Currency exchange market is a medium through which currencies of different nations can be exchanged. Currency exchange market is also named as ‘FX market’ or ‘Foreign Exchange market'. The rate at which one currency is exchanged for another is called as currency exchange rate. These currency exchange rates are quoted regularly on all major newspapers across the world. The exchange rate for any currency is determined by the market forces of Demand-Supply Mechanism. If the demand for a particular foreign currency in comparison with another currency, goes up than its value increases, but if the demand goes down, than the value of the currency also goes down. The supply factor of the Demand-Supply Mechanism also affects the value of a currency, but in an antagonist manner to the demand factor. All major stock exchanges around the world carry out currency trading in the derivative segment.

Banks and various financial institutions carry out currency exchange trading in order to hedge their position, to mitigate the risk associated with currency fluctuations. Investment banks and financial institutions execute currency exchange trading on behalf of their clients, using various financial instruments. ‘Currency Swaps’ are the most famous derivative contracts in the segment of OTC market (Over-The-Counter Market), used by various commercial banks across the world.