question: How does trade between countries work in terms of currency? If Country A buys millions of dollars worth of commodities from Country B, how do they pay? Do they give them cash? Gold? Bank transfer?
comment: Think of countries as regular companies for this case. Countries don't really buy things - it's state companies that are run (more or less) like private companies, think of train networks requiring trains, power grids require generators, water networks needing pumps, etc. - when they buy something - and it doesn't matter if its domestic or foreign - they'll agree on a price (and a currency - especially in countries with weak local currencies, a strong foreign currency is actually agreed upon even on domestic deals) with the seller. On longer running deals, most companies (state or private owned doesn't matter) then pay some insurance to have their exchange rate fixed (especially if the exchange rate between the local and foreign currency is more volatile) so they'll pay the same amount in their local currency for the foreign product over a longer amount of time.
passages: The sender gives money to an IVTS agent and his/her counterpart in the receiver region/country acts as deliverer of this money. The sender calls or faxes instructions to his counterpart and the money gets delivered in a matter of few hours. In the past, the message could be delivered using couriers, with men or even animals (such as pigeons). Settlements are made either with a private delivery service or wire transfer in the opposite direction. Another method of balancing the books is to under-invoice goods shipped abroad, so that the receiver can resell the products at a higher market price.
   In some countries, IVTS-type networks operate in parallel with formal financial institutions or as a substitute or alternative for them or. Besides citizens of the host country, people (legally or illegally) residing in the host country from foreign countries may prefer or need to use IVTS in lieu of formal financial institutions for various reasons as described below:
  
  BULLET::::- the host country and the receiving country have no diplomatic ties or the host country actively discourage the sending of money to the receiving country.
   documentary credit(L/C)-a Letter of credit (L/C) is used; gives the seller two guarantees that the payment will be made by the buyer:one guarantee from the buyer's bank and another from the seller's bank.
  
  bills for collection(B/E or D/C) -here a Bill of Exchange (B/E)is used; or documentary collection (D/C) is a transaction whereby the exporter entrusts the collection of the payment for a sale to its bank (remitting bank), which sends the documents that its buyer needs to the importer’s bank (collecting bank), with instructions to release the documents to the buyer for payment.
   Supply Chain intermediaries have expanded in recent years to offer importers a funded transaction of individual trades from foreign supplier to importers warehouse or customers designated point of receipt. The Supply Chain products offer importers a funded transaction based on customer order book.
  
  Section::::Methods of payment.
  
  Popular methods of payment used in international trade include:
  
  cash with order(CWO)-the buyers pay cash when he places an order.
  
  cash on delivery(COD)-the buyer pays cash when the goods are delivered.
   Currency: Omani rial
  
  Section::::Amount in a roll in each country.:Panama.
  
  Currency: Panamanian balboa
  
  Section::::Amount in a roll in each country.:Papua New Guinea.
  
  Currency: Papua New Guinean kina 
  
  Section::::Amount in a roll in each country.:Peru.
  
  Currency: Peruvian sol
  
  Section::::Amount in a roll in each country.:Philippines.
  
  Currency: Philippine peso
  
  Section::::Amount in a roll in each country.:Romania.
  
  Currency: Romanian leu
  
  Section::::Amount in a roll in each country.:San Marino.
  
  Currency: Sammarinese lira
  
  Section::::Amount in a roll in each country.:Saudi Arabia.
  
  Currency: Saudi riyal
  
  Section::::Amount in a roll in each country.:Serbia.
  
  Currency: Serbian dinar
  
  Section::::Amount in a roll in each country.:Seychelles.
  
  Currency: Seychellois rupee
   Money changer
  
  A money changer is a person or organisation whose business is the exchange of coins or currency of one country, for that of another. This trade was a predecessor of modern banking.
  
