Generally speaking, foreign exchange is a collective definition for financial instruments allowing a particular country to calculate how much it owes to other countries. European currency, Euro, the country used to settle the amounts that were owed to its trade partners in foreign exchange, most commonly in US dollars. On the other hand, when a country imports goods and services, the government may use foreign exchange to pay for these imports. As a result of international sanctions, Zimbabwe foreign exchange market hyperinflation, which practically killed the Zimbodollar.
At one point, Zimbabweans had to pay for bus tickets with trillions of their national currency. US dollar, the South African rand, and the Botswana pula. To be able to react adequately to internal or external factors threatening the stability of the national currency, the national banks hold foreign exchange reserves. Essentially, the central banks hold gold reserves to guarantee the value of their national currencies.