Bank-led foreign exchange trade refers to the process where commercial banks conduct foreign exchange transactions on behalf of their clients or for their own accounts. This typically involves exchanging one currency for another at agreed-upon rates, facilitating international trade, investment, and travel.
In the finance sector, banks act as intermediaries, providing liquidity and establishing currency exchange rates based on market demand and supply. They also offer services such as forward contracts and options, which allow businesses to hedge against currency risk.
The relevance of bank-led foreign exchange trade lies in its integral role in the global economy. It enables smooth cross-border transactions by providing access to various currencies, thereby supporting international commerce. Additionally, it helps businesses and investors manage their exposure to fluctuating exchange rates, ensuring price stability and reducing uncertainty in international operations.