  The advent of paper money in the mid-17th century and the development of modern banking and floating exchange rates in the 20th century allowed a foreign exchange market to develop. This provided a way for banks and other specialist financial companies such as bureaux de change and forex brokers to easily change one country's money for another, and with the added confidence of transparency.
   BULLET::::- between Mauritius and Seychelles using the Mauritian rupee
  
  BULLET::::- between Nigeria, the Gambia, Sierra Leone, the Gold Coast and Liberia using the British West African pound
  
  BULLET::::- between Prussia and the North German states (1838–1857) using the North German thaler
  
  BULLET::::- between Russia and the former Soviet republics (1991–1993) using the Soviet ruble
  
  BULLET::::- between Qatar and all the emirates of the UAE, except Abu Dhabi using the Qatari and Dubai riyal
  
  BULLET::::- between Saudi Arabia and Qatar using the Saudi riyal
  
  BULLET::::- between Samoa and New Zealand using the New Zealand pound
   BULLET::::- An import of a good occurs when there is a change of ownership from a non-resident to a resident; this does not necessarily imply that the good in question physically crosses the frontier. However, in specific cases national accounts impute changes of ownership even though in legal terms no change of ownership takes place (e.g. "cross border financial leasing", "cross border deliveries between affiliates of the same enterprise", "goods crossing the border for significant processing to order or repair"). Also smuggled goods must be included in the import measurement.
   The IMF's capital account does include some non-transfer flows, which are sales involving non-financial and non-produced assets—for example, natural resources like land, leases and licenses, and marketing assets such as brands—but the sums involved are typically very small, as most movement in these items occurs when both seller and buyer are of the same nationality.
   The following conditions must be true:
  
  BULLET::::- The major factors of production, namely labor and capital, are not available in the same proportion in both countries.
  
  BULLET::::- The two goods produced either require more capital or more labor.
  
  BULLET::::- Labor and capital do not move between the two countries.
  
  BULLET::::- There are no costs associated with transporting the goods between countries.
  
  BULLET::::- The citizens of the two trading countries have the same needs.
   BULLET::::- to avoid paying higher foreign exchange rates. (Funds sent through traditional transfers are converted to the currency of the recipient’s country; the fee charged for exchange rate conversion is set by the institution. IVTS operators, who speculate in currency exchange rates, charge lower fees);
  
  BULLET::::- to avoid paying transfer taxes;
  
  BULLET::::- to ensure anonymity since there may be minimal or no records maintained; or
  
  BULLET::::- to avoid mandatory reporting of large transactions from financial institutions to governments.
   One method of setting up a counterpart fund is to have businesses in the country receiving aid that want to import a commodity place an order with their government and pays for the import in their local currency. The government then uses some of their foreign assistance, still in the foreign currency, to pay for the goods. This makes importing far easier as the unstable currencies in developing nations are often of little international value. Agreements are also usually signed so that these imports can only come from the nation that gave the aid, benefiting the donor's export industry. Another method is for goods to be donated to a developing nation's government and for them to then sell the goods to the population, and use the proceeds to set up a fund.
   BULLET::::4. Gold coins are minted at a fixed parity in each country
  
  BULLET::::5. There are no banks and no capital flows
   A product that is transferred or sold from a party in one country to a party in another country is an export from the originating country, and an import to the country receiving that product. Imports and exports are accounted for in a country's current account in the balance of payments.
  
  Trading globally gives consumers and countries the opportunity to be exposed to new markets and products. Almost every kind of product can be found in the international market: food, clothes, spare parts, oil, jewellery, wine, stocks, currencies, and water. Services are also traded: tourism, banking, consulting, and transportation
   BULLET::::- Current transfers: Current transfers take place when a certain foreign country simply provides currency to another country with nothing received as a return. Typically, such transfers are done in the form of donations, aids, or official assistance.
  
  A country's current account can be calculated by the following formula:
  
  formula_1
  
  Where CA is the current account, X and M are respectively the export and import of goods and services, NY the net income from abroad, and NCT the net current transfers.
  
