The Dornbusch Model

A foreign exchange market is a market where a convertible currency is exchanged for another convertible currency or other convertible currencies. In the transaction or execution of conversion, one currency is considered domestic and the other is regarded as foreign, from a certain geographical or sovereign point of view, so is the term foreign exchange derived. Foreign exchange markets are not reserved for traders or finance professionals only but for almost everyone, from multinational corporations operating in several countries to tourists travelling across two currency zones. As long as national states or blocs of national states that adopt their own currencies exist, foreign exchange markets will persist to serve business, nonbusiness, and sometimes, political needs of business firms, governments, individuals, and international organizations and institutions.