Economic Point of View

Illustrative diagram showing the foreign exchange chart.

From the economic point of view , the expression Foreign exchange may be defined as the sum of those operations having for their object  the transmission of money from one country to another , it can also be the machinery  by which  the currency of one country is exchanged  for its market  equivalent in the currency  of another  country. When people buy foreign exchange or speculate in foreign exchange. What is meant , is that the British currency is exchanged for a foreign currency  and in the second case that certain people  are taking a view of this or that  foreign currency  and are exchanging British currency  for the foreign currency  relative to that of British currency. It is very necessary to understand at the start exactly what it is that is exchanged. It is not actual money. A comparatively insignificant business is done by money. Thwart Cork & Son Ltd in London are able at any time subject to Exchange for their equivalent, less expense and profit into notes of the Joint-stock Banks can also oblige their customers in this way. This sort of business is however insignificant and can be ignored. What is known as foreign exchange in the sense now to be considered is the exchange of rights of money, let’s say the right to sterling money existing  in form of  a credit balance in the books of a London bank  or in cheque or a monetary claim on London ; for the right say to Dollars in New York existing in the form of a credit entry in a New York  bank or in cheque or even upon a bill of exchange payable by some  bank or citizen of the united states , even in other form of claim on dollar currency.

THE NEED FOR FOREIGN EXCHANGE-

If  Great Britain’s pounds  sterling  stay in Britain, France, dollars in the United States and so on it is clear that if , for example, an English man in London owes a sum of roubles  to a Russian man in Moscow, he must in order to discharge the debt, find someone in London who in exchange for the English debtor’s right  to so much sterling  in London will give his Russian  creditor  the right to the equivalent  roubles in  Moscow. In short, the London debtor exchanges his cheque drawn on its Moscow correspondent for an equivalent sum in roubles.

EXCHANGE CONTROL-

There were restrictions imposed by as a result of the second world war 2 have modified were regarded as normal practises prior to 1939. Actually, in most cases, some explanation of pre-war practises has been given because first it assists an understanding of present conditions and secondly the controls can in many cases be regarded as transitory. In this instance, the Exchange Control Act, of 1948 is the cause of the modifications. The main effects of this Act are-

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      (a)To make it illegal to make payments to countries outside the sterling area without Treasury                   consent.

(    (b)To make it obligatory for people who receive foreign currency in return for goods or services to          offer currency for sale to certain authorised foreign exchange dealers.

(    (c)To make it obligatory for people exporting goods or services to certain countries to insist upon payment in a certain way. For instance exports to the United States of America must be paid for in dollars.

The forefront of these provisions does not mean that every individual or firm has to obtain written consent from the Treasury on each occasion that it wishes to purchase some foreign currency in order to make a payment outside the sterling area. The possession, for example of an import license, is regarded by banks and foreign exchange dealers as sufficient authority for the sale of currency. Exchange can be similarly being obtained where goods can be imported under Open General license, where no special import license is necessary. Tourists, travellers, and immigrants wishing to travel abroad may obtain their ration of currency by presenting their passports for endorsement.