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Say for example I sell ZAR and buy USD. What happens behind the scenes so that the local ZAR bank is able to deposit USD into my account?

  1. Does the bank require some sort of USD cash reserve?
  2. How do the banks interact/negotiate with each other?
  3. What if the bank selling ZAR cannot find a bank/trader selling USD who wants ZAR?
  4. If the bank does find a source of USD, is any physical money like notes/bills/gold ever moved from one bank to another to settle the account?
  5. How are these transactions regulated or monitored to avoid fraud?
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  • $\begingroup$ Check Piet Sercu: "International Finance", chapter 2: press.princeton.edu/chapters/s2_8907.pdf I think it answers most (if not all) of your questions. $\endgroup$ – Konstantinos Jun 9 '15 at 16:23
  • $\begingroup$ In reference to number 3 if buyers can't be found then the price decreases until it entices a buyer (regular old supply and demand holds for currency). $\endgroup$ – Tyler Wyckoff Jun 10 '15 at 2:56

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