Examples of Foreign Exchange – Benefits, Functions, and Sources

Examples of Foreign Exchange – Benefits, Functions, and Sources

Nikereact.org –  Do you know why TKI (Indonesian Workers) are often dubbed as foreign exchange heroes?

The reason for giving this nickname is because the income of the TKI in the form of foreign currency will later be sent also partly to our country. Well, 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 must “buy” the rupiah currency with a foreign currency according to the country where they work, so that the country’s foreign exchange will also increase.

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

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

Example of Foreign Exchange

Examples of Foreign Exchange – Benefits, Functions, and Sources

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

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

1. Foreign Currency

This foreign currency or foreign currency is an example of foreign exchange that is most often used in the payment transaction process in the international world.

We must already know that the currency in each country is different, for example 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 value are the Dollar (America), Yuan (China), Euro (European country), Yen (Japan), and Pound sterling (UK).

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

For example, there is an entrepreneur from Surabaya named Mike who wants to buy a machine from Japan. The ruler of Japan only wants to be paid in yen.

What should Mike do?

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

The reason why when an international transaction occurs, foreign parties always ask for payment in dollars (US), yen (Japan), euros (Europe), is because the foreign exchange value is relatively more stable.

2. Amount of Gold

In addition to foreign exchange, gold can also be used as a means of payment in the process of international payment transactions. However, not all gold can be used. Only those in the form of bars that are considered valid are considered as foreign exchange.

Foreign exchange payments using gold bars, 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 warrants can be in the form of SDR, Cable Order, TC, to Money Order.

  • 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 foreign destination bank.
  • TC or Traveler’s Check is a check that tourists usually carry when traveling to a foreign country and the check can be cashed at certain representative banks.
  • Bill of Exchange or Money Order is a letter of order addressed to a bank to pay a certain amount of money to someone.

Foreign Exchange Benefits for the Country

  • Help pay off foreign debt
  • Financing various activities including trade in foreign countries
  • Paying official fees for overseas officials
  • Accommodating athletes who want to compete abroad
  • Assist in the procurement process of goods from and to abroad

Foreign Exchange Functions for Countries

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

1. Payment Instruments in International Trade

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

2. Source 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

Please note that when carrying out international relations involving between countries, there must be certain costs. Certain costs can come from the country’s existing foreign exchange.

International relations include business trips abroad, diplomatic activities, athlete competitions, and so on.

4. Foreign Debt Payment Instruments

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

Source of Foreign Exchange

Previously, it has been explained that most of the foreign exchange sources come from Indonesian Migrant Workers (TKI) who work abroad. That is also why they are dubbed as Foreign Exchange Heroes.

However, it turns out that part of our country’s foreign exchange is also sourced from international activities, such as 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 major 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 foreign exchange will be even greater.

2. Tourism Activities

This activity is related to an example of foreign exchange, namely foreign exchange. In tourism activities, especially foreign tourists, will later exchange their country’s currency with the currency of the country being visited. During the currency exchange process, there will be a certain deduction in value. Well, this certain value can be a source of foreign exchange for a country.

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

3. Foreign Debt

Especially for developing countries, they will certainly make loans to other countries. Well, the loan from abroad will later be recorded as foreign exchange.

Although the loan will be repaid, foreign debt can be referred to as a source of foreign exchange as well.

4. Rewards for Services Abroad

The services in question are banking services, freight forwarding 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. Assistance, Grants, or Gifts From Overseas

In the international world, one country to another usually provides assistance, grants, and gifts for certain purposes. Such assistance, grants, or gifts, if in the form of money, can later become a source of foreign exchange for the country.

However, if the assistance, grant, or gift given 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 Duties

Import duties can also be a source of foreign exchange in a country. Import duties are the amount of money paid for various goods that come from abroad.

Therefore, the more goods that come from abroad, the more the collection will be, so that it can become a source of foreign exchange in a country.Well, that’s an explanation of an example of foreign exchange that applies in a country.  also needs to know that the applicable foreign exchange must be recognized and have a government permit, especially at Bank Indonesia.

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