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TeachMeFinance.com - explain exchange exchange -- a central facility where various financial instruments are traded. The exchange is an organized, well capitalized body owned by the holders of seats. The exchange establishes the rules under which the financial instruments are traded and terms are established by the bidding process of buyers and sellers on the floor of the exchange. historic definition... Exchange -- The payment of an obligation in one place by the transfer of a credit from another place. By this operation the obligation is discharged without the direct forwarding of money. Exchange, in itself, is an order obtained in one place for the payment of money in another place. Exchange is divided into domestic exchange and foreign exchange , but the same principles obtain in both. In the United States the term exchange (whether referring to foreign exchange or domestic exchange, but specifically in referring to foreign exchange) is used, whereas in Great Britian the custom is to use the term in the plural, viz : the exchanges. The term is, of course, derived from the exchanges of moneys and credits. It is the common practise in the United States to say exchange when bills of exchange are meant ; and likewise the term exchange is generally construed as meaning foreign exchange. There is practically no difference between a bill of exchange and a draft. The term bill of exchange, however, is commonly applied to an order for money payable in a foreign country, whereas the term draft is applied to an order payable within the country of its origin. For additional information see Domestic exchange ; also see Foreign exchange. The term exchange also means a place where purchases and sales are made, as stock exchange. About the author Mark McCracken Author: Mark McCracken is a corporate trainer and author living in Higashi Osaka, Japan. He is the author of thousands of online articles as well as the Business English textbook, "25 Business Skills in English". Copyright © 2005 by Mark McCracken, All Rights Reserved. TeachMeFinance.com is an informational website, and should not be used as a substitute for professional financial or legal advice. TeachMeFinance.com and its owner recommend consultation with a professional financial advisor prior to any investment or financial decision. Please read our disclaimer.