The foreign exchange market is a medium by which a wide range of businesses and consumers globally can trade in foreign currency.
There are two main reasons for doing this. Firstly it facilitates international trade and development. Businesses and consumers alike may wish to buy and sell in foreign jurisdictions and will want to do this as efficiently as possible by paying for the products in the correct currency. For example, if I opened a British Tea Shop in Boston I may want to purchase some furniture from Bristol and pay in Pounds Sterling and get my Assam from Assam and pay in Indian Rupees. Also I may go and see a forex broker who will most likely have her finger on the pulse regarding the value of each currency and get me the best price.
Another aim of the forex markets is for banks and other financial institutions and individuals to turn profit by trading in foreign money which is a valuable asset and can be traded the same as commodities futures, carbon emissions and cabbages. So your broker who sold you the Rupees may also be moonlighting at Morgan Stanley buying and selling on their FX desk making the bank profit by borrowing low yield currency and investing in high yield. So she would probably be investing in Rupees due to the growth in tea production in the Guwahati District (and recent improvements in production techniques) and avoiding GBP's due to the recent comments by the Bank of England Governor that the Brits are in for more financial misery on account of having an almost entirely service industry lead economy.
The average guy on the street has a view of currency exchange different from both of these examples. This is the scenario where at the airport you are confronted with grossly exaggerated exchange rates and commissions and charges to get your money changed. This is on account of private businesses who cater for retail money exchange and do so at a fairly steep commission, their justification being that if you are at the Airport without any foreign money, it's probably too late to engage the services of our FX broker or your local bank. The best way to get out of that one is to compare currency exchange prices on the internet and get it sorted before you travel.
