Foreign Exchange Transaction Law and Legal Definition

Foreign exchange transaction is a type of currency transaction that involves two countries. Generally, a foreign exchange transaction involves conversion of currency of one country with that of another. The conversion of currency in a foreign exchange transaction can be performed through :

1. buying or selling of goods and services on credit;

2. borrowing or lending funds.

A foreign exchange transaction is usually carried out in foreign exchange markets. An example of a foreign exchange transaction is where a person buys dollars and sells pounds.

The following is an example of a federal statute defining foreign exchange transaction:

Pursuant to U.C.C. § 2-103 (i) "Foreign exchange transaction" means a transaction in which one party agrees to deliver a quantity of a specified money or unit of account in consideration of the other party's agreement to deliver another quantity of a different money or unit of account either currently or at a future date, and in which delivery is to be through funds transfer, book entry accounting, or other form of payment order, or other agreed means to transfer a credit balance. The term includes a transaction of this type involving two or more moneys and spot, forward, option, or other products derived from underlying moneys and any combination of these transactions. The term does not include a transaction involving two or more moneys in which one or both of the parties is obligated to make physical delivery, at the time of contracting or in the future, of banknotes, coins, or other form of legal tender or specie.