Forex & Currency Markets Flashcards

What does the 'spread' represent in a forex quote?

Answer: The difference between the bid and ask price

The spread is the difference between the bid (selling) price and the ask (buying) price, representing the broker's transaction cost.

Which of the following best describes a 'carry trade' in forex?

Answer: Borrowing in a low-interest-rate currency to invest in a high-interest-rate currency

A carry trade involves borrowing in a low-yielding currency and investing in a higher-yielding one to profit from the interest rate differential.

What is the role of the Bank for International Settlements (BIS) in forex markets?

Answer: It acts as a central bank for central banks and publishes forex market surveys

The BIS serves as a bank for central banks, fosters monetary cooperation, and publishes the authoritative triennial survey of global forex market turnover.

If EUR/USD is quoted at 1.1050/1.1052, what is the cost to buy €100,000?

Answer: $110,520

To buy euros you pay the ask price of 1.1052, so €100,000 × 1.1052 = $110,520.

In forex terminology, what is a 'cross pair'?

Answer: A currency pair that does not include the US dollar

A cross pair (or cross rate) is any currency pair that does not involve the US dollar, such as EUR/GBP or AUD/JPY.

What triggers a 'margin call' in a leveraged forex account?

Answer: The account equity falls below the required margin level

A margin call occurs when account equity drops below the broker's required margin threshold, requiring the trader to deposit funds or close positions.

Which session overlap is historically associated with the highest forex trading volume?

Answer: London–New York overlap

The London–New York overlap (approximately 8 AM–12 PM EST) accounts for the largest share of daily forex volume due to simultaneous activity in the two biggest trading centers.