Foreign Exchange Transaction Law & Legal Definition. Foreign exchange transaction is a type of currency transaction that involves two countries. Generally, a foreign exchange transaction involves conversion of currency of one country with that of another.The conversion of currency in a foreign exchange transaction can be performed through : 1. buying or selling of goods and services on credit;oreign Exchange Transaction Law & Legal Definition. Foreign exchange transaction is a type of currency transaction that involves two countries. Generally, a foreign exchange transaction involves conversion of currency of one country with that of another.