Foreign currency and coin itself (as opposed to bank deposits) is an important instrument for payment in the foreign exchange markets. This is especi

Foreign currency and coin itself (as opposed to bank deposits) is an important instrument for payment in the foreign exchange markets. This is especially true for tourists, who require pocket money to pay for lodging, meals, transactions, etc. usually this money winds up in the hands of merchants accept it in payment for purchases and is deposits in domestic banks. For example, many U.S. banks operating along the Canadian and Mexican borders receive a substantial volume of Canadian dollars and Mexican pesos each day. These funds are normally routed through the banking system back to banks in the country of issue, and the U.S. banks receive credit in the form of a deposit denominated in a foreign currency. This deposit may then be loaned to a customer or another bank that needs foreign currency. Some dealers in the New York money market buy and sell foreign bank notes and coins.