Question : What is the term used to describe the difference between the buying and selling price of a currency in the foreign exchange market?
Option 1: Exchange rate spread
Option 2: Exchange rate volatility
Option 3: Exchange rate risk
Option 4: Exchange rate peg
Correct Answer: Exchange rate spread
Solution : The correct answer is a) Exchange rate spread
The term used to describe the difference between the buying and selling price of a currency in the foreign exchange market is the exchange rate spread. Also known as the bid-ask spread, it represents the gap or margin between the price at which market participants can buy a currency (the ask price) and the price at which they can sell it (the bid price).
The bid-ask spread is influenced by various factors, including market liquidity, transaction costs, and market participants' supply and demand dynamics. Typically, market makers, such as banks and currency dealers, offer a higher buying price (ask price) and a lower selling price (bid price) to generate profits from the spread.
The exchange rate spread is an important consideration for participants in the foreign exchange market, as it affects the cost of trading currencies. A narrower spread indicates lower transaction costs, while a wider spread can increase the cost of buying or selling currencies.
Question : The difference between the buying and selling price of a currency in the foreign exchange market is known as the ________.
Option 1: exchange rate spread
Option 2: bid-ask spread
Option 3: spot rate spread
Option 4: forward rate spread
Question : What is the term used to describe the difference between the buying and selling prices of a currency in the foreign exchange market?
Option 1: Spread
Option 2: Margin
Option 3: Pip
Option 4: Yield
Question : What is the term used to describe the rate at which a central bank buys or sells its own currency in the foreign exchange market?
Option 1: Spot exchange rate
Option 2: Nominal exchange rate
Option 3: Intervention exchange rate
Option 4: Forward exchange rate
Question : What is the term used to describe the risk that changes in exchange rates will negatively impact the value of investments denominated in foreign currencies?
Option 1: Currency risk
Option 2: Interest rate risk
Option 3: Market risk
Option 4: Credit risk
Question : What is the term used to describe the risk that changes in exchange rates will impact the ability of a borrower to repay a foreign currency-denominated debt?
Option 1: Credit risk
Option 3: Sovereign risk
Option 4: Currency risk
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