With the influence of globalization every country certainly can not meet all of its own needs. each country must be ready to open up with other countries to cooperate with overseas communities. Role of overseas community is what causes the circular flow of economic activity are better able to describe the economic model which conforms to reality.

In the four sectors of the economy there will be two groups of economic actors, namely the community of foreign and domestic society. On the foreign community there are households, firms, and governments. Likewise, the economic actors in the country. They interact with each other to form a system of rotation of goods and services, factors of production, and money between economic actors in domestic and foreign economic actors.

These interactions can occur at the goods market and factor markets. In the market of goods occurs the flow of goods and services in the export and import the results of production. Exports of goods and services causing no flow of foreign exchange (foreign currency) into the country. Vice versa, with imports means a foreign country to send overseas. Meanwhile, in the market of production factors are the flow of factors of production and remuneration in the form of foreign exchange flows.

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Understanding foreign exchange
In interstate commerce payments received use foreign currency, and vice versa so that in conducting interstate commerce is known terms of foreign exchange. Foreign exchange is the means of payment abroad or all of the goods received in the international community as a means of payment.
To facilitate a transaction, each country should mengkurskan its currency against foreign currencies that are considered stable. Countries that have a lot of foreign exchange will easily pay purposes and the costs abroad.

Function of foreign exchange
Foreign exchange is a tangible means of interstate payments of foreign exchange, foreign drafts, foreign accounts receivable, and gold. Foreign exchange functions include:
a. foreign trade financing
b. pay foreign debt
c. finance the construction and maintenance of foreign relations
d. overcome the economic difficulties the country in relation to payments abroad
e. facilitate transactions in interstate commerce.

Sources of foreign exchange earnings
Foreign exchange can be obtained from the following sources:
a. Exports of goods
exports of goods will result in payment from the importing country in the form of foreign exchange. More and more goods are exported, foreign-owned exporting countries more and more.

b. Exports of services
when a country held a service for another country, the country will earn foreign exchange.

c. Tourism
foreign tourists visiting Indonesia was not able to use the money in Indonesia, they have to exchange money with the currency. Foreign currency which has been exchanged with a foreign exchange for Indonesia rupiah.

d. Gifts (grants) and foreign aid
gifts and foreign aid in the form of goods is an additional indirect foreign exchange, such assistance could reduce spending on foreign goods. If assistance in the form of direct foreign currency exchange we get a lot.

e. Foreign loans
source of foreign exchange can be obtained through loans from abroad. The loan can be used to pay for imported goods and all foreign financing needs.

a. consumption motives for prestige or self-esteem
usually goods that are consumed have a high price (conspicuous consumption). Why is it done? Because there is a pleasure to feel alone when making expensive purchases, such as diamonds.

b. expectations of future price changes
good wishes mean optimistic and pessimistic on the contrary means, if one is optimistic it will be more goods are demanded from a previous state and vice versa, this means there is an element of speculation.

c. price-quality relationship
if high prices are assumed to be better quality than cheaper then the law of demand does not apply.

d. existence of inferior goods
Inferior goods are goods whose demand is much less when the price drops. Inferior goods demand curve for the market demand is always negative while for individual demand was positive for inferior goods between individual belief that one is different from other individuals.

Schedule / list demand / supply is a table showing the relationship between the number of items requested / offered to the market price at a certain time. While the curve of the demand / supply is a graph that connects between a certain price level with the quantity of goods demanded / offered at a specific time period.

The demand curve describes the functional relationship between price and quantity of goods demanded, this curve along the top left to bottom right and has a slope / negative slope which means the variables work in the opposite direction. If the price of goods rises, the total demand for goods falls and vice versa. Why did it happen? This was caused by the existence of income effects and substitution effects. If the price of goods rises, the real revenue be decreased and consequently the amount of the requested goods also fell. While the substitution effect caused by the slope / negative slope of the demand curve itself. For example, coffee is considered as a good substitute of tea then the actual substitution effect is always positive, meaning that if the price of tea increased the amount of demand for coffee will increase (during the coffee price unchanged), and vice versa.

The supply curve illustrates the functional relationship between price and quantity of goods offered, this curve along the top right to bottom left and has a slope / positive slope which means the variables work in the same direction. If the price rises then the amount of supply of goods increases and vice versa. Why does it happen? Because the main purpose of the entrepreneur or trader is to profit so it is more profitable to sell more goods at high prices and vice versa sell fewer goods when the price falls.

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