Different countries have different currencies and the settlement of all business transactions within a country is required/preferred in the local currency. The foreign exchange (FE) where the currency of one country is traded for the currency market provides a forum another country FE markets deal with a large volume of funds as well as a large number of currencies of various countries. The major of markets are London, New York and Tokyo and the major currencies traded are the US dollar, British pound sterling, Euro, French franc, Japanese yen, of Deutsche mark, and Swiss franc. Commercial banks and central banks of the countries are the major participants in the FE markets. Business firms normally buy and sell securities through authorized dealers, say, commercial banks or brokers, While the commercial banks and other participants in the FE markets operate on commercial principles, the operations of the central banks are primarily regulatory in nature. Different currencies have different values: they are traded at an exchange rate. An exchange rate is the price of one country's currency expressed in terms of the currency of another country Foreign exchange rate/quotation can either be direct or indirect. It is said to be direct when it is expressed in a manner that reflects the exchange of a specified number of domestic currency (say, Rs 48) for one unit of foreign currency (say, US $). The FE quotation is indirect when it is quoted in a manner that reflects the exchange of a specified number of foreign currency (say, US $0.02083) for one unit of local currency (say 1 rupee). Direct quotations are known as European quotation and indirect quotations as American There are two-way rates for the FE quotations, one for buying the foreign currency (bid price) and another for its selling (ask price). Since dealers expect profit in foreign exchange operations, the bid price is lower than the ask price, The FE quotations are always with respect to the dealer. By convention, the first rate is the buying rate and the second rate is the selling rate (say Rs 47.50 Quotations, in practice, are up to four decimal points. Rs. 48.00 for US $1. Spread is the difference between the bid price and the ask price. It is gross profit of a dealer, out of which it meets its business/establishment expenses while spot exchange rates are applicable to the purchase and sale of foreign exchange on an immediate delivery basis (in practice delivery takes place two days later), the forward exchange rates are applicable for the delivery of foreign exchange at a future date sayafter 1 month/3 months/6 months and so on).

KEYWORDS: Foreign Exchange (FE), Local Currency, Direct Quotations, Bid Price, Ask Price.