Question

Why do we need a foreign exchange market?

Answer 1

The primary purpose of the foreign exchange market is currency conversion for international trade and investment.
For example, when a Chinese company sells its goods in the United States and receives payments
in dollars. The Chinese company will convert the dollars into Yuan to be able to keep the money in
China. On the other hand, when an American company sells its goods in China. The American company will
receive payments in Yuan. Once the American company receives the money, the company will convert
the Chinese Yuan into American dollars.
Furthermore, when a Chinese investors wants to buy a property in the United States, the Chinese investor will
convert their Chinese Yuan into American dollars and buy the property.