  Section::::Reducing current account deficits.
   where formula_3 is import price, formula_4 is the exchange rate, formula_5 is marginal costs, formula_6 is demand, and formula_7 denotes a first difference. The exchange-rate pass-through after formula_8 periods is 
  
  Campa and Goldberg (2005) estimated the long-run exchange-rate pass-through to import prices for the following countries, averaging across the countries from which imports came:
   5. Retention
  
  6. Labour
  
  7. ready for basic analysis
  
  BULLET::::- Export
  
  BULLET::::- Import
  
  BULLET::::- Collection and discounting of bills: It is a major trade service offered by the Banks. The Seller's Bank collects the payment proceeds on behalf of the Seller, from the Buyer or Buyer's Bank, for the goods sold by the Seller to the Buyer as per the agreement made between the Seller and the Buyer.
   The most common type of forward transaction is the foreign exchange swap. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. These are not standardized contracts and are not traded through an exchange. A deposit is often required in order to hold the position open until the transaction is completed.
  
  Section::::Financial instruments.:Futures.
  
  Futures are standardized forward contracts and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months. Futures contracts are usually inclusive of any interest amounts.
   Money transfer companies/remittance companies perform high-volume low-value transfers generally by economic migrants back to their home country. In 2007, the Aite Group estimated that there were $369 billion of remittances (an increase of 8% on the previous year). The four largest foreign markets (India, China, Mexico, and the Philippines) receive $95 billion. The largest and best-known provider is Western Union with 345,000 agents globally, followed by UAE Exchange. Bureaux de change or currency transfer companies provide low-value foreign exchange services for travelers. These are typically located at airports and stations or at tourist locations and allow physical notes to be exchanged from one currency to another. They access foreign exchange markets via banks or non-bank foreign exchange companies.
   Seemingly, the most obvious buyers and sellers of currency are importers and exporters of goods. While this may have been true in the distant past, when international trade created the demand for currency markets, importers and exporters now represent only 1/32 of foreign exchange dealing, according to the Bank for International Settlements.
  
  The picture of foreign currency transactions today shows:
  
  BULLET::::- Banks/Institutions
  
  BULLET::::- Speculators
  
  BULLET::::- Government spending (for example, military bases abroad)
  
  BULLET::::- Importers/Exporters
  
  BULLET::::- Tourists
  
  Section::::Analysis of financial markets.
   An oil company is a customer of ING in Amsterdam, and sells a cargo of 500,000 barrels of oil for $40 million to a trading company who is a customer of Credit Suisse. ING Amsterdam holds its dollars at Bank of America and Credit Suisse holds its dollars at The Bank of New York Mellon. When the Swiss trader instructs its bank to pay the money, Credit Suisse debts the trader's account and transfers dollars from its account at BONY to ING's account at BofA. Then, ING credits the dollars to the oil company's dollar account in Amsterdam.
  
  Section::::See also.
   Section::::Ecuador-Mexico trade.
   Multilateral exchange
  
  A multilateral exchange is a transaction, or forum for transactions, which involve more than two parties.
  
  For example, Alice gives Bob an apple in exchange for an orange, that is a bilateral exchange.
  
  A multilateral exchange would involve a third party, for example:
  
  Alice gives an apple to Bob who gives an orange to Charles, who gives a pear to Alice.
  
  In the real world, such transactions are spread over time, and involved items of different values, and involve many more parties. A special type of accounting is used for this, called mutual credit, or credit clearing.
  
  Section::::Accounting.
   Section::::Types of foreign exchange risk.:Transaction risk.
  
  Companies will often participate in a transaction involving more than one currency. In order to meet the legal and accounting standards of processing these transactions, companies have to translate foreign currencies involved into their domestic currency. A firm has "transaction risk" whenever it has contractual cash flows (receivables and payables) whose values are subject to unanticipated changes in exchange rates due to a contract being denominated in a foreign currency. To realize the domestic value of its foreign-denominated cash flows, the firm must exchange, or translate, the foreign currency for domestic.
   Most of the remittances happen by the conventional channel of agents, like Western Union, Ria Money Transfer, MoneyGram, UAE Exchange, and similar. However, with the increasing relevance and reach of the Internet, online and mobile phone money transfers have grown significantly.
  
  Section::::By region.:Asia.:Jordan.
  