller wants to receive payment in rupees whereas the buyer wants to pay in pounds. Payments across the border give rise to new situation of international payments. Currency which is used for making international payments is called Foreign Exchange. Thus foreign exchange refers to all currencies other than the domestic currency of a given country. For instance, for India, all currencies other than Indian Rupee are foreign exchange and similarly for America, all currencies other than its US Dollar are foreign exchange. Now the problem arises at what rate currencies of two countries should be exchanged. Hence the next question on foreign exchange rate. Remember, it is foreign exchange rate on which volume and direction of foreign trade depends.