ABSTRACT
Foreign exchange is the most general form of conversion between two separate spheres of payment. Its basis is that the moneys1 current in the two spheres are exchanged at a definite numerical rate, which, in the notation of chapter 3, may be expressed as rij, so that if mi is the money of the sphere of payment Si, and mj, of Sj, then mi=rij·mj. It then follows, by the same line of reasoning, that in terms of any arbitrary chosen unit (which may, but need not, be the denomination of one of the mi), there is a series of numbers, [Vi], such that mi=Vi·ε and rij=Vi/Vj. If money-changing were to take place on the basis of fixed rates established in this way, the different spheres would effectively be consolidated.2 In practice, the rates vary in response to market factors, while transactions must not only allow for a margin of profit to professional money-changers, but may be subject also to all manner of official restrictions-particularly in the modern age.
