Foreign exchange market in the context of "Open market operations"

Commerce is the organized system of activities, functions, procedures and institutions that directly or indirectly contribute to the smooth, unhindered exchange of goods, services, and other things of value—predominantly through transactional processes—at the right time, place, quantity, quality and price through various channels among the original producers and the final consumers within local, regional, national or international economies. The diversity in the distribution of natural resources, differences of human needs and wants, and division of labour along with comparative advantage are the principal factors that give rise to commercial exchanges.

Commerce consists of trade and aids to trade (i.e. auxiliary commercial services) taking place along the entire supply chain. Trade is the exchange of goods (including raw materials, intermediate and finished goods) and services between buyers and sellers in return for an agreed-upon price at traditional (or online) marketplaces. It is categorized into domestic trade, including retail and wholesale as well as local, regional, inter-regional and international/foreign trade (encompassing import, export and entrepôt/re-export trades). The exchange of currencies (in foreign exchange markets), commodities (in commodity markets/exchanges) and securities and derivatives (in stock exchanges and financial markets) in specialized exchange markets, typically operating under the domain of finance and investment, also falls under the umbrella of trade. On the other hand, auxiliary commercial activities (aids to trade) which can facilitate trade include commercial intermediaries, banking, credit financing and related services, transportation, packaging, warehousing, communication, advertising and insurance. Their purpose is to remove hindrances related to direct personal contact, payments, savings, funding, separation of place and time, product protection and preservation, knowledge and risk.

A currency is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes, coins,electronic balances in bank accounts, and central bank digital currencies (CBDCs).A more general definition is that a currency is a system of money in common use within a specific environment over time, especially for people in a nation state. Under this definition, the Pound sterling (£), euro (€), Japanese yen (¥), and U.S. dollars (US$) are examples of (government-issued) fiat currencies. Currencies may act as stores of value and be traded between nations in foreign exchange markets, which determine the relative values of the different currencies. Currencies in this sense are either chosen by users or decreed by governments, and each type has limited boundaries of acceptance; i.e., legal tender laws may require a particular unit of account for payments to government agencies.

Other definitions of the term currency appear in the respective synonymous articles: banknote, coin, and money. This article uses the definition which focuses on the currency systems of countries (fiat currencies).

The yen (Japanese: 円; symbol: ¥; code: JPY) is the official currency of Japan. It is the third-most traded currency in the foreign exchange market, after the United States dollar and the euro. It is also widely used as a third reserve currency after the US dollar and the euro.

The New Currency Act of 1871 introduced Japan's modern currency system, with the yen defined as 1.5 g (0.048 troy ounces) of gold, or 24.26 g (0.780 troy ounces) of silver, and divided decimally into 100 sen or 1,000 rin. The yen replaced the previous Tokugawa coinage as well as the various hansatsu paper currencies issued by feudal han (fiefs). The Bank of Japan was founded in 1882 and given a monopoly on controlling the money supply.

Sterling (symbol: £; currency code: GBP) is the currency of the United Kingdom and nine of its associated territories. The pound is the main unit of sterling, and the word pound is also used to refer to the British currency generally, often qualified in international contexts as the British pound or the pound sterling.

Sterling is the world's oldest currency in continuous use since its inception. In 2022, it was the fourth-most-traded currency in the foreign exchange market, after the United States dollar, the euro, and the Japanese yen. Together with those three currencies and the renminbi, it forms the basket of currencies that calculate the value of IMF special drawing rights. As of late 2022, sterling is also the fourth most-held reserve currency in global reserves.

An exchange, bourse (/bʊərs/), trading exchange or trading venue is an organized market where people can buy and sell financial instruments, such as tradable securities, commodities, foreign exchange and derivative contracts.

In macroeconomics and modern monetary policy, a devaluation is an official lowering of the value of a country's currency within a fixed exchange-rate system, in which a monetary authority formally sets a lower exchange rate of the national currency in relation to a foreign reference currency or currency basket. The opposite of devaluation, a change in the exchange rate making the domestic currency more expensive, is called a revaluation. A monetary authority (e.g., a central bank) maintains a fixed value of its currency by being ready to buy or sell foreign currency with the domestic currency at a stated rate; a devaluation is an indication that the monetary authority will buy and sell foreign currency at a lower rate.

