What is a Foreign Currency?

A foreign currency is the currency used by a foreign country as its recognized form of monetary exchange. This particular currency is the only form of exchange that the applicable government allows to be used for buying and selling within its borders. It typically includes banknotes, coins, and electronic money denominated in a currency that is different from the domestic currency of the individual or business. For example, the euro is a foreign currency for individuals in the United States, while the US dollar is a foreign currency for individuals in Europe. Foreign currency is traded in the foreign exchange market, where its value fluctuates based on supply, demand, and economic factors.