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There are 2 primary needs for foreign exchange:

1) To allow individual and businesses to pay for a product or service in a different currency from that which they currently hold. For example, I currently hold European Union Monetary Units (EURO or EUR) and I need to purchase a case of coconuts from Malaysia and the bill is in Malaysian Ringgit (MYR). I need a method to convert the EUR into MYR to settle the bill. The monetary conversion must take place at some point regardless of whether I physically travel to Malaysia to pay in person or send the money through other means.

2) For hedging, a company may hold multiple currencies and have a need to hedge their exposure against the rise or fall of a particular currency. So they could use a retail broker and buy or sell a certain amount of the currency they are hedging against to protect against losses from exchange rates rising or falling between the time they hold the currency and the time that the currency has to be used for spending on products or materials.

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12y ago

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