However, under a floating exchange rate system (in which exchange rates are determined by market forces acting on the foreign exchange market, and not by government or central bank policy actions), a decrease in a currency's value relative to other major currency benchmarks is instead called depreciation; likewise, an increase in the currency's value is called appreciation.

Foreign exchange reserves, also called Forex reserves, in a strict sense, are foreign-currency deposits held by nationals and monetary authorities. However, in popular usage and in the list below, it also includes gold reserves, special drawing rights (SDRs) and IMF reserve position because this total figure, which is usually more accurately termed as official reserves or international reserves or official international reserves, is more readily available and also arguably more meaningful. These foreign-currency deposits are the financial assets of the central banks and monetary authorities that are held in different reserve currencies (e.g., the U.S. dollar, the euro, the pound sterling, the Japanese yen, the Indian rupee, the Swiss franc, and the Chinese renminbi) and which are used to back its liabilities (e.g., the local currency issued and the various bank reserves deposited with the Central bank by the government or financial institutions). Before the end of the gold standard, gold was the preferred reserve currency.

Foreign-exchange reserves is generally used to intervene in the foreign exchange market to stabilize or influence the value of a country's currency. Central banks can buy or sell foreign currency to influence exchange rates directly. For example, if a currency is depreciating, a central bank can sell its reserves in foreign currency to buy its own currency, creating demand and helping to stabilize its value. High levels of reserves instill confidence among investors and traders. If market participants believe that a country has sufficient reserves to support its currency, they are less likely to engage in speculative attacks that could lead to a sharp depreciation. In times of economic uncertainty or financial market volatility, central banks can use reserves to smooth out fluctuations in the exchange rate, reducing the impact of sudden capital outflows or shocks to the economy. Adequate reserves ensure that a country can meet its international payment obligations, which helps maintain a stable exchange rate by preventing panic in the foreign exchange market. Having substantial reserves allows central banks to implement monetary policies more effectively. They can afford to maintain interest rates or engage in other measures without the immediate fear of depleting reserves, which can influence market expectations positively.

The global financial system is the worldwide framework of legal agreements, institutions, and both formal and informal economic action that together facilitate international flows of financial capital for purposes of investment and trade financing. Since emerging in the late 19th century during the first modern wave of economic globalization, its evolution is marked by the establishment of central banks, multilateral treaties, and intergovernmental organizations aimed at improving the transparency, regulation, and effectiveness of international markets. In the late 1800s, world migration and communication technology facilitated unprecedented growth in international trade and investment. At the onset of World War I, trade contracted as foreign exchange markets became paralyzed by money market illiquidity. Countries sought to defend against external shocks with protectionist policies and trade virtually halted by 1933, worsening the effects of the global Great Depression until a series of reciprocal trade agreements slowly reduced tariffs worldwide. Efforts to revamp the international monetary system after World War II improved exchange rate stability, fostering record growth in global finance.

A series of currency devaluations and oil crises in the 1970s led most countries to float their currencies. The world economy became increasingly financially integrated in the 1980s and 1990s due to capital account liberalization and financial deregulation. A series of financial crises in Europe, Asia, and Latin America followed with contagious effects due to greater exposure to volatile capital flows. The 2008 financial crisis, which originated in the United States, quickly propagated among other nations and is recognized as the catalyst for the worldwide Great Recession. A market adjustment to Greece's noncompliance with its monetary union in 2009 ignited a sovereign debt crisis among European nations known as the Eurozone crisis. The history of international finance shows a U-shaped pattern in international capital flows: high prior to 1914 and after 1989, but lower in between. The volatility of capital flows has been greater since the 1970s than in previous periods.

The Australian dollar (sign: $; code: AUD; also abbreviated A$ or sometimes AU$ to distinguish it from other dollar-denominated currencies; and also referred to as the dollar or Aussie dollar) is the official currency and legal tender of Australia, including all of its external territories, and three independent sovereign Pacific Island states: Kiribati, Nauru, and Tuvalu. In April 2022, it was the sixth most-traded currency in the foreign exchange market and as of Q1 2024 the sixth most-held reserve currency in global reserves.

The Australian dollar was introduced as a decimal currency on 14 February 1966 to replace the non-decimal Australian pound, with the conversion rate of two dollars to the pound (£A1 = A$2). It is subdivided into 100 cents. The $ symbol precedes the amount. On the introduction of the currency, the $ symbol was intended to have two strokes, but the version with one stroke has also always been acceptable.