Examples of Foreign Exchange – Benefits, Functions and Sources

Example of Foreign Exchange – Does Sinaumed’s know why Indonesian Migrant Workers (TKI) are often called foreign exchange heroes?

The reason for giving this nickname is because the income of the migrant workers in foreign currency will also be sent in part to our country. So, when they send it to Indonesia, there will be a contribution to the country’s foreign exchange system. How can this happen? Namely, these TKI have to “buy” rupiah currency with foreign currency according to which country they work in, so that the country’s foreign exchange also increases.

Then, what are the examples of foreign exchange? Does the existence of foreign exchange provide benefits to the Indonesian state?

So, so that Sinaumed’s can understand this, let’s look at the following review!

Foreign Exchange Example

It should be noted that foreign exchange is goods (an amount of gold or foreign currency) that can be used as a means of payment transactions between countries and is recognized by the international community.

Examples of foreign exchange can be in the form of foreign currency, gold, and securities.

1. Foreign Currency

This foreign currency or foreign exchange is an example of the foreign exchange that is most often used in the process of payment transactions internationally.

We certainly already know that the currency in each country is different, let’s say that in Indonesia it is called Rupiah, in Japan it is called Yen, in Korea it is called Won, in Thailand it is called Bath, and so on.

Well, in our country, foreign currencies that can be used as foreign exchange are Dollars (America), Yuan (China), Euros (European countries), Yen (Japan), and Pounds Sterling (UK).

Then, how do you apply this foreign exchange when there is someone from Indonesia in an international payment transaction? Namely by “exchanging” the rupiah currency with the foreign currency.

For example, there was a businessman from Surabaya named Mike who wanted to buy a machine from Japan. The Japanese ruler only wanted to be paid in yen.

What should Mike do?

That is, he can contact a foreign exchange bank to buy foreign currency as needed (in the form of Yen) and pay the foreign exchange in Rupiah.

The reason why when international transactions occur, foreign parties always ask for payment in Dollars (America), Yen (Japan), Euros (Europe), is because these foreign exchange values ​​are relatively more stable.

2. Some Gold

Apart from foreign exchange, gold can also be used as a means of payment in international payment transaction processes. However, not all gold can be used. Only those in the form of bars are considered valid as foreign exchange.

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For foreign exchange payments using gold bullion, the value must be equivalent to the value of the goods to be purchased. In addition, foreign exchange payments using gold must first obtain permission from the government.

3. Securities

The letter used to process international payment transactions is not just any letter, you know…

The securities in question are those that have a valuable value and are issued by the government. The form of these orders can be in the form of SDR, Cable Order, TC, to Wesel.

  • SDR or Special Drawing Rights , are credit rights for member countries of the IMF (international monetary fund organization) which aim to help countries that are experiencing difficulties in the international payment process.
  • Cable Order or Telegraphic Transfer , is a check sent via telegram, radiogram, or telephone from a domestic bank to a destination bank abroad.
  • TC or Traveler’s Check is a check that is usually carried by tourists when traveling to a foreign country and the check can be cashed at certain bank representatives.
  • Bill of Exchange or Wesel is an order addressed to the bank to pay a certain amount of money to someone.

Foreign Exchange Benefits for the Country

  • Help pay off foreign debt
  • Funding various activities including trading in foreign countries
  • Paying official expenses abroad
  • Accommodate athletes who want to compete abroad
  • Helping the process of procurement of goods from and to abroad

Foreign Exchange Function for the State

The existence of foreign exchange greatly affects the economic sector in a country. In general, we certainly know that the country’s foreign exchange serves as a means of payment in international transactions only. Even though in fact there are many functions of the existence of this country’s foreign exchange you know…

1. Means of Payment in International Trade

In this case, the country’s foreign exchange acts as a second currency for countries that are in the process of exporting and importing.

2. Sources of State Revenue

Not only serves as a means of payment, but this foreign exchange can also function as a source of income in a country. Therefore, the existence of foreign exchange can indirectly help the process of national development and economic improvement in a country.

3. International Relations Financing Tool

It should be noted that when conducting international relations involving countries, certain costs are required. Certain costs can come from existing foreign exchange.

International relations are for example official trips abroad, diplomatic activities, athlete competitions, and others.

4. Means of Payment of Foreign Debt

Especially in developing countries, it is “usual” to make debts to other countries. So, to pay off or pay off the debt, you can use foreign exchange as a means of payment.

Foreign Exchange Sources

Previously, it was explained that most of the foreign exchange sources came from Indonesian Migrant Workers (TKI) working abroad. That is also why they are called Foreign Exchange Heroes.

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However, it turns out that a portion of our country’s foreign exchange also comes from international activities, for example the export of goods and services. Then what are the international activities that are the source of foreign exchange?

1. Goods and Services Export Activities

This activity also plays a big role as a source of foreign exchange for the country. A country that exports goods and services abroad, of course, will generate many benefits, one of which is that the foreign exchange will increase.

2. Tourism Activities

This activity relates to examples of foreign exchange, namely foreign exchange. In tourism activities, especially foreign tourists, they will exchange their country’s currency for the currency of the country being visited. When the process of exchanging the currency, there will definitely be a certain value deduction. Well, this certain value can be a source of foreign exchange for a country.

Therefore, tourism conditions will of course affect the source of foreign exchange in a country. The better the tourism, the more tourists will come, the more foreign exchange the country will earn.

3. Foreign Debt

Especially for developing countries, it is certain that they will make loans to other countries. So, loans from abroad will later be recorded as foreign exchange.

Even though the loan will be returned, foreign debt can also be referred to as a source of foreign exchange.

4. Fees for Services Overseas

The services in question are banking services, goods delivery services, to ship port services. Countries that rely on these services will of course get rewards which can later be used as a source of foreign exchange.

5. Aid, Grants, or Gifts From Overseas

In the international world, it is common for countries to provide assistance, grants, and gifts for certain purposes. If the assistance, grants, or gifts given are in the form of money, they can later become a source of foreign exchange for the country.

However, if the aid, grant or gift is in the form of goods, it can be used as a measure to save foreign exchange because the state does not need to spend money to buy these goods.

6. Import Duty Collection

Import duty levy can also be a source of foreign exchange in a country. Import duty levy is an amount of money paid for various goods coming from abroad.

Therefore, the more goods that come from abroad, the more they will be collected, so that they can become a source of foreign exchange in a country.

Well, that’s an explanation of examples of foreign exchange that apply in a country. Sinaumed’s also needs to know that the applicable foreign exchange must be recognized and have government permission, especially at Bank Indonesia.



Related article:

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  2. Get to know Import Export
  3. Domestic and International Trade
  4. Negative Impacts of International Trade
  5. International Trade Theory
  6. Foreign Exchange Rates
  7. Positive Impact of International Trade