The formation of exchange rate is the premise of foreign exchange transactions. Exchange rate is the exchange rate between one currency and another, indicating the number of units that one currency can be converted into another currency. The formation of exchange rate is influenced by many factors, including the country's economic situation, monetary policy, trade situation, interest rate spread, political stability and so on. Changes in these factors will lead to exchange rate fluctuations and change the exchange rate between different currencies. Foreign exchange transactions refer to transactions between different currencies in the exchange rate market. Both parties to the transaction can exchange money through the foreign exchange market to meet the needs of transnational trade, investment or tourism. In foreign exchange transactions, exchange rate fluctuations are the basis of transactions, and investors can use exchange rate fluctuations to gain income or hedge risks. Therefore, the formation of exchange rate is the premise of foreign exchange trading, and the activities of foreign exchange trading will also affect the fluctuation of exchange rate.