ABSTRACT
Like any other market in economic theory, the foreign exchange market is also a commodity relationship, and is defined as the relation between buyers and sellers for the purchase and disposal of the currencies of different denomination. A student desiring to send some amount of USDs to New York as an application fee has to approach a local bank for the purchase of the required dollars. He is asked to submit a specified amount of Indian rupees to the bank and he obtains a demand draft for USDs drawn on a New York bank. The relationship between the amount of Indian rupees and USDs is determined by the price of one unit of USD in terms of Indian rupee, and this price is the exchange rate of the Indian currency. Exchange rate is the price of one unit of foreign currency in terms of the domestic currency.
