Forex Trading Currency Pairs 3 — Questions and Answers
Question 1: Which currency pair typically has the lowest spread in the forex market?
- USD/TRY
- GBP/JPY
- EUR/USD (Correct answer)
- EUR/CHF
Correct answer: EUR/USD
EUR/USD is the most traded pair in the world, resulting in the highest liquidity and typically the tightest spreads.
Question 2: If EUR/GBP is 0.8600 and EUR/USD is 1.2000, what is the implied GBP/USD rate?
- 0.7167
- 1.3953 (Correct answer)
- 1.0320
- 0.9655
Correct answer: 1.3953
GBP/USD = EUR/USD ÷ EUR/GBP = 1.2000 ÷ 0.8600 ≈ 1.3953.
Question 3: What does 'going long' on GBP/USD mean?
- Selling GBP and buying USD
- Buying GBP and selling USD (Correct answer)
- Holding the pair overnight
- Taking a neutral position
Correct answer: Buying GBP and selling USD
Going long on GBP/USD means buying the base currency (GBP) while simultaneously selling the quote currency (USD).
Question 4: Which of the following best describes a 'major' currency pair?
- Any pair with high daily volume
- A pair where both currencies are from G7 nations
- A pair that includes the US Dollar and a major global currency (Correct answer)
- Pairs traded only during the London session
Correct answer: A pair that includes the US Dollar and a major global currency
Major pairs are defined as currency pairs that include the US Dollar paired with another widely traded currency like EUR, GBP, JPY, or CHF.
Question 5: Why does GBP/JPY tend to have higher volatility than EUR/USD?
- It is traded less frequently, so prices move more
- GBP and JPY are both high-volatility currencies that amplify movements (Correct answer)
- Central banks intervene less in GBP/JPY
- It has a wider pip value
Correct answer: GBP and JPY are both high-volatility currencies that amplify movements
GBP/JPY combines two independently volatile currencies, and their compounded fluctuations result in higher overall pair volatility.
Question 6: In Forex, what is a 'pip' in the context of most currency pairs?
- The first decimal place of the exchange rate
- The fourth decimal place of the exchange rate (Correct answer)
- The spread between two currency pairs
- A unit of lot size
Correct answer: The fourth decimal place of the exchange rate
For most currency pairs, a pip is the fourth decimal place (0.0001), representing the smallest standard price movement.
Question 7: Which scenario would most likely cause USD/JPY to rise sharply?
- Japan raises interest rates unexpectedly
- The US Federal Reserve signals rate cuts
- Risk-off sentiment drives demand for JPY
- Strong US economic data boosts USD (Correct answer)
Correct answer: Strong US economic data boosts USD
Strong US economic data increases demand for USD, causing USD/JPY to rise as more JPY is needed per dollar.
Forex Trading Currency Pairs 3
Which currency pair typically has the lowest spread in the forex market?